full revision

Question 1

what risks do all 4 products have in common? (3)

Answer 1

1) anti sel
2) withdrawals - selective withdrawals
3) financial risk of wd when as<0

Question 2

what is the speicifc ip risk?

Answer 2

claim inception & termination rate incorrect

transfer probs in h-s model

Question 3

what is the spcific ci risk?

Answer 3

diagnosis rates to illnesses on contract

Question 4

what are the pmi risks? (4)

Answer 4

1) benefits determinded by unctrollables e.g. GP
2) claim freq higher than expected e.g gp referralls
3) state system v.good so no demand, high expense
4) 1 large, many small claims

Question 5

what are the ltc risk? (4)

Answer 5

1) marketing/reputation if not meeting pre
2) expense and inflation risk
3) investment risk
4) h-s-d transfer probs wrong (ie. claim inception/termination)

Question 6

how does u/w manage risk? (5)

Answer 6

1) protect from anti-sel
2) protect from lives where risk impossible to asses accurately
3) ensure accurate risk classification so fair ratings
4) make experience = expected in pricing
5) substandard lives:
identify them, and the most suitable approach to dealing with them, suitable premiums too.

Question 7

types of medical info (4)

Answer 7

1) proposal form filled in by applicant
2) applicants doctor’s medical notes
3) medical exam at insurer request
4) specialist medical tests at insurer request

Question 8

what is a moratorium clause? (5)

Answer 8

1) p/h gets immediate cover
2) no formal u/w at acceptance
3) blanket exclusiosn for conditions recieved treatment in past 5 years
4) waver to 3) after 2-3 years if no more treatment
5) past medical history examined at point of claim

Question 9

options for substandard risks? (7)

Answer 9

1) load premiums
2) defer cover e.g. def period
3) decline
4) accept as loss leader
5) offer different cover
6) exclusion clauses
7) offer to reinsurer, zero retention, facultative

Question 10

explain how group medical u/w is done vs individual (13)

Answer 10

1) large schemes may not use medical history
2) larger the scheme, lesser the anti selection
3) though flexi-scheme much same anti-sel as individual
4) in larger schemes premiums charge on scheme experience not individual u/w

5) normally free from u/w up to a limit
6) dependants underwritten differently than individual
7) level of u/w depends on assumed take-up rates

8) # lives/age/sex may be unavilable immediately
9) a deposit premium paid until 6) gathered

10) moratorium possible for new entrants
11) distribution methods of group vs. idnividual may be different hence different u/w
12) must consider influence of intermediary who sells the product
13) must consider the level of knowledge the company will have on applicants, much more than insurer

Question 11

how do you do financial underwriting, give 2 examples? (3)

Answer 11

need to provide financial details
e.g. evidence of earnings/assets
other products held?

Question 12

how might group ip be underwritten for new joiner? (4)

Answer 12

if group large enough, free cover
short proposal form required
benefits above free cover to be underwritten
normally need to declare “actually at work”

Question 13

what losses happy on policy lapse? (9)

Answer 13

financial loss when as<0 early on
premium may not cover commission
poor clawback
termination costs
expected profits not recieved
wasted effort aquiring business
losses on future sales if lapse due to poor customer experience
selective lapses mean poor claims experience
if caused by misselling may have regulator penalty

Question 14

how do you limit lapse risk? (12)

Answer 14

design meets customer needs
good education e.g. sales literature
good sales training
clawback
customer retention team
survery customers to why lapse
good customer service
communication with customers is regular
monitor competition
designed to encourage persistency e.g. ncd
monitor lapse rates of sellers and take action
target types of customer less likely to lapse

Question 15

u/w consideration on ip (8)

Answer 15

proposal form e.g. sex/age/location
benefit features (rr/size/deferred period/term/options/claim definition)
medical evidence (proposal/extra questionnaires/gp report/medical exam/specialist tests)
lifestyle e.g. skiing
financial details vs size of benefit
regulations e.g. gender use
social constraints e.g. genetics
terms to offer e.g. special term/premium load/exclusions/decline

Question 16

explain how medical/special tests get u/w info? (2)

Answer 16

give precise & unbiased info on current state of health

give risk factors that will make certain medical conditions more likely

Question 17

what the u/w decision about reinsurance?

Answer 17

offer risk to reinsurer facultatively, zero retention

Question 18

why do initial u/w? (8)

Answer 18

classify risk, reduce anti-sel
classify risk as acceptable(standard or adjusted)/uninsurable
special terms determination
ensure mortality/morbidity expereince = expected
reinsurance requires it for good price
ensure people treated fairly in relation to their risk vs the group
reduce over-insurance through financial u/w
weigh up benefits against costs

Question 19

changes in personal circumstances that should be told to insurer (9)

Answer 19

job
place of residence
travel habits
own health
family history
smoker
alcohol consumption
drug taker?
leisure pursuits

Question 20

factors when deciding whether to increase medical exam u/w limit amount (23)

Answer 20

how much to increase by
different limits for different classes
sales increase as:
less customers do the exam
quicker sales for customer/salesmen
business mix will change
estimated cost of medical exam
estimated cost or u/w policies
higher sales imply lower pp expense
if costs small, little saving
regs
profitability e.g. financial projections
data needed
increased anti-selection
impact on claims experience
premiums increase if worse expereince
montior competition and comptetitiveness
monitor experience
increased nb implied increased nb strain
systems/train necessary
consistency with other products
reinsurer changes its prices
reserves impact

Question 21

non-financial risks associated with selling CI (14)

