CH 29 (WM) Flashcards
List the different Risk Management Techniques. [2]
Reinsurance
UW
Claims Management
Data checks
Product Design
ALM
Managing the Distribution Channel
Managing the Customer Relationship
Managing other counterparties
ERM
Reimbursement methods (max of 8)
Define the term “underwriting”. [1.25]
It is the process of consideration of an insurance risk.✓✓
This includes assessing whether the risk is acceptable✓, and if so, setting the appropriate premium, together with the T&Cs of cover.✓✓
List the different levels of medical underwriting. [0.75]
- Full medical underwriting
- Medical history disregarded
- Moratorium underwriting
Describe the “full medical underwriting” approach. [3.75]
It is the most onerous and detailed form of UW.✓✓
It is relatively costly and time-consuming✓, but gives the insurer the greatest opportunity to learn about the state of the health of the individual.✓✓
Here the proposer is medically UW at the time of the application✓ and information on medical history (and possible other evidence)✓✓ gathered. Some applications will be accepted on standard terms while others have special terms imposed✓✓, eg any pre-existing conditions may be specifically excluded from PMI cover.✓✓
“FMU” is arguably clearer from the PHs point of view, since they know from the outset what is/is not covered by their policy.✓✓
Tip: For all the different types of UW states whether UW happens at application stage.
Also say something about how pre-ex conditions are treated.
Describe the “medical history disregarded” (MHD) approach. [3]
It is at the other extreme of “FMU”. ✓✓
No regard is paid to the applicant’s past medical history✓✓,and no exclusions are applied for pre-existing medical conditions.✓✓
While less costly and time-consuming ito process,✓✓ this creates the greatest potential for anti-selection and so the product would have to be priced accordingly.✓✓
It is most commonly used for group PMI business, or it may be offered to individuals transferring from a group to an individual PMI policy.✓✓
Tip: It is the other extreme…No regard is paid…and no exclusions are applied.
Describe the “moratorium underwriting” approach. [2]
No formal UW is carried out at the point of acceptance, but past medical history is examined at the time of claim.✓✓
The applicant can claim for any condition other than those pre-existing in a defined period before acceptance, often 5 years.✓✓
This exclusion is waived after a period of time, usually 2 or 3 years, if the PH receives no further treatment for the condition.✓✓
If the PH does receive treatment for pre-existing conditions, then the moratorium period is restarted.✓✓
Describe the two defined periods that are relevant to the moratorium UW approach. [2.25]
- The applicant can claim for any condition other than those pre-existing in a defined period before acceptance.✓✓ This is effectively an exclusion of all conditions that have received treatment in a defined period prior to application to the insurer✓✓, usually 4 or 5 years.✓
- This exclusion is waived after a period of time if the policyholder receives no further treatment for the condition.✓✓ It is this second defined period that gives rise to the name moratorium, and it is usually set at two or three years.✓✓
a) Which policies are suitable for moratorium UW?
b) What are the advantages and disadvantages of moratorium UW? [3.25]
PMI because of the ST nature of the policy✓✓ (typically 1 year at a time)✓, and may also be used for group CI insurance.✓
Advantage –
Due to marketing considerations the insurer can encourage purchase by offering the prospect of immediate cover subject only to a total exclusions of all pre-existing conditions.✓✓
Therefore, relative to “FMU”✓, the moratorium process can encourage sales and reduce NB costs.✓✓
Disadvantage – the PH cannot be sure for what illnesses or treatments they are insured✓✓, unless they are sufficiently medically aware to understand the connectivity of medical conditions.✓✓
Help to comply with regulations if medical UW is not permitted.
Describe the sources of medical evidence. [4]
- Questions answered on the proposal form completed by the applicant.✓✓
- Reports from medical doctors that the applicant has consulted✓✓, eg a PMAR✓.
- Medical examination carried out on the applicant at the request of the insurer✓✓, eg an exam carried out by a doctor or nurse appointed by the insurer✓✓.
- Specialist medical test on the applicant✓✓, eg an HIV test✓.
The last three sources will involve an additional expense for the insurer.✓✓
Hence the extent that they are used in a particular case depends on the extent of the loss that the insurer will make if it mis-estimates the state of health of the applicant.✓✓
Outline how the proposal form is used as a source of information during the underwriting process. [1.75]
- The proposal form will ask for demographic information✓✓, e.g. age and gender.✓
- and a series of questions about the applicant’s medical history.✓✓
- The questions must be factual and not require technical knowledge.✓✓
Besides the state of health of the applicant list the other factors that can affect the mortality or sickness risk of the applicant. [1]
- the applicant’s occupation✓
- the leisure pursuits of the applicant✓
- the applicant’s normal country of residence✓
- overseas travel✓
Acronym: COOL
Describe the process of interpretation of evidence. [2.25]
The evidence obtained needs to be interpreted i.t.o. the standard level of health required by the insurer.✓✓
This will be done by specialist underwriters employed by the insurer✓✓, who will make use of:
any doctors specifically employed by the insurer for this purpose✓✓
UW manuals✓ prepared internally, or by the major reinsurance companies✓✓.
Describe the different types of decisions available to the insurer when an application is deemed to be a higher risk than that assumed in the pricing assumptions. [3]
- Offer higher premium or a lower benefit.✓✓
- Can be postponed (if the period of higher risk is deemed temporary).✓✓
- Can be declined (if additional risk is deemed to be too high).✓✓
- Offer a different type of policy (less risky).✓✓
- Can be offered to a reinsurer facultatively with zero retention.✓✓
- Can have certain specific causes and/or conditions excluded.✓✓
Additional point: Can also make a strategic decision to accept at standard rates.
Explain the difference between a moratorium and an exclusion. [2.25]
Moratorium – an initial period✓ of blanket exclusion for any pre-existing condition✓✓ , the proposer NOT being medically underwritten unless a claim is made.✓✓
Exclusion – the proposer is medically underwritten✓, and the policy when issued is endorsed so that any condition from which the proposer has suffered (and any related condition)✓✓ are specifically excluded.✓
Describe the ways in which medical underwriting can manage risk. [4.75]
It can protect an insurance company from anti-selection ✓✓ and in particular from lives whose health is so seriously impaired ✓ that it is impossible to assess the risk accurately.✓ Anti-selection can lead to both higher than expected frequency of claims and average cost of claims.✓✓
The medical UW process enables insurers to identify lives with a substandard health risk for whom special terms need to be quoted.✓✓ A company may, however, aim to write a large proportion of the business that it accepts at its standard premium rates.✓✓
For the substandard risks✓, the medical UW process will identify the most suitable approach and premium level for the special terms to be quoted.✓✓
Adequate risk classification within the UW process will help to ensure that all risks are rated fairly.✓✓
Medical UW will help in ensuring that actual morbidity experience does not depart too far from pricing assumptions.✓✓
For larger proposals✓, financial UW reduces the risk from over-insurance✓✓
Tip: AS is a 1 full mark.
