10-12-2010 n k parikh. efficient management sound underwriting excellent marketing which produces...
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Actuary&
You
10-12-2010N K Parikh
Efficient Management Sound Underwriting Excellent Marketing which produces results Luck
Ingredients of Success
Luck -external, environmental, attitudinal -political attitudes, social attitudes, client’s attitudes,
market movements including competition, technological changes
Directors’ and Officers’ liability policy where the perils included are:•Allowing a company to continue operating in circumstances when it should have been declared insolvent•Any act resulting in the insured being declared unfit for his or her role•Allowing false financial statements to be published.
Lengthy Reports
Valuation affects the Incidence and Quantum
Why Actuaries are highly paid
Supply and Demand WILD and SANE Slog for many years Quality Values
Quality Values Long-term thinking Understanding of data and models Multi-dimensional thinking Problem-solving ability Continuing Professional Development Skilled in the 2 principles of actuarial science The first working principle of Actuarial Science -
what gets measured, gets managed and more importantly priced
Models – 36-24-36
The second working principle - E Peretia Ratio or the use of past experience to reason solutions for future.
Technical Aspects
General Insurance predates Actuaries Events overtook – New risks with industrialisation – nuclear, satellite, terrorism,
engineering, professional indemnity, LOP, Nature of risk magnitude of risk changed – compare World Trade Centre. Other factors - Competition, rate cutting, investments,
consumerism, PRE, high inflation, change in outlook, globalisation, regulatory restrictions.
Quantitative data, Statistical Theory, computers, storage devices
the actuary arrived on the scene. Without him, priced out of the global market?
Actuary in 2 packages – Consultants and
In-house Actuary Consultants - Partners-in-progress In-house Actuary - Cause-of-progress
What is Insurance
Insurance is a technique of sharing of risks or
spreading of losses. In the words of the
Elizabethan Act of 1601, “by means of which
policies of assurance….. the loss lighteth rather
easily upon many than heavily upon few”.
- Insurances of rare risks , granting of NCD & experience- ratingRare Risks
the nails of an artist or the eyelashes of an actress, the legs of a dancer, the tongue of a taster, disappearance of a TV artiste, ‘cutting a sorry face’ insurance of a speaker or even the insurances of sputniks and satellites and the like.
NCD
Experience Rating 60% ± 7.5%.
The service that insurance performsBest of both the worlds 400 Insurers
2 problems posed
Risk – Actual - Expected Cyclical Nature of Risk
- Life on this planet
working of General Insurance Staff
Working of General Insurance
Training Motivational Literature Counseling To speak on -
-What life has taught me
-My Obituary
-Underwriting considerations for rating of a rare risk, like say, ‘cutting a sorry face’ insurance of a speaker.
Programmed Learning Text-books
UNDERWRITING CONSIDERATIONS FOR WRITING A RARE RISK - ‘CUTTING A SORRY FACE’ INSURANCE OF A SPEAKER(RESPONSES RECEIVED AT AN EARLIER TRAINING SESSION)
Insurable Interest - Speaker or the Organisation or Both. Venue? Open Policy or Individual – special contingency policy Assessment of the Risk – Applause Quantified by Number of claps and hackles. Third Party Risk – Personal Injury risk to the speaker or organisers Past Experience Partial Claims Moral Hazards Salvage Medical Examination – Fitness Condition Abandonment – Man made or Natural cause Abandonment in between Cover – Worldwide – Currency Cancellation due to various causes Consequential Loss – Speaker - Organisers – Venue Clauses to be attached – drafting of the policy. Deductibles Extempore or prepared Claims Minimisation – to smuggle in 5 to clap Reinsurance Premium – 50 per 1000?
Prize * for anyone extending the List to 25 or more – put it in proper order and add some notes explaining the u/w consideration – 2 pages *FOUNDATIONS of Casualty actuarial science – Fourth Edition – Part I & II
Working of General Insurance cont..
