Chapter 31 - monitoring and feedback into the control cycle Flashcards
Reasons for monitoring
- update assumptions for future experience
- monitor any trends in experience
- monitor actual vs expected and take corrective actions as needed
- provide management information to aid business decisions
- make more informed decisions about pricing and the adequacy of reserves
Consistent data
Data we use when comparing the experience of one group of lives with another should:
- be in a similar form
- preferably extracted from the same source
- grouped according to the same criteria
- equal in terms of reliability
Purposes of monitoring new business sales against targets
- to check the strains caused by the volume of new business sold against the capital set aside for this purpose
- to check the mix of business in each of the significant homogeneous cohorts against the mix assumed in the pricing basis
- to check the staffing levels in terms of numbers and competence against those required by the business written
- to check commissions paid against those assumed
New business strain
when the cost of setting up a reserve on a statutory basis at the start of the contract is greater than the available funds at that time
Additional factors that will be considered for PMI
- cover option
- type of benefit (hospitalisation, specialist consultation)
- amount of excess
- NCD
The following must be kept in mind when analysing claims:
- allowing for the problems of heterogeneity
- allowance for unsettled, unreported and re-opened claims
- large or exceptional claims
- changes in types of claims
- changes in claim development patterns
- seasonality pattern of claims
Reasons why escalation of claims is different to that anticipated:
- medical innovations may result in the use of more expensive equipment for a particular procedure
- changes in behaviour of medical professionals and/or changes in demand of policyholders
- implementation of claims management techniques
- profile of covered lives may be different from that assumed
- may be new diseases or changes in the prevalence of certain diseases and conditions
Advantages and disadvantages of market data compared to in-house data
+ it will be drawn from a wider pool of experience so trends may be spotted earlier. Trends in your own data may be put down to statistical variation
+ your product may be new and you may not have any experience at all
- the experience of others may not be applicable to your own experience
- there will be delays between the period of investigation and the date of publication of the market data
- market data may be heterogeneous and observed trends may therefore be spurious
- not all the market will be included, or suitable data may not be available in the appropriate format. Might be subject to errors and you will not be able to verify the data
Persistency subdivision
- type of contract (long-term vs short-term)
- duration in force
- sales method used and target market
- frequency and size of premium
- premium payment method
- original term of contract
- gender and age
- claims experience/NCD level
Expense subdivision
- expenses relating to new business
- expenses relating to existing business
- expenses relating to termination
- expenses relating to paying claims
- expenses relating to investment management
Direct expenses
Expenses that depend either on volume of new business or the level of in-force business
Overheads
The balance of the expenses, ie those that relate to general management and service departments which are not directly involved in new business or policy maintenance activities and which are insensitive to both the volume of new business and level of in-force business
Nature of salary expenses
- fixed in real-terms in the short-term
- in the long-term, vary to meet changing levels of new and existing business and changes in services and the degree of automation
Staff can be split into three groups
- staff whose work comes entirely within a single cell of the analysis
- staff whose work comes within more than one cell
- other staff
e. g. cell - the initial costs of product X that are proportionate to sum assured
How to split overhead expenses?
Pragmatically, e.g.:
- splitting them down in proportion to the direct expenses already identified
- splitting them in proportion to the expense charges from the policies
- splitting them down in proportion to something else
