Chapter 31 Flashcards
(10 cards)
In what ways can a company manage risks?
- Diversification
- Underwriting
- Claims control systems
- Management control systems
What options does a company have if material nondisclosure is found?
Pro-rata the sum assured
Deduct the true premium from the sum assured
Decline and forfeit the premium
Decline and return premium
Ex-gratia payments (marketing budget
What should a company consider if they decline to decline payment of the sum assured?
- Reputation
- National ombudsman
- Social media
- Ex-gratia payments (marketing budget)
What claims tools can be used to control risk?
Deferred periods
Survival periods
Rehab requirements
Opinions of a chief medical officer
What kind of management control systems can a company implement to control risk?
a. Data quality
* Good for all insured risks, especially on risk factors
* They will be able to analyse their experience better
* It will help ensure adequate provisions are established for those risks
* Helps reduce operational risks from having poor data
b. Accounting and auditing
* Can’t change risks accepted
* Enables proper provisions being established, regularly prems to be collected and providers of finance to the provider to be reassured as to its fin position
* Reassures market, shs and stakeholders
* Makes sure system is kept robust
c. Monitoring nature and size of liabilities taken on
* Protects against aggregation if risks of a specific type to an unacceptable level
* Do they have enough resources to cover those liabilities
* Especially for new business strain and business mix
* Business mix isn’t always terrible, it can be a better risk pool than expected
d. Due diligence
Name the reasons for underwriting
- Protects integrity of risk pool (anti-selection, information asymmetry)
- Risk classification = fair ratings
- Allows more people to access insurance (loadings instead of declining)
- Makes it more likely that future claim experience = Pricing assumptions
- Allows good risks a lower pure risk prem for standard lives
- For substandard risks, helps identify most appropriate approach
What decisions can be made from underwriting?
Decline
Accept @ standard rates
Defer cover
Accept with exclusions
Accept with extra mortality or morbidity loading
Accept (low to appropriate SA)
High prem for given SA
Tools used when extensive underwriting cannot be done
Waiting period
Restrict age at entry
Pre-existing condition excluded temporarily or permanently
Retrospective underwriting at claim stage (more exclusion, less piece of min)
Define underwriting
Assessing and quantifying the potential risks compared to the average risk so that risk can be charged an appropriate premium
When would initial underwriting not be possible?
Short attention spans
Small benefit and premium
Legislation
Social acceptance
