Chapter 2

Question 1

When adverse information is solely triggered by just one requirement it is

Answer 1

Uniquely protective

Question 2

Companies hesitate to share the results of a cost-benefit study because of

Answer 2

1) cost of the study
2) concern about anti-trust
3) proprietary nature of the results

Question 3

The lemming approach to requirement ordering

Answer 3

Following age and amount thresholds used by peer companies

Question 4

Factors to consider when comparing peer companies age and amount limits for underwriting requirements (10)

Answer 4

1. basis used to set a companies current limits
2. other requirements used
3. the underwriting manual used and how it is used
4. the underwriting philosophy used
5. underwriting proficiency
6. target market
7. distribution system
8. products marketed
9. mortality and other expense expectations
10. expeirnce-monitoring capabilities

Question 5

Pricing horizon

Answer 5

the number of years the mortality covers

Question 6

do mortality assumptions tend to be understated or overstated in in cost-benefit studies?

Answer 6

Understated

Question 7

Two primary goals of cost benefit study.

Answer 7

1. To define how often the requirement identified extra mortality (hit rate).
2. To define the size or magnitude of the hit (magnitude of the hit is more important)

Question 8

Percent of time a requirement resulted in a change of rate class

Answer 8

Hit rate

Question 9

The threshold amount of insurance to justify routinely ordering a requirement

Answer 9

the break-even amount

Question 10

The disciplines that should be involved in cost-benefit study (5)

Answer 10

Underwriting, new business, actuary, research and analysis, marketing

Question 11

Steps to conduct a cost benefit study

Answer 11

1. Chose the number of cases for inclusion
2. distinguish on a case by cases basis whether a requirement was solely responsible for an adverse underwriting decision.
3. identify situations where a requirement was not uniquely protective
4. determine why a requirement was obtained

Question 12

Why assign fewer resources to cost-benefit studies?

Answer 12

Consistency. Assigning fewer people to do the work reduces variability.