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Flashcards in full revision Deck (32):

what risks do all 4 products have in common? (3)

1) anti sel
2) withdrawals - selective withdrawals
3) financial risk of wd when as<0


what is the speicifc ip risk?

claim inception & termination rate incorrect
(transfer probs in h-s model)


what is the spcific ci risk?

diagnosis rates to illnesses on contract


what are the pmi risks? (4)

1) benefits determinded by unctrollables e.g. GP
2) claim freq higher than expected e.g gp referralls
3) state system v.good so no demand, high expense
4) 1 large, many small claims


what are the ltc risk? (4)

1) marketing/reputation if not meeting pre
2) expense and inflation risk
3) investment risk
4) h-s-d transfer probs wrong (ie. claim inception/termination)


how does u/w manage risk? (5)

1) protect from anti-sel
2) protect from lives where risk impossible to asses accurately
3) ensure accurate risk classification so fair ratings
4) make experience = expected in pricing
5) substandard lives:
identify them, and the most suitable approach to dealing with them, suitable premiums too.


types of medical info (4)

1) proposal form filled in by applicant
2) applicants doctor's medical notes
3) medical exam at insurer request
4) specialist medical tests at insurer request


what is a moratorium clause? (5)

1) p/h gets immediate cover
2) no formal u/w at acceptance
3) blanket exclusiosn for conditions recieved treatment in past 5 years
4) waver to 3) after 2-3 years if no more treatment
5) past medical history examined at point of claim


options for substandard risks? (7)

1) load premiums
2) defer cover e.g. def period
3) decline
4) accept as loss leader
5) offer different cover
6) exclusion clauses
7) offer to reinsurer, zero retention, facultative


explain how group medical u/w is done vs individual (13)

1) large schemes may not use medical history
2) larger the scheme, lesser the anti selection
3) though flexi-scheme much same anti-sel as individual
4) in larger schemes premiums charge on scheme experience not individual u/w

5) normally free from u/w up to a limit
6) dependants underwritten differently than individual
7) level of u/w depends on assumed take-up rates

8) # lives/age/sex may be unavilable immediately
9) a deposit premium paid until 6) gathered

10) moratorium possible for new entrants
11) distribution methods of group vs. idnividual may be different hence different u/w
12) must consider influence of intermediary who sells the product
13) must consider the level of knowledge the company will have on applicants, much more than insurer


how do you do financial underwriting, give 2 examples? (3)

need to provide financial details
e.g. evidence of earnings/assets
other products held?


how might group ip be underwritten for new joiner? (4)

if group large enough, free cover
short proposal form required
benefits above free cover to be underwritten
normally need to declare "actually at work"


what losses happy on policy lapse? (9)

financial loss when as<0 early on
premium may not cover commission
poor clawback
termination costs
expected profits not recieved
wasted effort aquiring business
losses on future sales if lapse due to poor customer experience
selective lapses mean poor claims experience
if caused by misselling may have regulator penalty


how do you limit lapse risk? (12)

design meets customer needs
good education e.g. sales literature
good sales training
customer retention team
survery customers to why lapse
good customer service
communication with customers is regular
monitor competition
designed to encourage persistency e.g. ncd
monitor lapse rates of sellers and take action
target types of customer less likely to lapse


u/w consideration on ip (8)

proposal form e.g. sex/age/location
benefit features (rr/size/deferred period/term/options/claim definition)
medical evidence (proposal/extra questionnaires/gp report/medical exam/specialist tests)
lifestyle e.g. skiing
financial details vs size of benefit
regulations e.g. gender use
social constraints e.g. genetics
terms to offer e.g. special term/premium load/exclusions/decline


explain how medical/special tests get u/w info? (2)

give precise & unbiased info on current state of health
give risk factors that will make certain medical conditions more likely


what the u/w decision about reinsurance?

offer risk to reinsurer facultatively, zero retention


why do initial u/w? (8)

classify risk, reduce anti-sel
classify risk as acceptable(standard or adjusted)/uninsurable
special terms determination
ensure mortality/morbidity expereince = expected
reinsurance requires it for good price
ensure people treated fairly in relation to their risk vs the group
reduce over-insurance through financial u/w
weigh up benefits against costs


changes in personal circumstances that should be told to insurer (9)

place of residence
travel habits
own health
family history
alcohol consumption
drug taker?
leisure pursuits


factors when deciding whether to increase medical exam u/w limit amount (23)

how much to increase by
different limits for different classes
sales increase as:
less customers do the exam
quicker sales for customer/salesmen
business mix will change
estimated cost of medical exam
estimated cost or u/w policies
higher sales imply lower pp expense
if costs small, little saving
profitability e.g. financial projections
data needed
increased anti-selection
impact on claims experience
premiums increase if worse expereince
montior competition and comptetitiveness
monitor experience
increased nb implied increased nb strain
systems/train necessary
consistency with other products
reinsurer changes its prices
reserves impact


non-financial risks associated with selling CI (14)

volume bigger than expected
mort higher than expected
morb higher than expected
more early claims than expected (early screening/diagnosis)
option take-up higher than expected
expense and inflation higher
lapses higher early on when as<0
selective lapses
non-disclosure of all risk info
fraudulaent claims
ops risk - failed ppl/processes/systems
reinsurer/broker defaults
fiscal changes (tax)


