CH 9 Flashcards
In insurance company decisions are made at what three different levels
- Board level decisions
- Manager Decisions
- Operational decisions
Board level decisions deal with
directors are concerned with group performance/profitability, control of downside risks(through catastrophe re insurance and board strategy implementation
Manager level decision is concerned with
They have a responsibility to different divisions within the b’ness and thus require information that is specific to their area of responsibility
Operational level decision is concerned with
the issues will surround the implementation on the day to day basis of underwriting practices and procedures established by the management team
Operational level data will focus on
Customer service levels, claims handling accuracy,settlement,documentation and credit control
Board level reporting deals with issues concerning
- growth
- loss ration
- underwriting margin/profit
- business mix
- solvency
- exposure accumulation
- competitive positioning
- return on capital
Growth on Board level reporting deals with
Gross and net, how the premium is growing, both in total and net of reinsurance
Loss ration of Board level reporting deals with
Gross and net, the relationship between claims and premium income
business mix of Board level reporting deals with
It deals with distribution channels, class, geographically
return on capital of Board level reporting deals with
They check whether the profit expressed as percentage of the capital
solvency of Board level reporting deals with
the relationship between the capital and exposure to risk, expressed as premium income
How frequent is reporting to underwriting managers done
Generally will be monthly
What is the key consideration to reporting to underwriting managers
Trends over time
How will the trends over time data be presented to underwriting managerss
It will be presented geographically
Reporting to underwriting managers will concern which issues
- 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
Operational data reporting requires to be reported how many times
It requires monthly and often weekly reporting by intermediary,policy class or by underwriter
Operational data reporting provides specific information including
-loss ratio claims statistics
-new business
-retention
-increase in rate
credit control
-compliance with contract certainty standards
What are the “cost of production” for an insurer
Claims
Why is the accurate analysis of previous claim history significant
It is crucial to the profitability of an insurer underwriting account
Analyzing claims information enables the underwriting manager to do what
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
When claimants are involved in a lfie changing injuries how do they receive their payments
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
What was the discount rate offered in the lump sum payments for injuries
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%
why such a change in discount rate for lump sum payments for injuries
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
This change in discount rate for lump sum payment applies to which claims
It applies to existing claim,outstanding claims and new claims but doesn’t apply to claims that have been settled
This change in discount rate for lump sum payment applies to which clients
Personal lines and Commercial Insurance for personal injury
The Lord Chancellor stated how many times will the discount rate be reviewed
It will be reviewed every three years by an independent expert panels chaired by the Government Actuary
Risk is usually assessed in terms of
- Frequency
- Severity
What does frequency refer to
How often it happens
What does Severity refer to
When does it happen and how serious will it be
High frequency and low severity means
There will be a large number of small losses and relatively few large losses
Example of High frequency and low severity means
Theft of mobile phones/ Windscreen Damage on Motor vehicle
High Frequency and Low Severity costs are referred to as
They are referred to as underlying claim costs, as they are relatively predictable
Low Frequency and high severity refer to
This refers to fewer incidents that when they occur will result to be far more serous
Example of Low Frequency and high severity
-Oil-carrying sea vessel spill
What help reduce low frequency and high severity incidents
Technological advances help reduce the frequency of these accidents
How do insurers protect themselves against the volatility of low frequency and high severity incidents
Through reinsurance
Reinsurance will apply to
- 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
What are some of the perils that could give rise to an accumulation of risk for propery insurer
- fire
- -insuring a number of insures occupying the same premises
- insuring both the landlord and tenant of the same premises-
- storm and flood
What is the claims loss ratio
This is the ratio of claims to premiums
how is claims loss ratio calculated
Dividing the amount of claims incurred by the amount of premium received
Why is the claims loss ratio important
It’s very useful indicators of how account is running
Earned Loss ratio is adjusted at account level to reflect
It reflect reinurance spend and IBNR (claims incurred but not reported) issues
When measuring Earn Loss ratio at policy and broker level what is not taken into account
IBNR and reinsurance isn’t taken into account
When are IBNR claims considered
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.
How is Outstanding loss ration extracted
It’s extracted directly from the computer system/claims files and doesn’t recognize the fact that 100% premium hasn’t been earned
In Outstanding claims ratio how are claims compared
They are compared against booked premium
Claims loss ratios has two main variations which are
Earned loss ratio
Commission loss ratio
What are the main types of period monitoring
- policy year
- underwriting year
- calendar year
- accounting year
When is policy year suitable
It’s suitable for addressing the performance of individual policies
At what level is underwriting year used
IT’s used at account level
Individual data are being grouped into underwriting years based on
It is based on the year in which the policy incepts/renew
For Calendar year what type of monitoring is done
Monitoring premiums and claims from individual policies are allocated to a calender year
For Calendar year how are claims allocated
They are allocated to the relevant year on the basis of the date of loss
In a calendar year how are premiums allocated
They are allocated according to the portion of policy premium that is earned during the relevant calendar year
How does Accounting year work
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
When is accounting year calendar mostly used
It should only be used to support decision making as last resort
Why are information on accounting year used as a last resort
This is because they are estimates thus making it harder to detect trends
Earning Loss ratio
The most accurate measure of performance at a policy level
The identification of trends is key consideration for underwriting managers in what ways
It assist underwriting managers when making decisions regarding underwriting terms and premiums
How is the adjustment based on interest rate on a lump sum investment made
The adjustment is made by the courts, and linked to the rates of return on low risk investment e.g index linked gilts
What is IBNR
Claims incurred but not reported
IBNR deals with
It deals with the need to reserve for claims that have not yet come to light but have the possibility of occurring
What type of risks does IBNR deal with
Emerging risks like those in respect to liability
What are some examples of emerging risks
- toxic mould
- electro-magnetic forces
- stress
- passive smoking
- environmental/climate change
- NHS reform(recovery of costs)
- Asbestosis
The Underwriting year data is simply
Its simply the sum of policy year data
