Pricing

Question 1

Experience rated

Answer 1

Practice by which the premium depends wholly or partically on past experience of the insured.

Question 2

Book rated

Answer 2

Where the past experience is not taken into account , book rates are used. Using inusrer’s whole book as a basis for pricing. This is usually approach for pricing health benefits

Question 3

Credibility

Answer 3

When it come to experience rating within pricing - creditibility of data - factors between 0 and 1 - represents the proportion of the final risk premium that is derived from past experience , which the balance coming from book rates.

Question 4

Credibility

Answer 4

When it come to experience rating within pricing - creditibility of data - factors between 0 and 1 - represents the proportion of the final risk premium that is derived from past experience , which the balance coming from book rates.
The value of the factor depends on the amount of experience data that is being used and a very large amount would be needed to justify a factor of 1

RP = Z* A + (1-Z)*E
Z is credibility factor , A is risk premium based on past experience of the group and E is risk premium based on book rate

Question 6

Credibility factor will depend on

Answer 6

1. Size of the scheme
2. Number of years of data available

Question 7

Cash flow vs formula pricin

Answer 7

Formula = short term contracts
Cash flow = long term ( life )

Question 8

High level approach for pricing individual policies

Answer 8

1. Choose the pricing basis and approach , which includes understanding the product and benefit design
2. Collect and check data , make sure to correct any errors
3. Split data into homogeneous groups based on the underlying relevant risk cells
4. Calculate a burning cost , or cost of the underlying the risk benefit
5. Analyse the data and results
6. make adjustments to the base values so that they are complete and relevant , representative of the expected period being priced for
7. Determine and calculate the assumptions needed
   8.Project forward the expected base cost of the risk benefits being priced
8. Adjust he base cost for other loadings such as point, expenses, including admin, claims,operational and marketing,tax, investment return, and cost of capital (COC)
9. Other considerations which may include competition, cross-subsidies,options,guarantees and discounts, unique product features,regulation,and market trends.

Question 9

Adjust the risk premium in case base period is not reflected to future period

Answer 9

1. Unusually light to heavy claims
2. Large or exceptional claims
3. Changes in cover
4. Changes in risk
5. Changes in reinsurance
6. Trends in claims experience
7. Seasonal variation of claims
8. Incomplete claims
   9.Change in agreement with suppliers
9. External influences -

Question 10

Claims inflation for PMI

Answer 10

1. Professional fees and medical treatment
2. Cost of pharmaceuticals and medical equipment , which may include exposure to exchange rate fluctuations in case where things are imported
3. The cost of claims - which could include fees paid to external claims administrators responsible for administeringclaims

Question 11

Group rating factors - 2 levels

Answer 11

Individual level - These are rating factors that apply to the inidvdiuals of the group and therefore very similar to rating factors that would be used for individual business
Group level - these are rating factors that are applied to the group self - industry, location, size of the group , employer’s attitude to their employees health

The larger the scheme , the more likely the price will depend on historical aggregate Liam’s experience and less on individual life rating factors

Question 12

Factors affecting the health options

Answer 12

1.term of the policy with th eoption - the longer the term , the longer the ph will have option - more likely that health will worsen and ph will take the option
2. Number of times that ph gets the chance to excercise
3. Conditions attaching to exercising the option - limit the size of the option or restrict the choice of contracts available under the option
4. The encouragement given to ph to excercise - if the take up is low then it tends to be those who have most to gain - encouraging more of the leather lives will not cause any additional expected loss and should contribute to insurer’s total profit
5. Extra cost t the ollicyholder who excercise the option - if the option involves a steep increase , the healthier lives might shop around