31. Other risk controls

Question 1

Other risk controls

Answer 1

1. Diversification
2. Underwriting at proposal stage
3. Claims control systems
4. Management control systems

Question 2

Diversification

Answer 2

Diversify within:

• Business lines
• Geographical areas of business
• Providers of reinsurance
• Investments: asset classes
• Investments: assets held within a class

Companies can also use reciprocal quota share reinsurance. Each company will concentrate its marketing, sales and admin effort on its chosen market while writing a wide range of risks

Question 3

Problems with diversifying across business lines

Answer 3

May be expensive due to admin systems, staff training etc.

Question 4

Underwriting

Answer 4

Assessment of potential risk so each ome is charged appropriate premium

Question 5

Underwriting as risk management tool

Answer 5

• Protect from anti-selection
• Classify risks into homogenous pools for which std premium is charged for fair treatment of risks
• Substandard risks: will identify most suitable approach and any special terms
• Ensures actual claim experience doesnt deviate too much from expected
• Financial underwriting reduces risk of over-insurance for large proposals