Ch 6 Inaurance Provision

Question 1

What are the four most basic financial risks

Answer 1

Risk of losing family members and their contribution to the family income
Risk of loss or damage to property
Risk of being unable to work and as a result have no money to support oneself
Risk of illness and costs associated with

Question 2

What is life insurance

Answer 2

Policies concern the event of death and pay out a sum on the event of death to the family

Question 3

What is a disability insurance

Answer 3

Insurance for people at risk of becoming disabled. Often paid out in an annuity form

Question 4

What is general insurance

Answer 4

Also known as short term insurance, it has contract sizes of around one year and is up for renewal. Normally just everyday objects and possession being insured

Question 5

Explain pension funds

Answer 5

To help people save for retirement by putting aside monthly payments over a working life

Question 6

Explain medical aid schemes

Answer 6

Covering people against the risk of illness and injury.

Question 7

Explain reinsurance

Answer 7

Reinsurance is when big international corporations insure insurance companies against catastrophe which could result in bad financial situations

Question 8

What are the main requirements to be an insurance provider

Answer 8

Sufficient capital to be able to meet claims as they arrive
Sufficient expertise to be able to design and administer insurance policies
Distribution channels for insurance sales
Willingness to comply with specific regulations pertaining to insurers
Large number of clients

Question 9

Who are the main providers of insurance

Answer 9

Insurance companies and the state

Question 10

What are insurance companies

Answer 10

Sell insurance products, collect premiums and payout claims

Question 11

What is a mutual company

Answer 11

Company owned by its policyholders in a way a risk pool

Profit is distributed to policyholders in the form of bonuses

Actuaries calculate the recommended bonuses

Question 12

What is proprietary insurance company

Answer 12

Normal company owned by shareholders (risk transfer). Profits distributed in dividends.

Question 13

How do the state contribute to people against risky events

Answer 13

Social grants
Contributory pensions in retirement
Public healthcare
Unemployment benefits

Question 14

What are the roles of actuaries and quants

Answer 14

Pricing
Underwriting
Contract design
Reinsurance
Prudent reserving and capital management
Asset liability management
Monitoring
Expense budgeting

Question 15

What is pricing

Answer 15

Calculating the amount that clients pay for insurance products they buy (premiums).

Question 16

What is underwriting

Answer 16

Assessment of medical, financial and other relevant information in order to make a judgement as to whether the applicant should be accepted for cover and on what terms

Question 17

What are the options after underwriting

Answer 17

Accept
Accept on special terms
Delay
Reject

Question 18

Explain contract design

Answer 18

Risk management features built into policy contracts directly

Question 19

What is reserving

Answer 19

Calculating the value of the future claim and reserve capital in order to pay for such claim in the future

Question 20

What is asset liability management

Answer 20

Managing the asset portfolio in order as closely as possible to liabilities to minimise the risk of assets having lower value .

Question 21

Explain monitoring

Answer 21

Monitoring the experience and new projects to see if they can continue in the operations of the company

Question 22

What is expense budgeting

Answer 22

In order to be successful, expenses should be budgeted properly through past experience and projection of future expenses