When adverse information is solely triggered by just one requirement it is
Uniquely protective
Companies hesitate to share the results of a cost-benefit study because of
1) cost of the study
2) concern about anti-trust
3) proprietary nature of the results
The lemming approach to requirement ordering
Following age and amount thresholds used by peer companies
Factors to consider when comparing peer companies age and amount limits for underwriting requirements (10)
- basis used to set a companies current limits
- other requirements used
- the underwriting manual used and how it is used
- the underwriting philosophy used
- underwriting proficiency
- target market
- distribution system
- products marketed
- mortality and other expense expectations
- expeirnce-monitoring capabilities
Pricing horizon
the number of years the mortality covers
do mortality assumptions tend to be understated or overstated in in cost-benefit studies?
Understated
Two primary goals of cost benefit study.
- To define how often the requirement identified extra mortality (hit rate).
- To define the size or magnitude of the hit (magnitude of the hit is more important)
Percent of time a requirement resulted in a change of rate class
Hit rate
The threshold amount of insurance to justify routinely ordering a requirement
the break-even amount
The disciplines that should be involved in cost-benefit study (5)
Underwriting, new business, actuary, research and analysis, marketing
Steps to conduct a cost benefit study
- Chose the number of cases for inclusion
- distinguish on a case by cases basis whether a requirement was solely responsible for an adverse underwriting decision.
- identify situations where a requirement was not uniquely protective
- determine why a requirement was obtained
Why assign fewer resources to cost-benefit studies?
Consistency. Assigning fewer people to do the work reduces variability.
