full revision Flashcards
what risks do all 4 products have in common? (3)
1) anti sel
2) withdrawals - selective withdrawals
3) financial risk of wd when as<0
what is the speicifc ip risk?
claim inception & termination rate incorrect
transfer probs in h-s model
what is the spcific ci risk?
diagnosis rates to illnesses on contract
what are the pmi risks? (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
what are the ltc risk? (4)
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)
how does u/w manage risk? (5)
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.
types of medical info (4)
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
what is a moratorium clause? (5)
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
options for substandard risks? (7)
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
explain how group medical u/w is done vs individual (13)
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
how do you do financial underwriting, give 2 examples? (3)
need to provide financial details
e.g. evidence of earnings/assets
other products held?
how might group ip be underwritten for new joiner? (4)
if group large enough, free cover
short proposal form required
benefits above free cover to be underwritten
normally need to declare “actually at work”
what losses happy on policy lapse? (9)
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
how do you limit lapse risk? (12)
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
u/w consideration on ip (8)
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
explain how medical/special tests get u/w info? (2)
give precise & unbiased info on current state of health
give risk factors that will make certain medical conditions more likely
what the u/w decision about reinsurance?
offer risk to reinsurer facultatively, zero retention
why do initial u/w? (8)
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
changes in personal circumstances that should be told to insurer (9)
job place of residence travel habits own health family history smoker alcohol consumption drug taker? leisure pursuits
factors when deciding whether to increase medical exam u/w limit amount (23)
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
non-financial risks associated with selling CI (14)
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)
things that ensure accurate and complete policy and claims data (headings) (6)
regular vetting spot checks data acceptance controls staff training other
how do you do regular vetting/spot checks (8)
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)
how do you have controls on data acceptance? incude examples (2)
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
how do compulsory fields help ensure accurate/complete policy and claims data? (2) include examples
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
how do staff training help ensure accurate/complete policy/claims data? (6)
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
main headings of risks to an insurer from selling key person ip? (learn oct2010 q7ii
morbidity risk expense risk withdrawal/non-renewal risk new business risks other risks
list sources of risk to a insurer (22)
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
how can a health insurer manage its risks? (a lot!)
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
what is a health option usually?
main risks of writing options and how to manage them? (14)
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
16 ways to manage risks
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
why would an insurer that only ever sold CI become technically insolvent? (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
