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What are cost-benefit studies

Integral part of the risk-management process
provide info to evaluated if the value investied in risk selection infromation are producing an adequate return on the company's investment


What do cost-benefit studies provide?

objective evidence needed to evaluated the cost-effectiveness of an underwriting requirement in a particular or the underwriting process in genenrla.


are cost-benefit studies similar from company to company?

No, they are unlikely to replicate and may not resemble findings from other companies.


What are some factors to consider in comparing other companies' age-and-amount limites for underwriting requirements with thoses used by any company in particular, aside from instinct?

1. the bases used to set a company's current limit,
2. other requirements used and the related limits used
3. the underwriting manual used and how its used
4. the uw philosophy used versus that used by peer companies
5. underwrirting proficiency in case
6. Target market
7. distribution system
8. products marketed
9.mortality and other expenses
10 experience-monitoring capabilities.


What is the stesp in conducting a study?

determine the objectives to be acheived, such as requirements to be reviewed. > this determines the kind of data to capture. > assure its precise. > determine whose involved and play what roles.


What is the sentinel effect

this deters proposed insurers with know or suspected impairements or abN lab findings from applying for insurance or cause them to apply for amount below the requirement threashold limis. `


What is the objective of the methodology ?

to estimate the cost of excess mortality associated with a change in obtaining certain underwriting infomation.


When quantifying and analyzing studies. After changes are made based on the results you may find you n need to investigate the ripple effect of the changes. For example when changes are made in using underwriting requirements, it can be illuminating to evaluate the potential impact on what other changes?

1. broad measures, such as number of applications received,
2. incidence of adverse underwriting decisions,
3. average time taken to reach a final decision
4. incidentce of request from producers for exceptions
5. total out of pocket expenses for u/w requirements
6. choice of incidence of use of other requirements.


What are some examples of cost-benefit studies for verious u/w requirements?

1. APS
2. CXR
3. Claims trend analysis
4. EKG
5. inspection reports
6. Laboratory tests
7. MIB
8. methodology of conducting cost-benefit studies
9. MVR
10. Older ages
11. PMED'
12. Preferred u/w
13. px hx.


What are the benefits to conducting a Cost-benefit study?

1. random sample of cases
2. cases subject to full u/w.
3. consider items for recording a cost benefit study
4. cost-benefit can be estimated in the following ways
a) proportion of requiremnts that led to adverse decision
b) average number pf percentage points of extra mortality uncovered per requirement obtained.
c) estimate doller value of protection per dollar spent on the requirement if it was solely responsible for adverse discision.
d) net savings from obtaining particular requirement are estimated by subtracting their cost from their value
e) value of the requirement in u/w supplemental benefit is often over looked but should be considered.
5. record information for study purposes in small number of individuals. to assure uniformity in the details recorded.
6. figrue the cost of obtaining various requirements, expenses in addition to fees for requirements as well, should be including in requesting the info and cost of handling and reviewing the information after its been received.
7. in addition study can be designed to provide other information:
a) time required to obtain additional evidence and process the type of applications
b) the expenses associated wiht u/w requirements in comparison to the assumptions used in determining gross premiums.


What are some items to record for cost-benefit studies as referrences in question 10. answer 3)

Essential items
1/ file number
2. gender
3. age
4. SM
5. type of insurance (plan type)
6. face amount. + benefits
7. type of requirements under study
8. reson for requirement
9. additional requirements followed by first item ordered
10. cost of requirements
11. final action without requirements
12. final action with requirments.
13. protective value of requirements.
Optional items
1. portion of applications file triggering the frist requirement ordered
2. nature of application (nonmed/PMED/APS)
3. specific to APS
a) duration sinceAPS was consulted
b) duration since AP was consulted
c) number of f/u sent
d) number of days required for reciept of APS
e) number of dats process application was delayed d/t APS
f) fee for APS
g) any special test borrowed from AP
h) if special test borrowed changed u/w decision


What is the break-even amount of insurance?

the particular amount at which the increase in mortality cost anticipated from not obtaning an u/w requirement is counterbalanced by the corresponding reduction in underwriting cost.


True or False
The extent to which the break-even amount deos not reflect all fo the important costs and benefits, whether quantifiable or not, should be considered at least subjectively in the process of judgementally adjusting the break-even amount to a level that seems to be most reasonable given the strengths and limitations of the study.



True or False,
the higher the amount of insurance to be written without a particular u/w requirement the greater is the risk of speculation and/or anti-selection,.