Answer 21

volume bigger than expected
mort higher than expected
morb higher than expected
more early claims than expected (early screening/diagnosis)
option take-up higher than expected
expense and inflation higher
lapses higher early on when as<0
selective lapses
non-disclosure of all risk info
fraudulaent claims
ops risk - failed ppl/processes/systems
reinsurer/broker defaults 
regs
fiscal changes (tax)

Question 22

things that ensure accurate and complete policy and claims data (headings) (6)

Answer 22

regular vetting
spot checks
data acceptance controls
staff training
other

Question 23

how do you do regular vetting/spot checks (8)

Answer 23

regular inspection of data acceptance processes
check data comprehensive
compare paper vs. electronic storage
systems to detect incosistencies/unusual features in data
check internal consistency e.g. sum assured vs. premiums
check versus past valuations e.g. #pols
check plicy records “end to end” through processes/systems
have single system to store all data (warehouse)

Question 24

how do you have controls on data acceptance? incude examples (2)

Answer 24

autochecks to identify input errors e.g. sex only m/f, max age<120
certain exeptions only allowed to be overwritten by authorised persons
audit trail must be kept of changes

Question 25

how do compulsory fields help ensure accurate/complete policy and claims data? (2) include examples

Answer 25

certain mandatory fields in individual policy records, input not accepted unless filled in e.g. sex, age, beenfit, term claim record not accepted unless has a policy number to cross reference

Question 26

how do staff training help ensure accurate/complete policy/claims data? (6)

Answer 26

adequate training to staff reposnsible for data input develop ability to spot data errors encourage close relationships between software staff and input staff encourage feedback from input staff ensure proposal form and input screen have same format ensure systems are developable and refienable to adapt to all required future data

Question 27

main headings of risks to an insurer from selling key person ip? (learn oct2010 q7ii

Answer 27

``` morbidity risk expense risk withdrawal/non-renewal risk new business risks other risks ```

Question 28

list sources of risk to a insurer (22)

Answer 28

``` data claim inception/termination rates claim cost information (e.g. medical inflation) investment performance expenses and inflation withdrawals nb mix by nature/size/source nb volume guarantees and options competition management of insurer counterparties in distribution reinsurer default regulation/fiscal/legislation customer service shortcomings/reputation risk internal audit faulres/fraud aggregation/concentration of risk catastrophes non-disclosure earlier screening/diagnosis anti-selection liquidity risks ```

Question 29

how can a health insurer manage its risks? (a lot!)

Answer 29

reinsurance asset liability matching by nature/term/currency liquidity risk managed by cashflow monitoring monitor experience vs. pricing basis e.g expenses retention team to avoid lapses service level agreements to outsourcers competency assessments for inhouse staff/distribution staff check on policy data customer satisfaction surveys risk analysis good claims management tcf monitor distributors market research for likely new business volumes/mix keep close to regualtory developements keep close to market/medical developments design product to meet needs clear, all-encompassing policy wording appropriate risk/governence structure clear investment strategy invest in lower risk assets due diligence of 3rd part service providers multiple companies to avoid counterparty risk e.g. reinsurers regular solvency and capital monitoring appropriate commission structure internal/external audit reduces fraud reduce level of guarantees and options reviewable premiums higher levels of capital e.g. mismatch reserves budgeting/internal expense controls diversify business portfolio avoids aggregation of risk

Question 30

what is a health option usually? | main risks of writing options and how to manage them? (14)

Answer 30

option to change benefit/renew/convert main risk: selection against insurer by people of poor health exercising option medical advances mean more likely anti-selection risk of selective withdrawals risk cost of writing option not ocvered by extra profit from more pols risk that expenses greater than that when expected in pricing managing risks: time frame on option exercise only allow options if orignal policy standard rate limit events allowed to exercise max upper limit on benefits underwrite assuming max SA will be reached clear terms and conditions on option exercise remind all customers they have the option so healthy may exercise too monitor sales, remove option/stop sales if sales insufficient regular monitoring of normal rates to ensure competitive regualarly monitor the cost of options reinsure/assistance of reinsurer in pricing options include margins in pricing set up reserves if options start biting big

Question 31

16 ways to manage risks

Answer 31

``` reinsure adequatly strict u/w good claims control change product design reduce g's and o's clear t's and c's adequate premiums for admin/term costs efficient claim process/systems customer service good broker service good pricing advice from reinsurer/consultant diversify by type/region marketing better risk management good government lobbying subsidise poor products with profitable parts of business ```

Question 32

why would an insurer that only ever sold CI become technically insolvent? (32)

Answer 32

``` more claims than expected unexpected business mix concentration of risk actual illnesses unexpectedly high high amount of guarantees biting non-reviewable premiums pricing margins not adequate target market not allowed for more selective lapses than expected option take up higher than expected u/w standards not as expected in pricing weak u/w meaning greater anti-selection than expected claims management standards poor poorly worded t's and c's design poor lack of diversification only selling 1 product too little business - high expenses too much business - high nb strain mix not as expected, more loss makers (x-subsidies) higher expenses than expected one-off high expense expense inflaiton higher than expected commission higher than expected lots of early lapses when as<0 lower late lapses so less profits poor asset liability matching risk assets, defaults reserving basis inadequate then strengthened poor data/systems meaning reserves not accurate new regs meaning higher requirements retrospective legislation tax changes regualtor fines not able to raise capital in market has been offering at minimum capital requirement without cushion internal or external fraud oprational catastrophe poor management decisions risk management and governenvce poor reinsurance inadequate or default outsourcer/distributor default ```