Chapter 11: Data

Question 1

Potential benefits of using industry-wide data schemes:

Answer 1

• Can compare own experience with the experience of the industry as a whole at overall level and at level of the categories into which the data is classified
• Can use industry-wide data to understand how the characteristics of the business it is seeking to attract differs from the business it already has on its books
• Can provide a benchmark for insurers to assess their position relative to competitors
• Industry-based development factors may be valuable as benchmarks when reserving, especially for small insurers and insurers that have been established for a short time

Question 2

Potential problems when using industry-wide data schemes

Answer 2

• There is potential for distortion in the data due to heterogeneity
• Data is much less detailed and less flexible compared to internal data – difficult to manipulate
• More out of date than internal data – takes a while to collect, collate and distribute
• Data quality depends on the quality of the data systems of all contributors
• Not all companies contribute unless it is compulsory to do so. Thus the data may not be a true reflection of the industry’s experience as a whole

Question 3

Reasons for heterogeneity in industry-wide data:

Answer 3

• Companies operate in different geographical and socio-economic sections of the market
• The policies sold by different companies aren’t identical
• The companies will have different practices, e.g. underwriting, claim settlement and outstanding claim reserving policies
• The nature of the data stored by different companies will not always be the same
• The coding used for the risk factors may vary from company to company

Question 4

Main uses of policy and claims data by a general insurer:

Answer 4

• Administration
• Publishing accounts
• Preparing statutory returns
• Analysing performance
• Informing investment strategy
• Financial control and management information
• Risk management
• Reserving (including unexpired risk assessment)
• Experience statistics
• Premium rating and product costing
• Marketing
• Capital modelling

Question 5

The full development team for a computer system should include representatives from the following departments:

Answer 5

• Senior management
• Accounting
• Underwriting
• Claims
• Marketing
• Investment
• Actuarial/statistical
• Computing/IT
• Reinsurance

Question 6

Key factors affecting quality and quantity of data:

Answer 6

• Size and age of company
• Existence of legacy systems
• Integrity of data systems
• Management and staff
• Nature of the organisation
• Method of sale
• Class of business

Question 7

Ways insurance is distributed

Answer 7

• Through intermediaries such as brokers
• Through staff directly employed by the insurance provider
• Through tied agents

Question 8

Stages required in the establishment of a good information system to ensure good quality data is captured and stored:

Answer 8

• Consideration of the users’ requirements
• Careful design of appropriate proposal and claims forms
• Ensuring that features of claims and premiums can be recorded
• Consideration of policy and claim information to be collected
• Adequate training of staff

Question 9

Features of premiums that should be recorded:

Answer 9

• Written amounts
• Payment times
• Premium adjustments
• Commission
• Other deductions
• Cross-selling information

Question 10

Features of claims that should be recorded:

Answer 10

• Definition of a claim
• Estimated outstanding amounts and claims paid to date
• Multiple claim payments
• Reopened claims
• Claims handling expenses
• Reinsurance recoveries
• Class level adjustments

Question 11

The data details to be recorded includes:

Answer 11

• Risk definition and details of cover
• Details of claim
• Status of record
• Control dates
• Relevant amounts and currencies (sums insured, premiums, etc.)
• Admin details

Question 12

When establishing a data system, it is necessary to strike a balance between:

Answer 12

• The capacity of the system
• The cost of data storage
• The amount of data stored
• The level of detail at which they are stored

Question 13

Sources of data distortion:

Answer 13

• Changes in claim handling procedures
• Case estimates
• Processing delays
• Large claims
• Return premiums
• Claims inflation

Question 14

Ways of preventing data errors:

Answer 14

• Check digits
• Data field integrity checks (e.g. a word can’t be typed into a number field)
• Mandatory fields
• Error reports
• Minimum and maximum values
• Culture and training

Question 15

Advantages of a single, integrated system:

Answer 15

• There is a reduced chance of data being corrupted
• There is a reduced chance of inconsistent treatment of information, between products or over time
• There is likely to be a better level of control over those who may enter information or amend information
• Information will be easier to access
• Time will not need to be spent reconciling data from different systems