CH:31 Other risk controls

Question 1

How can risks be managed through diversification

Answer 1

• lines of business
• geographical areas of business
• providers of reinsurance
• investment - asset classes
• investment - assets held within a class
• reciprocal reinsurance arrangements

Question 2

How can underwriting be used to manage risks

Answer 2

• protect a provider from anti-selection
• enables a provider to classify risks into homogeneous groups
• enables a provider to identify risks for which special terms are needed
• for substantial risks, process identifies the most suitable approach and level for the special terms to be offered
• helps ensure claims experience does not depart too far from that assumed
• for larger proposals, helps reduce risk of over-insurance

Question 3

What are the 3 underwriting processes in life insurance

Answer 3

1. medical underwriting
2. lifestyle underwriting
3. financial underwriting

Question 4

What are the 3 main ways special terms can be specified

Answer 4

1. an addition to be made to the premium that would have been charged to the applicant who did not meet the required standard, commensurate with the degree of extra risk
2. a deduction may be made to the benefit, which would have been paid to the applicant “ “
3. an exclusion clause may be appended to the contract which excludes payment of benefit claims that arise due to the specified causes