34. Further risk management

Question 1

How can a company control its expenses?

Answer 1

• Monitor expenses regularly
• Monitor competitors’ expense rations
• Have monitoring procedures to pick up upward slippage in commission
• Control staff and salaries to be consistent with work required
• Attempt to sell more business without increasing overhead
• Improve operational efficiency e.g. automation
• Increase premium loadings/charges (if still competitive)

Question 2

How can insurer improve persistency?

Answer 2

• Change distribution channel
• Set up alt commission structures encouraging persistency
• Improve sales method to meet customer needs
• Restrict premium payment methods e.g. debit orders
• Establish customer service to target lapsers and try to reinstate
• Train staff to improve customer service
• Change product design to enhance retention e.g. loyalrt vonuses
• Reprice or redesign to align with competitors
• Target new target market
• Ensure appropriate selling is occuring to reduce misselling

Question 3

How can options be controlled or managed?

Answer 3

• Increase charges/loadings
• Change benefits or terms
• Remove from new business
  How to mitigate option costs:

Question 4

How to mitigate option costs:

Answer 4

• Appropriate reserving
• Strict interpretation of terms
• Use derivatives
• Buy back from ph

Question 5

Define valuation strain:

Answer 5

• Arises when policy is sold because combination of supervisory reserves and solvency capital requirements tends to place higher value on net liabilities than the pricing basis.
• Initial reserves and required solvency capital exceed asset shares when policy issued.