Chapter 1, 2 and 3 Actuarial advice, External environment and Regulation Flashcards
Different types of advice
FRI
Factual advice (Based on research and facts) Recommendations (Involves research, modelling, consideration of alternatives) Indicative advice (Opinion without fully investigating the issue, an oral discussion on a matter)
The external environment
CREATE GREAT LISTS
Competition/ underwriting cycle/ claims amounts and frequency Regulation and legislation Economic environment/ Claims expenses Accounting standards Tax differences Environmental issues/ Exclusions
Governance/ compulsory benefits Risks/ rating factors Experience overseas Adequacy of capital/ funding method Trends: demographic, socio-economic
Lifestyle considerations Institutional structures Sales channels Technology State benefits
*Political situation
Functions of the regulator
SERVICE
Setting sanctions
Enforcing regulation
Reviewing and influence legislation
Vetting and register firms and individuals
Investigating breaches
Checks to capital adequacy and management
Educating consumers and public
Regulation regimes:
UVSS
Unregulated
- The cost of regulation outweigh the benefits
Voluntary conducts
- Non-compulsory regulatory prescriptions
Self-Regulated
- The participants in the market set out the regulation without any government intervention
Statutory regime
- The external regulatory body independently sets out the regulations
Regulation aims:
GRIP
Give confidence in the market
Reduce financial crime
Inefficient markets corrected
Protect public/consumers
Regulation needs: Reducing info asymmetries
SPIDER CCT
Sales techniques restrict Pricing controls imposed Insider trading prevention Disclosure of understandable info Educate consumers Restrict public info Cooling off periods Chinese walls established TCF
Regulation needs: Confidence in market
CPI’S
Capital adequacy
Practitioners- competent
Industry compensation schemes
Stock exchange requirements
Cost if regulation:
PUMA CR
Direct:
Admin
Monitoring of companies
Indirect:
Product innovation
Undermining of responsibility’s by Intermediares and brokers
Market developed structures to protect consumers lost
Altered consumer behaviour
Cost of compliance can reduce company profits
Reduced competition
Influences of policyholder reasonable expectations
PEMB
Practice- competitors/general/past
Economic conditions
Marketing statements
Broker advice
Managing conflicts of interest CARD R/ CAR DR.
Chinese walls
Avoiding conflict, such as declining a job
Records kept in detail of the work done
Disclose the conflict to all parties involved
Regulators notified if TCF not complied with
Regulation that the state could impose to regulate providers
PAM SAM BAM VR
Payments should be made on a timely basis
Authorisation required to sell insurance
Minimum solvency requirements should be regulated
Sales volume restriction to eliminate monopolies
Audited financial returns need to be submitted on a regular basis
Minimum benefits should be required
Brokers should be trained appropriately
Advertisement should be regulated
Maximum/minimum premium rates should be set to avoid overcharging/undercharging
Valuation of assets and liabilities should be regulated
Rating factors used should be regulated
Merits of Statutory regulation PENI MUCIT:
Public confidence
Economies of scale
No abuse (less prone to abuse)
Independent from rest of the industry (Allows more public confidence)
Moral hazard of industry (companies may try to find loopholes in the regulation)
Unnecessary rules (not relevant to target market)
Costly (Would be passed on to consumers)
Inflexible (Rules imposed by regulator may be less flexible than self regulation)
Too far from the market to understand market specific needs
Merits of Self-regulation REK PEL:
Rapid response to change
Easy cooperation
Knowledge of industry
Public confidence low
Entry barriers
Lack of experience to manage
The different forms of regulation:
PrOF
Prescriptive: With detailed rules setting out what may or may not be done
Outcome based: Allow for freedom of action but describes what outcomes are permitted
Freedom of action: Freedom of action but with restrictions on publicity so that third parties are fully informed about what is being provided
Corporate governance definition
Aims of good corporate governance
Corporate governance refers to the high level framework within which managerial decisions are made in a company.
The aim of good corporate governance is that a company should be managed in order to best meet appropriate requirements of its stakeholders – the shareholders, employees, pensioners, customers, suppliers and others who may be affected by the company’s operations whilst not having any contractual relationship with the company at any time.
Good corporate governance therefore aims to avoid that management might make decisions based more on their own personal interests than on those of relevant stakeholders.
