- setting premiums and/or contribution rates
- calculating reserves required to meet future liabilities
- preparing statutory returns to demonstrate solvency
- assisting with risk management decisions. e.g. determining appropriate investment, reinsurance and/or bonus distribution strategies
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carrying out experience analysis
- to assess the suitability of past assumptions
- to identify unprofitable tranches of business sold in the past
- Poor quality and/or quantity of available data can have a significant adverse effect on the quality of the advice given.
- If data is poor quality, then results may be wrong and, if poor quantity of data, then results will have high degree of uncertainty.
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Problems of data quality and quantity can be a result of:
- poor management control of data recording and verification
- poor design of data systems
- If possible, data used for all kinds of purposes should be controlled through one integrated data system. Data used for different purposes will be consistent, reducing possibility of errors.
- However, in some cases, a large quantity of high-quality past data may simply not be readily available.
- New company, new product, new market, new distribution channel, significant changes to terms and conditions of the product, regulatory changes (ban on gender discrimination (can use proxy instead)).
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Proposal form:
- In both life and non-life insurance, the data gathered directly from the policyholder on the proposal form will be crucial.
- Questions should be clear and unambiguous. Where possible, quantitative (rather than qualitative) data should be requested.
- Aside from general administrative data (e.g. name, address, bank details), only measurable data likely to affect the claim amount and/or claim timing (or frequency) is required.
- Data collected not necessarily to price the product at this moment. But they may be used in the future.
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Source uncontrolled by the insurer:
- There are some circumstances when the actuary will not have full control over the data to be used (e.g. an actuary carrying out a statutory valuation of an occupational pension scheme).
- In this case, data covering the membership of the scheme and the benefits accrued by each member at the date of the valuation will usually be provided by the employer.
- However, where the data is provided from an external source, this is particularly important.
- Need to perform check on such data!
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External source:
Where poor quality and/or insufficient data is available, the actuary may consider the use of data from an external source (e.g. industry-wide data, reinsurer data, national statistics).
This can be particularly useful to small insurance companies and companies writing a new (or specialised) class of business, where the quantity of internal data is inadequate to allow credible statistical analysis. For example, the Continuous Mortality Investigation (CMI) Bureau collects and analyses a large quantity of mortality and morbidity data from a range of life insurance companies in the UK.
However, the main disadvantage of external industry-wide data collection schemes is the possible distortion caused by heterogeneity between different data providers.
Distortions in collective data schemes can result as not all contributors will be homogeneous with regard to:- terms and conditions of policies (there must be difference !)
- underwriting and claim settlement practices
- underwriting and claim settlement practices
- target market
- nature and/or detail of data requested and stored
- Industry-wide data also tend to be less detailed and flexible than internal data (as data will usually be provided in summarised form, with no access to underlying raw data), and more out-of date (due to time taken to collect, collate and distribute results).
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Life insurance: As mentioned above, the Continuous Mortality Investigation provides mortality data for both assured lives and annuitants (separated by a range of major risk factors) and also morbidity data from critical illness and income protection insurance.
Demographic data (such as population projections) are produced regularly by the Office of National Statistics. - Non-life insurance: The Association of British Insurers also has an extensive database covering premium, claim and expense experience for the non-life insurance market as a whole (and subdivided by category covering motor, property, employers’ liability etc), as well as re-insurance data for Marine, Aviation and Transport (MAT) and non-MAT business.
- The main aim of risk classification is to obtain homogeneous classes of data with respect to the factors affecting the risk being analysed. Then, the experience of each class will be more stable and characteristic of the underlying grouping. This allows for more accurate projection of future experience.
- To ensure the changes in the underlying mix of risks will not affect future experience.
- However, separating the data into homogeneous groupings may give insufficient data in some cells (e.g. at very low and/or very high ages). In this case, it may be necessary to combine some groupings and sacrifice some degree of homogeneity for increased credibility
Possible checks applied to a given data set include:
- reconciliation with data used at previous valuation
- reconciliation with accounting data
- any inconsistency between shareholdings at start and end of period (adjusted for sales and purchases) may indicate errors in the asset data provided
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checks on any unusual values in the data set
e.g. very high (or low) sum assured or premium may indicate individual data entry error or systematic problem -
random spot checks on individual data items
it is particularly important to check data for members (or policyholders) who have significant liabilities
In general, the extent of data verification in any particular situation
will depend on the financial significance of any errors made.
- name
- date of birth
- gender
- date of retirement (particularly if there is any minimum guaranteed payment term)
- current level of pension
- class of member (as this may affect entitlement to spouse’s pension and/or future pension increases)
- marital status and age of spouse
- scheme member or spouse/dependent of scheme member
- scheme trust deed and rules (to ensure the correct benefits are valued)
- the valuation report from the previous valuation (for reconciliation purposes)
- details of all the assets held by the scheme at the current valuation date (to enable valuation of these assets)
- any contributions made by the sponsoring employer since the previous valuation
- age
- genders
- smoking status
- in-force duration – because of high level of underwriting
- distribution channel – different distribution channel will attract different customers
- sum assured – the higher the sum assured, the more likely the anti – selection will be
- age – more complications for older people, destination (US expensive health care expense)
- duration of stay (The longer you stay, the higher the insurance will cost)
- type of cover (e.g. are dangerous sports covered?)
- occupation
- reason for trip (business or pleasure)
- gender is probably not a major factor here – There is not enormous different claim inception rate between the genders