Learning objective 1

Question 1

What is ‘The protection gap’

Answer 1

The shortfall in the amount of cover necessary to maintain the current living standards.

Calculation is:

Resource needed - Protection in place = protection gap

Question 2

Insurance is most effective for event or risks that are:

Answer 2

Low frequency and high impact

Think: House burning down, major health events etc. - Things that don’t happen everyday

Question 3

What is the impact that affordability has on life insurance products?

Answer 3

If the cost/premiums fall, then demand for cover rises. And vice versa

Question 4

What are some of the reasons that inflation would affect demand?

Answer 4

• If money is tight, people may simply cancel their policy as they need the money for other, more instant expenses
• They may not see the point of taking a policy out now, as the real value of the payout may be much lower if/when it is claimed

Question 5

In the last 60 years, what has forced a rethink in pricing of insurance?

Answer 5

Morbidity -
improvements in hygiene, health, long term illness management etc.

This has in turn increased mortality as we are living longer

Question 6

What has the improvement of mortality had on underwriting practises

Answer 6

Some insurers may factor in anticipated improvements in mortality to produce competitive premium rates.