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abcd. The Younger Members Convention. 2-3 December 2002 The De Vere Daresbury Park Hotel, Warrington, Cheshire. abcd. Underwriting Awareness for Actuaries or Pricing is just one small part of the fun!. Debbie Akers Chief Underwriter , Friends Provident. Choice Social Insurance

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The Younger Members Convention

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abcd

The Younger Members Convention

2-3 December 2002

The De Vere Daresbury Park Hotel, Warrington, Cheshire


abcd

Underwriting Awareness for ActuariesorPricing is just one small part of the fun!

Debbie Akers

Chief Underwriter , Friends Provident


Choice

Social Insurance

Commercial Insurance

Adverse Selection

Ability to price

Protection of profit

Why Underwrite?


The underwriter is in a pivotal position in maintaining company profitability

Maybe 90% of cases are accepted at Ordinary Rates but behind the OR decisions can lie hours of intensive and expert analysis

Proposals need to be accepted on terms which are equitable and which mirror the actuarial assumptions made when setting the pricing.

Importance of Underwriting


The insured risks

Gathering information

Constraints and Threats

Control Cycle

Reinsurance

New Issues

Agenda


The insured risks - there’s a product under theresomewhere

Gathering information - protecting the experience

Constraints and Threats - the ‘interesting challenges’

Control Cycle - actuaries and underwriters really get together

Reinsurance - more actuaries and underwriters get together !

New Issues - incl the G-word

Agenda


Death& Terminal Illness

Critical Illness

Disability - TPD, WOP, IP

What is the risk we are insuring?


Target market

Sales process

Who are the lives we are insuring?


Disability Definition : Occupation based

Own / Any / Suited

Disability Definition : Activity -based

ADL / ADW / FAT / IAT

Critical Illness - very detailed definitions! and of course

Death or Terminal Illness

Exactly what will trigger a claim ?


Suicide / self-harm

HIV / AIDS

War / Terrorism

Drug Abuse

……?

Some things which won’t - contractual exclusions


Extent of questions - not number but content

Threshold for obtaining further evidence

What we do with the information

How thorough is the Underwriting ?


Application form

Personal details

Age / Height & Weight / Smoking / Alcohol / Occupation

Pastimes

Medical/ Mental and Outline Family History

Financial factors

Residence/Travel

Gathering Information


Application form

Questionnaires

Expert Underwriting Systems at point of sale

GP Report

Hospital Letters

Nurse Screening

Medical Examination

Tests eg blood profiles

Gathering Information


Triggers for further evidence:

Type of cover

Size of benefit

Age

Expiry age

Disclosures

Information gathering


Costs

Admin of requesting / chasing evidence

Fee for evidence

Underwriter time

Risk of NTU in the meantime

Annoying the Adviser

Benefits

Managing premiums and liabilities ie

Avoiding the very high risk claims

Receiving a fair premium for the moderate extra risk

Medical evidence:Balancing the costs and benefits


Reassurer Manuals

Company’s own manuals

Reference sources

Accumulated underwriter knowledge

Chief Medical Officer

Reassurer - underwriter/CMO

Assessing the evidence


% extra mortality/morbidity - eg high BP

per mille extra - eg scaffolder, cancer

exclusion - CI - Exclude MS if history of optic neuritis IP - Exclude claim from upper back pain

Restrict Term

Remove options

Postpone

Decline

Extra Risk


Old days

95% OR

4% Rated

1% Decline

Now

Life - 92 / 6 / 2

CI - 88 / 9 / 3

IP - 74 /18/ 8

Distribution of Decisions


Disability Discrimination Act

Data Protection Act

Access to Medical Reports Act

Sex Discrimination Act

Race Relations Act

ABI Code of Conduct on Genetics and Confidentiality

ABI Statement of Practice on Underwriting HIV/AIDS

Ombudsman

Regulatory Constraints on the Freedom to Underwrite


Adverse Selection

Non-disclosure

Moral hazard

Threats


Range of questions

Precise wording

Continuing duty of disclosure

Underwriter’s ‘nose’ - picturing the whole case

Plugging the Gaps


Reasonableness not legality

Simple view - ordinary person

Non-disclosure -

related / unrelated

innocent / negligent / fraudulent

Opportunity forgone

Small print / catch-all questions

Financial Adviser influence

Ombudsman


Pricing

Underwriting

Claims

Control Cycle


Teamwork

documentation - policy conditions / KFD / application form

pricing - mortality / morbidity; expenses

launch training - sales etc

Control CycleProduct Development


Controls on underwriting

FSA Delegated Authority - Approved Person

training

authority

audit

Management of Claims

Verifying and monitoring claims

Identifying non-disclosure

Identifying weakness in underwriting or documentation

Experience Analysis

Control CycleFollow -through


Quota share treaties align interests closely

Reinsurance terms depend on their view of

mortality/morbidity experience

underwriting skills and controls

claims handling

Underwriting today impacts profit -

today - direct immediate impact on Value of New Business

and tomorrow - future reinsurance terms

later - eventual Embedded Value

Reinsurance


Issues for Insurance Underwriting

History

Differing views - discrimination, fairness,

Genetics


Genetics and Insurance Research Centre

Herriot-Watt

Institute/Faculty Genetics Group

Sessional Paper on Social Policy Issues

Feb/April 2003

Professional interest


Issues for Insurance Underwriting

History

Differing views - discrimination, fairness,

Current Moratorium

Future

Genetics


Sources of data

Actuarial models

Resource availability!

Reassurers

Direct Writers

Evidence - based underwriting


The insured risks - there’s a product under theresomewhere

Gathering information - protecting the experience

Constraints and Threats - the ‘interesting challenges’

Control Cycle - actuaries and underwriters really get together

Reinsurance - more actuaries and underwriters get together !

New Issues - incl the G-word

Review


A + U = SPB

Actuaries + Underwriters = Sound Protection Business

A+U+CM = SPB - and Claims Managers too!

Summary


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