Chapter 15 - Assumptions (2) - Demographic assumptions

Question 1

The expected future experience of policyholders will depend on

Answer 1

CUTE P

• The CLAIM controls applied (or not) at the claim stage
• The UNDERWRITING controls applied (or not) at the start of the policy
• The TARGET market for the contract - which depends on the distribution channel involved, and the geographical region
• The EXPECTED change in the experience since the time of the last historical investigation to the point In time at which the assumptions will on average apply
• The POLICY wording

Question 2

How would data for long-term health and care insurance products be split up

Answer 2

IS DOGCARTS

• Individual or group
• Smoking status
• Distribution source
• Occupation
• Gender
• Class of product ( whether stand alone or rider type)
• Age
• Region
• Type of benefit selected
• Size of benefit selected

In some countries, differential pricing according to one or more of these factors may be prohibited

Question 3

How does social and economic influences affect how people claim under H&C insurance

Answer 3

• Changing attitudes to health, greater access to healthcare services, better diagnosis of medical conditions and the availability of new medical technology
• The future plans for state welfare provision
• The economic wellbeing of the country
• Inflation generally

Question 4

On what does a company’s own set of lapse rates depend on?

Answer 4

• Distribution methods
• After-sales service

Question 5

Which factors could influence a policyholder to lapse their contract

Answer 5

CAPE

• Commercial ( Is there a better or cheaper alternative)
• Awareness ( is there a belief that the policy is necessary)
• Political ( State benefit alternatives)
• Economic ( cannot afford the premium)

Question 6

How do lapses affect a contract

Answer 6

• An early lapse may cause a financial loss. New business strain
• Where no surrender value is payable and a reserve has been accumulated, a lapse will work to the benefit of the insurer
  ( reserve is the accumulated asset share, not the supervisory reserve)
• The effect of lapses may be selective, such that the healthier lives will be more likely to lapse, leaving a worsening propensity to claim among those continuing

Question 7

What is a risk cell and why does data need to be broken down into discrete risk cells

Answer 7

• A risk cell groups together risks with the same attributes that influence morbidity.
• Data analysis by different risk factors allows companies to offer different terms for different risk classifications.
• Subdivisions are needed to accurately assess each factor’s individual effect and determine appropriate prices

Question 8

What factors would cause the future morbidity of new policyholders to differ from that of your own historical experience data

Answer 8

C STUPIDEST

Changes in:

• CLAIM control practices
• SELECTIVE withdrawals
• TARGET market
• UNDERWRITING practice
• POLICY wording
• the IMPACT of medical science, such as the diagnosis of critical illness, health care provision, treatments/cures
• DISTRIBUTION channel
• the ECONOMY
• STATE provision of healthcare
• TERRITORY targeted

Question 9

Factors that may make future renewal experience different from the past, for PMI policies

Answer 9

TASTEBUDS PPP CC

Changes in:

• Territory
• Availability of, or the level of, State healthcare benefits
• Sales methods
• Target market
• Economic conditions, especially those affecting employment
• Benefits provided
• Underwriting practice
• Distribution channel
• Standards of customer service
• Product design
• Policy wording
• Price
• Claims-handling practice
• Competitiveness

Question 10

What is a risk cell?

Answer 10

A risk cell represents a collection of risks (lives) who all share the same attributes that are deemed to influence morbidity