Ch34: Further risk management

Question 1

it will be necessary to monitor for new business for each product and sales channel

Answer 1

• premium frequency
• policy charges/loadings
• actual expenses incurred
• new business valuation strain

Question 2

To reduce mismatch between actual expenses and policy charges, the insurer could

Answer 2

a) restrict or encourage certain product lines and/or distribution channels
- directly by structural change
- indirectly by remuneration agreements, by the level of support given to the distribution channel, or the literature used to market to policyholders
b) reprice or redesign contracts

Question 3

Expense control

Answer 3

• monitor the position regularly
• monitor competitor’s expense ratios
• have monitoring procedures in place to pick up and prevent any upward slippage in commission levels
• control staffing and salary levels to be consistent with the work required
• attempt to sell more business without increasing the cost base
• improve operational efficiency
• increase premium loadings/charges

Question 4

Improve persistency

Answer 4

• change distribution channels
• set up alternative remuneration structures that encourage persistency
• improve sales methods so that policies are sold more strictly to meet customer needs
• restrict premium payment methods (to direct debit e.g.)

Question 5

Control measures for management of options

Answer 5

• increase charges/loadings that are paid for the option
• alter the benefits or terms of the option
• remove option from new business

Question 6

Possible mitigation for existing factors

Answer 6

• appropriate reserving
• strict interpretation of terms
• using derivatives
• buy back from policyholder