Chapter 26 Nature of risks (3)

Question 1

What is the key aim of a healthcare insurer’s management is to do what?

Answer 1

• Maximise (or optimise within an acceptable level of risk) the profits of the insurer, whether these go to shareholders or to mutual policyholders.
• maximise( or optimise within an acceptable level of risk) the return that the insurer achieves on its available capital.

-these go hand-in-hand but Board will want to be sure that the capital in the insurer is being used to the best advantage, particularly where it needs to decide between a number of competing uses of capital.

Question 2

The actuary will maximise profit but in the context of:

Answer 2

• insurer’s risk profile
• the resources available to the insurer
• the public interest need for the insurer to avoid insolvency
• requirements of applicable legislation

Question 3

The problems that confront the actuary in achieving his/her aims relate to:

Answer 3

• policy data
• product design
• product marketability
• pricing
• return on capital
• profitability of in-force business
• supervisory reserves and solvency capital management
• investment
• capital management
• risk management
• claims

Question 4

Policy data

Answer 4

-Is the data accurate and complete.

Question 5

Product design

Answer 5

• what contracts should the insurer offer.

- what benefits and features should be included, given its risk profile and resources available.

Question 6

Product marketability

Answer 6

-How can the company optimise the balance between price and volumes of business, taking into account competition.

Question 7

Pricing

Answer 7

• what is the expected profit, and its variance from selling new contract at particular premium rates or with particular charges.
• will the insurer have the resources to sell the contract on those terms

Question 8

Return on capital or members’ funds

Answer 8

-what return on capital will the insurer expect to make by investing its capital in the development and issue of a new insurance contract.

Question 9

Profitability

Answer 9

• what is the expected profit and its variance from the existing business.
• if business turns out to be unprofitable insurer needs to take actions such as:
• altering current benefit levels
• altering withdrawal payment scales if possible
• altering the expense, sickness or mortaility charges
• reducing renewal expenses
• ensuring contracts currently being sold are not likely to suffer the same fate

Question 10

Supervisory reserves

Answer 10

-What assumptions should be used so that the reserves and SCR provide adequate security for policyholders.

Question 11

Invesment

Answer 11

-How should the insurer invest its assets so as to maximise expected return within the resources available to it.

Question 12

Investments: Two conflicting aims a health and care insurer may face

Answer 12

• to meet guaranteed benefits with high degree of certainty

- to adopt an adventurous investment policy in pursuit of best returns.

Question 13

Capital management or funds or the mutual

Answer 13

• Will the insurer be able to achieve its short, medium and long-term plans given the resources available to it?
• this can be done by projecting expeted future values of assets and liabilities then investigate investment policy, business plans, etc and whether these represent a coherent & achievable product.

Question 14

Risk management

Answer 14

-How can underwriting and reinsurance be used to manage risk so that the insurer can increase profits, whilst keeping its risk profile within the resources available.

Question 15

Claims

Answer 15

• are the claims procedures adequate
• are the claims functions being properly followed
• are the effective fraud control measures in place