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IF 3 > CH 9 > Flashcards

CH 9 Flashcards

1
Q

In insurance company decisions are made at what three different levels

A
  • Board level decisions
  • Manager Decisions
  • Operational decisions
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2
Q

Board level decisions deal with

A

directors are concerned with group performance/profitability, control of downside risks(through catastrophe re insurance and board strategy implementation

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3
Q

Manager level decision is concerned with

A

They have a responsibility to different divisions within the b’ness and thus require information that is specific to their area of responsibility

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4
Q

Operational level decision is concerned with

A

the issues will surround the implementation on the day to day basis of underwriting practices and procedures established by the management team

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5
Q

Operational level data will focus on

A

Customer service levels, claims handling accuracy,settlement,documentation and credit control

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6
Q

Board level reporting deals with issues concerning

A
  • growth
  • loss ration
  • underwriting margin/profit
  • business mix
  • solvency
  • exposure accumulation
  • competitive positioning
  • return on capital
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7
Q

Growth on Board level reporting deals with

A

Gross and net, how the premium is growing, both in total and net of reinsurance

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8
Q

Loss ration of Board level reporting deals with

A

Gross and net, the relationship between claims and premium income

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9
Q

business mix of Board level reporting deals with

A

It deals with distribution channels, class, geographically

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10
Q

return on capital of Board level reporting deals with

A

They check whether the profit expressed as percentage of the capital

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11
Q

solvency of Board level reporting deals with

A

the relationship between the capital and exposure to risk, expressed as premium income

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12
Q

How frequent is reporting to underwriting managers done

A

Generally will be monthly

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13
Q

What is the key consideration to reporting to underwriting managers

A

Trends over time

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14
Q

How will the trends over time data be presented to underwriting managerss

A

It will be presented geographically

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15
Q

Reporting to underwriting managers will concern which issues

A
  • Product growth
  • Retention rate(how much b’ness is kept)
  • Flow analysis of new b’ness
  • Lost b’ness analysis
  • loss ratio
  • claims trend
  • underlying claims
  • large losses
  • weather related losses
  • reserve consistency
  • rate changes and increase in end price to customer
  • commission rate
  • expense ratio
  • exposure accumulation
  • market share and competitor activity
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16
Q

Operational data reporting requires to be reported how many times

A

It requires monthly and often weekly reporting by intermediary,policy class or by underwriter

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17
Q

Operational data reporting provides specific information including

A

-loss ratio claims statistics
-new business
-retention
-increase in rate
credit control
-compliance with contract certainty standards

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18
Q

What are the “cost of production” for an insurer

A

Claims

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19
Q

Why is the accurate analysis of previous claim history significant

A

It is crucial to the profitability of an insurer underwriting account

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20
Q

Analyzing claims information enables the underwriting manager to do what

A

It provides information to the underwriting manager needed to ensure predictions of future loss pattern are made and in return a premium that will cover the anticipated future claims costs

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21
Q

When claimants are involved in a lfie changing injuries how do they receive their payments

A

They are given a lump sum payment from insurers. The amount they receive is adjusted based on the interest rate they can reasonably expect to achieve if they choose to invest the lump sum

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22
Q

What was the discount rate offered in the lump sum payments for injuries

A

In 2001 it was 2.5% but due in 2017 changed to -0.75% this was a loading and by 2019 loading of -0.25%

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23
Q

why such a change in discount rate for lump sum payments for injuries

A

This loading reflects the recent times and the economy. The investment returns have not been keeping pace with inflation thus reducing the value of lump-sum payment awarded in real terms

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24
Q

This change in discount rate for lump sum payment applies to which claims

A

It applies to existing claim,outstanding claims and new claims but doesn’t apply to claims that have been settled

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25
Q

This change in discount rate for lump sum payment applies to which clients

A

Personal lines and Commercial Insurance for personal injury

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26
Q

The Lord Chancellor stated how many times will the discount rate be reviewed

A

It will be reviewed every three years by an independent expert panels chaired by the Government Actuary

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27
Q

Risk is usually assessed in terms of

A
  • Frequency

- Severity

28
Q

What does frequency refer to

A

How often it happens

29
Q

What does Severity refer to

A

When does it happen and how serious will it be

30
Q

High frequency and low severity means

A

There will be a large number of small losses and relatively few large losses

31
Q

Example of High frequency and low severity means

A

Theft of mobile phones/ Windscreen Damage on Motor vehicle

32
Q

High Frequency and Low Severity costs are referred to as

A

They are referred to as underlying claim costs, as they are relatively predictable

