Chapter 6 Flashcards
What are the 4 types of insurance risk
- The risk of losing a family member and his/her contribution to family income
- The risk of loss or damage to property and possessions
- The risk of being unable to work and as a result having no money to support oneself
- The risk of illness and the cost associated with medical care
What is a proprietary insurance company?
A proprietary insurance company – is just a normal company and it is owned shareholders.
What is a mutual insurance company?
A mutual company is owned by its policyholders – it is basically just a sophisticated version of a risk pool.
What does the state not offer?
Household insurance
What can actuaries and quants do for an insurer? (8)
- Pricing
- Underwriting
- Contract design
- Reinsurance
- Prudent
reserving/Capital management - Asset-Liability management
- Monitoring and
- Expense budgeting
What is pricing?
Is to calculate the amount that clients should pay for the insurance product they buy.
What is underwriting?
Underwriting involves the assessment of medical, financial and other relevant information in order to make a judgement as to whether the applicant should be accepted for cover, and if so, on what terms.
After underwriting information is collected what can the insurer do?
- Accept the proposal on standard terms
- Accept the proposal on special terms
- Delay the decision
- Reject the applicant for cover
The state can also provide benefits which compensate people against risky events for example:
- Social grants
- Contributory pension
- Public healthcare
- Unemployment benefits
How does state insurance differ from insurance companies
This is partly because the objectives of the state are different: it seldom seeks to indemnify every person against their
losses. It is much more likely that the state is more interested in helping the poor and providing a minimum benefit level.
Describe contract design
Risk management features may be built into policy contracts directly. Some examples include:
* excluding a risk which cannot be properly priced (e.g. death due to invasion by a foreign army),
* transfer of investment risk, e.g. through a unit-linked benefit design, and
* ensuring that minimal guarantees are offered. Actuaries are actively involved in product development at insurance
companies, which includes setting all features of the contracts.
Describe prudent reserving and capital management
Describe Asset - Liability Management
Asset-liability management is the process of managing the asset portfolio in such a way that it moves as closely as possible with the liabilities, in order to minimise the risk of assets having a lower value than liabilities.
