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Questions and Answers
What must insurers report regularly?
What must insurers report regularly?
Financial results
What happens if estimates are inadequate?
What happens if estimates are inadequate?
- Increase in premium income
- Maintenance of market share
- Reduction in rates erroneously (correct)
- Increase in rates erroneously
What can excessive estimates lead to?
What can excessive estimates lead to?
- Increased investments
- Loss of market share (correct)
- Reduced claims
- Higher revenue
Inaccurate reserves may result in misstated financial reports.
Inaccurate reserves may result in misstated financial reports.
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The price of any commodity in a free market can be written as Price = Cost + _____
The price of any commodity in a free market can be written as Price = Cost + _____
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What is the actuary's estimate of unpaid claims called?
What is the actuary's estimate of unpaid claims called?
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Which of the following reflects the costs of administering claims?
Which of the following reflects the costs of administering claims?
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A rating manual contains information to appropriately classify each ____
A rating manual contains information to appropriately classify each ____
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Study Notes
Key Concepts for General Insurance
- Understanding general insurance terminology is crucial; meanings can vary based on context.
- Insurers need to estimate claims costs for accurate financial reporting and reserves for unpaid claims.
Internal Management
- Pricing Decisions:
- Underestimating costs may lead to rate reductions, risking insolvency.
- Overestimating costs can result in inflated rates, losing market share and revenue.
- Underwriting:
- Incorrect estimates can affect market entry/exit decisions, reinsurance needs, claims management, and capital allocation.
Impact on Investors
- Misstated reserves can lead to inaccurate financial statements, impacting investor decisions and confidence in the insurer.
Regulatory Concerns
- Underestimating future obligations may present a misleading financial health picture, delaying regulatory intervention and risking insolvency and policyholder safety.
Insurance Pricing Fundamentals
- The price of insurance is determined by the formula: Price = Cost + Profit.
- Unlike non-insurance products, the ultimate cost for insurance is uncertain at the time of policy sale due to the nature of contingent events.
Ratemaking and Rating Manuals
- Ratemaking involves developing models for setting insurance prices.
- A rating manual classifies risks and calculates associated premiums, evolving from basic to complex documents.
- Premiums vary widely based on risk characteristics and the type of insurance involved (e.g., motor vs. property insurance).
Claim Estimation Techniques
- The unpaid claims estimate is the actuary's assessment of future payment obligations from past events.
- Important considerations include:
- Comparison of techniques and results.
- The impact of environmental changes on methodologies.
- Evaluation of methodologies for effectiveness in estimating claims.
- Unpaid claim adjustment expenses cover costs relating to:
- Administering claims.
- Determining coverage.
- Settling or defending claims.
- Complexity and extent of expenses can vary significantly by claim type, ranging from simple fire claims to complex liability cases.
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