33
Q

Low Frequency and high severity refer to

A

This refers to fewer incidents that when they occur will result to be far more serous

34
Q

Example of Low Frequency and high severity

A

-Oil-carrying sea vessel spill

35
Q

What help reduce low frequency and high severity incidents

A

Technological advances help reduce the frequency of these accidents

36
Q

How do insurers protect themselves against the volatility of low frequency and high severity incidents

A

Through reinsurance

37
Q

Reinsurance will apply to

A
  • specific large losses
  • the effects of an accumulation of events over a specific period of time
  • an accumulation of exposure which creates large losses for insurer following a single event
38
Q

What are some of the perils that could give rise to an accumulation of risk for propery insurer

A
  • fire
  • -insuring a number of insures occupying the same premises
  • insuring both the landlord and tenant of the same premises-
  • storm and flood
39
Q

What is the claims loss ratio

A

This is the ratio of claims to premiums

40
Q

how is claims loss ratio calculated

A

Dividing the amount of claims incurred by the amount of premium received

41
Q

Why is the claims loss ratio important

A

It’s very useful indicators of how account is running

42
Q

Earned Loss ratio is adjusted at account level to reflect

A

It reflect reinurance spend and IBNR (claims incurred but not reported) issues

43
Q

When measuring Earn Loss ratio at policy and broker level what is not taken into account

A

IBNR and reinsurance isn’t taken into account

44
Q

When are IBNR claims considered

A

As they are considered to be a funding issue at account level.They are considered only when analyzing the bigger picture and future prospects if the account.

45
Q

How is Outstanding loss ration extracted

A

It’s extracted directly from the computer system/claims files and doesn’t recognize the fact that 100% premium hasn’t been earned

46
Q

In Outstanding claims ratio how are claims compared

A

They are compared against booked premium

47
Q

Claims loss ratios has two main variations which are

A

Earned loss ratio

Commission loss ratio

48
Q

What are the main types of period monitoring

A
  • policy year
  • underwriting year
  • calendar year
  • accounting year
49
Q

When is policy year suitable

A

It’s suitable for addressing the performance of individual policies

50
Q

At what level is underwriting year used

A

IT’s used at account level

51
Q

Individual data are being grouped into underwriting years based on

A

It is based on the year in which the policy incepts/renew

52
Q

For Calendar year what type of monitoring is done

A

Monitoring premiums and claims from individual policies are allocated to a calender year

53
Q

For Calendar year how are claims allocated

A

They are allocated to the relevant year on the basis of the date of loss

54
Q

In a calendar year how are premiums allocated

A

They are allocated according to the portion of policy premium that is earned during the relevant calendar year

55
Q

How does Accounting year work

A

Similar to calendar but

  • The period depends on the financial year
    i. e year could be 01/10/2020 - 30/09/2021 and not 01/01/2020 - 31/12/2020
  • Prospective premium and claims developments from the accounting year end have to be estimated
56
Q

When is accounting year calendar mostly used

A

It should only be used to support decision making as last resort

57
Q

Why are information on accounting year used as a last resort

A

This is because they are estimates thus making it harder to detect trends

58
Q

Earning Loss ratio

A

The most accurate measure of performance at a policy level

59
Q

The identification of trends is key consideration for underwriting managers in what ways

A

It assist underwriting managers when making decisions regarding underwriting terms and premiums

60
Q

How is the adjustment based on interest rate on a lump sum investment made

A

The adjustment is made by the courts, and linked to the rates of return on low risk investment e.g index linked gilts

61
Q

What is IBNR

A

Claims incurred but not reported

62
Q

IBNR deals with

A

It deals with the need to reserve for claims that have not yet come to light but have the possibility of occurring

63
Q

What type of risks does IBNR deal with

A

Emerging risks like those in respect to liability

64
Q

What are some examples of emerging risks

A
  • toxic mould
  • electro-magnetic forces
  • stress
  • passive smoking
  • environmental/climate change
  • NHS reform(recovery of costs)
  • Asbestosis
65
Q

The Underwriting year data is simply

A

Its simply the sum of policy year data

IF 3 (7 decks)

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