things that ensure accurate and complete policy and claims data (headings) (6)

regular vetting
spot checks
data acceptance controls
staff training


how do you do regular vetting/spot checks (8)

regular inspection of data acceptance processes
check data comprehensive
compare paper vs. electronic storage
systems to detect incosistencies/unusual features in data
check internal consistency e.g. sum assured vs. premiums
check versus past valuations e.g. #pols
check plicy records "end to end" through processes/systems
have single system to store all data (warehouse)


how do you have controls on data acceptance? incude examples (2)

autochecks to identify input errors e.g. sex only m/f, max age<120
certain exeptions only allowed to be overwritten by authorised persons
audit trail must be kept of changes


how do compulsory fields help ensure accurate/complete policy and claims data? (2) include examples

certain mandatory fields in individual policy records, input not accepted unless filled in
e.g. sex, age, beenfit, term
claim record not accepted unless has a policy number to cross reference


how do staff training help ensure accurate/complete policy/claims data? (6)

adequate training to staff reposnsible for data input
develop ability to spot data errors
encourage close relationships between software staff and input staff
encourage feedback from input staff
ensure proposal form and input screen have same format
ensure systems are developable and refienable to adapt to all required future data


main headings of risks to an insurer from selling key person ip? (learn oct2010 q7ii

morbidity risk
expense risk
withdrawal/non-renewal risk
new business risks
other risks


list sources of risk to a insurer (22)

claim inception/termination rates
claim cost information (e.g. medical inflation)
investment performance
expenses and inflation
nb mix by nature/size/source
nb volume
guarantees and options
management of insurer
counterparties in distribution
reinsurer default
customer service shortcomings/reputation risk
internal audit faulres/fraud
aggregation/concentration of risk
earlier screening/diagnosis
liquidity risks


how can a health insurer manage its risks? (a lot!)

asset liability matching by nature/term/currency
liquidity risk managed by cashflow monitoring
monitor experience vs. pricing basis e.g expenses
retention team to avoid lapses
service level agreements to outsourcers
competency assessments for inhouse staff/distribution staff
check on policy data
customer satisfaction surveys
risk analysis
good claims management
monitor distributors
market research for likely new business volumes/mix
keep close to regualtory developements
keep close to market/medical developments
design product to meet needs
clear, all-encompassing policy wording
appropriate risk/governence structure
clear investment strategy
invest in lower risk assets
due diligence of 3rd part service providers
multiple companies to avoid counterparty risk e.g. reinsurers
regular solvency and capital monitoring
appropriate commission structure
internal/external audit reduces fraud
reduce level of guarantees and options
reviewable premiums
higher levels of capital e.g. mismatch reserves
budgeting/internal expense controls
diversify business portfolio avoids aggregation of risk


what is a health option usually?
main risks of writing options and how to manage them? (14)

option to change benefit/renew/convert
main risk:
selection against insurer by people of poor health exercising option
medical advances mean more likely anti-selection
risk of selective withdrawals
risk cost of writing option not ocvered by extra profit from more pols
risk that expenses greater than that when expected in pricing

managing risks:
time frame on option exercise
only allow options if orignal policy standard rate
limit events allowed to exercise
max upper limit on benefits
underwrite assuming max SA will be reached
clear terms and conditions on option exercise
remind all customers they have the option so healthy may exercise too
monitor sales, remove option/stop sales if sales insufficient
regular monitoring of normal rates to ensure competitive
regualarly monitor the cost of options
reinsure/assistance of reinsurer in pricing options
include margins in pricing
set up reserves if options start biting big


16 ways to manage risks

reinsure adequatly
strict u/w
good claims control
change product design
reduce g's and o's
clear t's and c's
adequate premiums for admin/term costs
efficient claim process/systems
customer service good
broker service good
pricing advice from reinsurer/consultant
diversify by type/region
marketing better
risk management good
government lobbying
subsidise poor products with profitable parts of business


why would an insurer that only ever sold CI become technically insolvent? (32)

more claims than expected
unexpected business mix
concentration of risk
actual illnesses unexpectedly high
high amount of guarantees biting
non-reviewable premiums
pricing margins not adequate
target market not allowed for
more selective lapses than expected
option take up higher than expected
u/w standards not as expected in pricing
weak u/w meaning greater anti-selection than expected
claims management standards poor
poorly worded t's and c's
design poor
lack of diversification only selling 1 product
too little business - high expenses
too much business - high nb strain
mix not as expected, more loss makers (x-subsidies)
higher expenses than expected
one-off high expense
expense inflaiton higher than expected
commission higher than expected
lots of early lapses when as<0
lower late lapses so less profits
poor asset liability matching
risk assets, defaults
reserving basis inadequate then strengthened
poor data/systems meaning reserves not accurate
new regs meaning higher requirements
retrospective legislation
tax changes
regualtor fines
not able to raise capital in market
has been offering at minimum capital requirement without cushion
internal or external fraud
oprational catastrophe
poor management decisions
risk management and governenvce poor
reinsurance inadequate or default
outsourcer/distributor default