Chapter 9

Question 1

What do MI companies do?

Answer 1

Management information companies assist in analysing trends and forcasting the future by manipulating data.

Question 2

What are the 3 levels of decision making?

Answer 2

1. Board level
2. Reporting to UW managers
3. Operational data

Question 3

Name 3 issues a board member might be concerned with.

Answer 3

Growth, loss ratios, profit margin, exposure, return on capital, solvency

Question 4

How often is reporting to UW generally made?

Answer 4

Monthly

Question 5

Name 3 issues a UW manager might be concerned with.

Answer 5

Growth by product, retention rates, new business analysis, loss ratios, claim trends, large losses, rate changes, competitor activities

Question 6

Name 3 issues an operational data consultant might be considered with?

Answer 6

New business, retention, rate increases, compliance, loss ratios, credit control

Question 7

Why is analysing claim trends important for underwriting?

Answer 7

Claim information can help predict future loss patterns and anticipated future claim costs

Question 8

Name 3 things an UW might consider looking at an individual clients claims when considering whether to take on the risk.

Answer 8

Is claims frequency improving,
Causes of the claims,
Large claims,
What is the position of the claim,
When were the claims recorded

Question 9

What is PIDR and who is it for?

Answer 9

Personal injury discount rate. Those with life changing injuries to ensure they have enough money to cover them for the future.

Question 10

Can the PIDR rate be applied to historic or settled claims?

Answer 10

No.

Question 11

How often does PIDR have to be reviewed?

Answer 11

Every 3 years

Question 12

What is the current PIDR rate?

Answer 12

-0.25%

Question 13

How does the current PIDR rate affect the market?

Answer 13

It causes higher premiums and higher reserves.

Question 14

Why do insurers have to pay more if the PIDR is negative?

Answer 14

A larger payout is required by insurers to compensate the fact that if the claimant invests the money, it might not grow.

Question 15

In what 2 ways are risks assessed/measured?

Answer 15

Frequency and severity.

Question 16

What is an example of a high frequency but low severity event?

Answer 16

Windscreen claims

Question 17

What is an example of a low frequency but high severity event?

Answer 17

Oil spills

Question 18

What kind of risks are less predictable? (In terms of frequency and severity)

Answer 18

Low frequency and high severity

Question 19

How do insurers help to protect themselves against unpredictable/accumulated/high severity claims?

Answer 19

Reinsurance

Question 20

How do you calculate a claims loss ratio?

Answer 20

Claims ratio = claims insured / premium x 100

Question 21

Why are CLR’s useful to insurers?

Answer 21

They are good indications of how an account is running.

Question 22

What is an ELR?

Answer 22

An Earned Loss Ratio (ELR) is a key metric used in insurance to evaluate the profitability of an insurer’s policies. It compares the losses incurred to the premiums earned over a specific period of time.

(Earned Premiums: The portion of premiums that corresponds to the coverage period that has already passed (not the full written premium if it’s for a future period)

Question 23

What is an OLR? And is it useful?

Answer 23

An outstanding loss ratio. The loss ratio that is extracted directly from the files or computer system.

Not particularly as it doesn’t recognise that 100% premium hasn’t been earned yet.

Question 24

What are the 4 types of monitoring period?

Answer 24

1. Policy year
2. Underwriting year
3. Calendar year
4. Accounting year

Question 25

What is a policy year?

Answer 25

A 12-month period from when the policy starts to when it ends.

Question 26

What is an underwriting year?

Answer 26

A type of monitoring period used at an account level.

Question 27

What is an accounting year and why is it not preferred?

Answer 27

It will follow the financial year. Trends are harder to detect.