Question 1

List eleven sources of data that might be used to help set pricing assumptions for health insurance products.

Accepted Answer

1. own data for that contract 2. own data for a similar contract 3. population data (produced by the government) 4. reinsurers’ data 5. market data – insured lives data (where insurers pool their statistics together and publish it for all users) 6. market data – published returns to an insurance supervisor 7. overseas data 8. actuarial consultants 9. rate table software (the data used by commercial companies that sell premium comparison software) 10. trade magazines 11. medical journals

Question 2

Data will be based on historic experience. State the periods of time over which trends must be allowed for when setting terms for a contract.

Accepted Answer

The data will need to be projected forwards to allow for: trends since the period from which the data relate trends expected over the policy term of the product trends expected over the period of time for which the new terms are to be offered.

Question 3

List the time-related factors by which the following assumptions will vary: claim incidence rates claim termination rates average claim size (for PMI).

Accepted Answer

Claim incidence rates will vary by: age calendar year Claim termination rates will vary by: age calendar year duration from commencement of claim Average claim size (for PMI) will vary by: calendar year (though only the next calendar year needs to be projected due to the annual renewal of the contract)

Question 4

Uses of data We've covered the various data an insurer might use and what its potential sources of data might be; what would an insurer use this data for? (9) (Remember a useful acronym from CA1/ARM)

Accepted Answer

Main actuarial reason for policy data: Regular valuation of liabilities Uses of data: MAFIA PERPS 1. Marketing 2. Administration 3. Financial planning and management 4. Investments 5. Accounting 6. Provisioning/reserving 7. Experience statistics and analysis/investigations 1. done to give appropriate advice 2. inaccurate data =\> inaccurate advice 3. model points: 1. not always practical/cost effective to do investigation on whole book. 2. can use model points, then scale up results 3. the fewer the model points, less accurate 8. Premium rating or product costing 9. Risk management 10. Statutory returns

Question 5

List five factors specific to an insurer that will influence the amount paid out in claims for a product (relative to another insurer selling the same product).

Accepted Answer

The insurer’s: 1. approach to underwriting and acceptance 2. policy conditions 3. claims management 4. distribution method and channels 5. target market.

Question 6

Risk due to data: risks due to policy data Explain how policy and other data can be a source of risk to a life insurer in terms of policyholder data (10)

Accepted Answer

Policyholder data: main risk is poor maintenance company may not maintain adequate, accurate and complete records required by actuary and so results of supervisory valuation may be innacurate other investigations may be inaccurate and so advice innapropriate risk when used in investigations eg investigations modelling part/whole of business risk that model doesn't adequately reflect business properly referred to as a model or modelling risk - risk that results from model office being an over-simplification of the real company in terms of the portfolio of policies currently in force and as a consequence behaving unrealistically

Question 7

Risk due to data Discuss main issues for health and care products compared to life insurance products (3)

Accepted Answer

For health and care contracts specifically, the following issues are experienced (more so than for life insurance: Limited credibility smaller policy volumes e.g CI and LTCI lower incidence rates e.g. IP and CI Limited applicability of past data Changes to products/market over time Limited relevance of past data due to sensitvity to socio economic conditions (IP) medical advances (CI) longevity/health at older ages (LTCI) Limited applicability of industry data ​Due to heterogeneity of products and markets

Question 8

List three advantages and five drawbacks of using population data for pricing purposes.

Accepted Answer

Three main advantages of using population data for pricing 1. Population data are readily available. 2. Population data are often free. 3. The numbers involved usually make them credible. Five drawbacks of using population data for pricing 1. The national experience may not necessarily be relevant to the subset of lives that will be accepted for insurance. 2. The circumstances of the ‘onset’ or ‘continuation’ of disabilities are unlikely to coincide with the insurer’s own claim definitions. 3. The accuracy and reliability may be questionable, particularly since definitions may be subjective and there is scope for double counting. 4. Data may not be available electronically or in an appropriate format. 5. The experience may be out-of-date.

Question 9

Explain how local population data are likely to compare to the experience of insured lives.

Accepted Answer

There are two conflicting aspects in comparing population data and the experience of insured lives. The latter should be healthier and less prone to claim, because they have been underwritten, and the less healthy lives declined or loaded. However, if the policy is deemed non-essential, then the people choosing to purchase insurance are arguably doing so because they expect to gain from the contract, and so will have an increased tendency to claim relative to non-insured lives.

Question 10

Describe how data from reinsurers may need to be adjusted if it is to be used for pricing purposes.

Accepted Answer

Actuaries will adjust for the specifics of their company’s underwriting and claims management, which may not be known to the reinsurer (although if the reinsurer intends to take on a proportion of the risk, then it may be very interested in the underwriting and claims process, as this directly impacts the risk that it will be taking).

Question 11

List four advantages and two disadvantages of using insured lives data for pricing purposes.

Accepted Answer

Four advantages of using insured lives data for pricing 1. It represents insured experience. 2. It generally has sufficient volume to be statistically credible. 3. It reflects local companies and market practices. 4. It is compiled by experts. Two disadvantages of using insured lives data for pricing 1. It may be out-of-date. 2. It is a market average and so is not strictly relevant to any one company.

Question 12

Give two reasons why an insurance company’s own experience will differ from industry averages, and state how life insurance standard tables might be used to take account of these differences.

Accepted Answer

There may be differences in the following: the strictness of underwriting and claims management policy conditions. In some cases, the ratios that the company uses to adjust standard mortality tables for its life insurance business might be applicable to its health insurance business, as differences due to the above might be expected to cause similar proportionate differences relative to the industry experience in both types of insurance.

Question 13

Give one advantage and one disadvantage of using published supervisory returns as a source of data for setting assumptions, and state a possible use of this type of data.

Accepted Answer

Advantage of using supervisory returns for setting assumptions The published returns should be accurate. Disadvantage of using supervisory returns for setting assumptions The degree of detail that the actuary can extract for the estimation of future risk is questionable. Possible use of supervisory returns It might be used to provide a high-level check on the premiums derived from other sources of data. This may be useful when launching a new healthcare insurance product, whereby the rates of competitors can be considered in the context of solvency levels, profitability and marketing positioning at a high level.

Question 14

Describe briefly the use of the following sources of data in the context of setting pricing assumptions: overseas data actuarial consultants rate table software trade magazines.

Accepted Answer

Overseas data – Such information may be credible and readily available. However, the actuary must be careful with differing cultures, State healthcare provision, market practices, legislation and policy conditions. Actuarial consultants – Consultants may have access to data both from national and international sources. Rate table software – In some territories, for individual business, there may be companies that issue software comparing market premium rates for similar products of a given class. This may be useful either in gathering initial data, or in checking the reasonableness and competitiveness of office premiums once calculated. Trade magazines – National and global publications will often be a source of statistics to assist in the risk projection process. These will lack a detailed breakdown, but they may provide market information and a reasonability check.

Chapter 13 Data Flashcards

-Apply the techniques used in pricing health and care insurance products in terms of data availability

Brainscape's Knowledge GenomeTM

Chapter 13 Data Flashcards

-Apply the techniques used in pricing health and care insurance products in terms of data availability

Brainscape's Knowledge Genome^TM