Chapter 2 Flashcards
What is a cost benefit study?
A cost benefit study compares the cost associated with gathering and analyzing underwriting requirement information, with the benefit, derived from the identification of extra mortality found by the requirement.
Why are cost-benefit studies and Intercal part of the risk management process?
They provide information to assess whether the dollars invested in obtaining evidence to assess risk or producing an adequate return on the companies investment.
Where are vendor expenses budgeted?
In the new business and underwriting department.
Define sentinel value and explain why it’s important.
A unique value that’s not part of the input data. Some individuals will not apply for insurance because they know a certain test will be required or walk away from the insurance when they find out that test is required. Set value will not show up in a cost benefits study, but that does not mean it is unimportant.
What occurs when the age and amount grade is out of step with the competition?
Anti-selection. If there are fewer requirements compared to the competition, it might attract applicants who can qualify for coverage because medical conditions they have will not be detected.
Define net single premium.
The premium collected today that covers all future benefit payments for a given face amount.
What is the one percent rule?
It converts present value of death benefits to one percent of face amount. For $500,000 face amount, the present value of future benefits is one percent times $500,000 equals $5000.
Who should be present when a study goal is created?
Stakeholders, underwriters, actuaries, vendor procurement, medical directors, IT data, scientist, marketing department, research staff and upper management.
What are “for cause” requirements?
They are expected to result in adverse information because there was a higher suspicion. Adverse information would be developed from them. Requirements are usually ordered for cause to clarify and more accurately quantify a rating or to resolve a question around the presence or absence of an impairment.
