Further Risk Management

Question 1

List ways the company can try to keep expenses within the loadings received to cover them

Answer 1

1) Monitor the position regularly
2) Impose budgetary constraints within which individual departments are required to manage
3) Monitor competitors’ expense ratios to ensure expenses are at a competitive level
4) Have monitoring proceduresin place to pick up and prevent any upward slippage in commission levels
5) Control staffing and salary levels to be consistent with the work required
6) Attempt to sell more business without increasing the overhead cost base
7) Improve operational efficiency e.g. through automation
8) Increase premium loadings and/or charging rates provided they remain competitive

Question 2

List ways in which the insurer can minimise the volume of lapses and surrenders (improve persistency)

Answer 2

1) Monitor experience by distribution channel to identify problem areas
2) Change distribution channel if necessary
3) Set up alternative remuneration (commission) structures that encourage persistency
4) Improve sales methods so that policies are sold more strictly to meet customer needs
5) Restrict premium payment methods
6) Identify systematic reasons for discontinuance and implement suitable management strategies to avoid the trend continuing

Question 3

List conclusions that may be drawn when monitoring mix and volume of business

Answer 3

1) Excess volume can indicate inadequate capital
2) Low volume will reduce total profit and increase the per-policy cost of overhead expenses
3) Lower-than-expected case sizes may uncover per-policy expenses

Question 4

Control of new business mix and volume comes largely down to…

Answer 4

1) Marketing
- remuneration of sales channels
- targeting of distribution channels
2) Product design
- matching charges
- premium frequency
- minimum premium levels
- guarantees
3) Pricing

Question 5

List the ways in which business volume and mix impacts the insurer’s capital position

Answer 5

1) The extent of mismatch between charges/loadings and actual expenses
2) Premium payment pattern
3) Valuation strain

Question 6

It will be necessary to monitor, by product line and distribution channel,…

Answer 6

1) Number of contracts sold
2) Amount of premium
3) Frequency/pattern of premium payment
4) Policy loadings/charges
5) Actual new business incurred
6) New business valuation strain

Question 7

How may certain product lines/distribution channels be encouraged or discouraged?

Answer 7

1) Directly
- through a structural change in policy design

2) Indirectly
- remuneration agreements
- level of support offered to distribution channel
- literature used for marketing

Question 8

List some options offered by a life insurer

Answer 8

1) Financial options
- guaranteed annuity options

2) Health-related options
- conversion options
- renewability options
- continuity options
- guaranteed assurability options (GAO)

Question 9

What might the insurer do if assessment of its options offered reveals a net loss?

Answer 9

1) Reprice the options offered (Increase charges/loadings)
2) Restructure the options offered (Alter the benefits or terms of the option)
3) Remove the options from the product suite

Question 10

List possible mitigation for existing options

Answer 10

1) Appropriate reserving
2) Strict interpretation of terms
3) Using derivatives

Question 11

ERM

Answer 11

Enterprise Risk Management

An integrated approach to risk management that allows managers to understand concentrations of risk and benefits of diversification. This occurs on a group/enterprise level

Question 12

Sensitive risk

Answer 12

A risk to which the company’s financial results are most vulnerable