Development Officers on the Administrative side remunerated by Salary and
Profit Commission.
-The officer/agents developed a stake in good business.
-Quality and Quantity of business increased.
-Frauds disappeared.
-Policy holders dissuaded by the development officers from claiming things not payable.
-Awareness increased that the insured did not pass on junk business.
- Suddenly the approach changed - the development Officer assumed the role of an underwriter
Working of General Insurance cont..
Miscellaneous Credit card business and warranty businesses . Payment of premium within 60 days. Persistency ratio Reinsurance expertise and reinsurance capacity Retentions
Accounting
Cash Basis Accounts on three year basis From cash to accrual Technical Reserves Outstanding claims UPR URR /AURR - Premium Deficiency Reserve- Legal Claims- Claims Equalisation Reserves IBNER IBNR
IBNER
S.No. Sub-Class Claim No. Provision as on 31-12-2008
01-01-2009
(1) (2) (3) (4)
1 Fire F/..../…
2
3
4
.
.
.
1998 Motor M/.…/….
1999 Motor
2000 Motor ________
TOTAL 3,000,000
IBNER cont.S.No. Sub-Class Claim
No.
Provision as on 31-12-2008 01-01-2009
Amount paid during the year
09 / Outstanding at the end of the
year 09 for
Difference (4) - (5) with
sign + / -
(1) (2) (3) (4) (5) (6)
1 Fire F/..../… ₊2 ₋3 4 . . .
1998 MotorM/.…/
…. ₋
1999 Motor ₊2000 Motor ________ ________ ________
TOTAL 3,000,000
IBNER cont.
Claim No.
Provision for as on 31-12-2008
01-01-2009Progress during the year
Difference
(1) (2) (3) (4)
1 1000 paid for 1050 -50
2 2000 paid for 827 1173
3 3000 repudiated - paid for 0 3000
4 4000 outstanding for 6780 -2780
5 5000 No development 5000 0
TOTAL 15000 136571343 over provision
Difference = 15000 - 13657 = 1343 - overprovision
IBNR• Non-mathematical and mathematical techniques Compare the actual past results for the last 3-5 years and take the highest percentage or draw a
graph and project the trend. Mukerjee committee Report in India based on the NEP classwise. Public Sector Undertakings in India’s method based on the Claims Outstanding.• Triangulation/ BF /Average claim amount and Average no. of claims/ Expected loss ratio -
statistical. The emphasis has shifted from IBNER/IBNR - holistic approach - reliance is placed on Risk
Management models. If the companies close their accounts after 4 months, bulk of the IBNR would have been
reported. By not providing for IBNR every year - only difference is the error.• The various methods result into a range of values. Hence before finalizing the IBNER/IBNR, the
other non-mathematical factors taken into consideration are: Whether the Company declaring dividend for the last 3 years. Whether the Company making U/W profit on a stand alone basis Whether the Company be making U/W profit only after taking proportionate credit for the
investments of Technical reserves. Whether the Company be making profit after taking the credit for full investment income. Finally the Actuary takes a middle path to finalise. – actuaries religious at heart - believe in
practicing compassion - He wants a living thing to go living, he wants a going concern to keep going.
Outstanding Claims – General observations Claims outstanding for more than 2 years -
Claims Clearance Fortnights Motor Accident Claims Tribunal On the Spot Settlement System Claims Minimisation Department
- Cover for Motor Own Damage
- maximum amounts for various surgical operations
General – additional Recommendations Pre-payment of premium Dividend Equalisation Reserve Rating by an accredited international agency Financial Condition report 10 years’ summarised statistics in every Balance
sheet
Actuary can help Pricing, Reserving, modelling. Underwriting/Administration/Development/
Expense investigations/ Investments/ Catastrophe Modelling and what not…
Ideal Risk Management Future of General Insurance Life Insurance - a special and much
simplified case of General Insurance? Future of Actuary
PRAYER
To wish everyone happiness, good health, good fortune, and no suffering from pain or misery
Amen !
