Data

Question 1

o Industry-wide data collection schemes  Potential benefits (3)

Answer 1

• An insurer can compare its own experience with that of the industry as a whole
• Industry wide data can provide a benchmark for insurers to assess their position compared to their competitors
• Industry-based development factors may be valuable as benchmarks when reserving, especially for small insurers and insurers that have been established only a short time

Question 2

Industry-wide data collection schemes  problems (5)

Answer 2

• There is potential for distortions within industry-wide data:
  o Companies operate in different geographical or socio-economic sections of the market
  o The policies sold by different companies are not identical
  o The companies will have different practices
  o The nature of the data stored by different companies will not always be the same
  o The coding used for the risk factors may vary from company to company
• The data will be much less detailed and less flexible than those available internally, hence it will be more difficult to manipulate
• External data is often much more out of date than internal data, because the data takes quite a while to collect, collate and then distribute to the insurers
• The data quality will depend on the quality of the data systems of all its contributors
• Not all companies contribute, unless it is compulsory to do so

Question 3

• Uses – (11)

Answer 3

o Administration
o Preparing accounts
o Preparing statutory returns
o Analysing performance
o Informing investment strategy
o Financial control and management information
o Risk management
o Reserving
o Premium rating and product costing
o Marketing
o Capital modelling

Question 4

• Users of data (9)

Answer 4

o Senior management
o Accounting
o Underwriting
o Claims
o Marketing
o Investment
o Actuarial/ statistical
o Computing
o reinsurance

Question 5

• Factors that influence the quality and quantity of data (6)

Answer 5

 The size and age of the company
 The current data system in use, including the use of legacy systems, the integrity of the data systems
 The management and staff responsible for collecting and maintaining data
 The nature of the organisation
o Impact of size and age of company on data quantity
o Impact of size and age of company on data quality
o Legacy systems
o Integrity of systems
o Management and staff
o Reinsurer vs direct insurers
 Depending on the distribution method of the business
o Brokers and agents will differ in,
 The role they play in the sales, administration and claims processes
 Their level and form of remuneration
 The manner and speed with which they process policies/ claims
o Direct sales
 Between the different classes of business
o Big variation in claim frequency between classes affects the quantity of claims data
o The length of the tail of some classes means that it takes considerable time to collect the necessary claims data
o Subjectivity used in underwriting influences the ability to capture risk details

Question 6

Establishing a good information system (5)

Answer 6

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

Question 7

• Sources of data distortion

Answer 7

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