3A General Insurance

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3A - General Insurance

• Tutorial one - Overview,
• Units 1 2

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3A - General Insurance

• First tutorial
• Overview of course
• Unit 1 overview and exercises
• Unit 2 overview and exercises
• Tips for success

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Examination technique

• In my opinion this is the major reason why
  students who should pass dont pass
• The examiners want you all to pass, but you have
  to demonstrate understanding

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Examination technique

• Remember the exams are set, reviewed and marked
  by practising GI actuaries
• Answer the question!
• Dont waste time re-writing the question
• Take some time to plan your answer
• Try to be concise bullet points can help

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Examination technique

• Answer the question!
• Dont brain dump - try to be specific
• Think about processes
• Apply materiality - main issues first
• Open book, open schmook
• Look back at your answer to see if the question
  has been answered
• Be careful of dangerous misstatement

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Course 3 Part A Syllabus

• The aim of this course, together with Course Part
  B is for the future actuary to have a depth of
  knowledge and understanding necessary to make
  sound judgments about the practice of general
  insurance or commercial problems related to
  general insurance.

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UNIT 1 - GENERAL ECONOMIC AND COMMERCIAL
ENVIRONMENT

• Aim 1 Analyse the nature and main features of
  general insurance contracts and the Australian
  general insurance market, including compensation
  schemes.
• Aim 2 Discuss the legislative, statutory and
  regulatory environment of the general insurance
  industry in Australia.
• Aim 3 Outline the functions of general insurance
  companies and compensation providers.

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Unit 1 exercises/discussion

• Who are the largest providers of General
  insurance in Australia?
• What products have the largest annual written
  premiums?
• What have been the biggest catastrophes in
  Australian history?
• What have been the biggest catastrophes in World
  history?

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Unit 1 Insurance products

• The following diagrams are illustrative theyre
  not meant to represent actual patterns of
  exposure and payments
• You should think about them for other products
• Why are they useful?
• Distinction between short and long tail
• Timing of cashflows very important
• Influence on claims and premium liabilities
• Influence on emergence of profit
• Will help for later sections of 3A and 3B
• Help to develop flexible analytical thinking

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Insurance products - Profiles

• Householders insurance - what does it cover?
• Annual policies
• Exposure even through year
• Some delay in payments
• What if the property was in Darwin?

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Insurance products - Profiles

• Workers Compensation - what does it cover?
• Exposure may vary. Why?
• Most payments early, but some continue for many
  years

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Insurance products - Profiles

• Lenders Mortgage insurance - what is it?
• Exposure over more than one period
• Why a reducing payment profile?
• What if policies grouped?

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Insurance products - Profiles

• Extended warranty - what is it?
• Delayed exposure
• What assumptions underlie these profiles?

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Insurance products - Profiles

• Crop insurance - what is it?
• Uneven exposure
• What assumptions underlie these profiles?

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UNIT 2 ACCIDENT COMPENSATION AND SELF INSURANCE

• Aim 4 Assess the principles, design and funding
  of accident compensation schemes.
• Aim 5 Evaluate the approaches to individual risk
  management and evaluate the design of
  self-insurance schemes.

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Classes of accident compensation(personal injury
compensation)

• Workers compensation (10 statutory schemes)
• CTP motor vehicle (8 statutory schemes)
• Medical indemnity (medical defence organisations
  and private insurance)
• Public liability personal injury (generally
  private insurance)
• Related self-insurance and pooled arrangements
• Sporting injury ?
• More than 10bn pa (1.5 of GDP) in premiums and
  benefits

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Distinguishing characteristics

• Pseudo social security political dimension
• Stakeholders (in WC labour / employer)
• Compulsory insurance
• Claimant usually be a third party from
  policyholder
• Prevention activities (OHS, road safety)
• Objectives
• Social, Health, RTW, Financial
• Design of schemes vital

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Coverage

• Fault Negligence / no-fault
• State based
• Who is covered?
• Profile of policyholders
• Profile of claimants

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Funding

• Compulsory insurance
• Full v partial v PAYG funding
• Long term viability
• Who bears the risk public/private sector
• Service delivery mechanism
• Monopoly, managed funds, competitive delivery
  systems

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Pricing

• Community rating / cross subsidies
• Exposure / rating factors (may not fully reflect
  risk)
• Experience / credibility rating
• Discounts /excess
• Caps and floors

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Benefit delivery

• Benefits provided income replacement, medical
  re-imbursement, non-economic
• Lump sum / periodic
• Defined in legislation / negotiated / common law
• Eligibility to benefits incapacity, impairment,
  disability

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Deductibles and Thresholds

• Typically deductibles
• First x of medical expenses
• First y days away from work
• Threshold for different benefits
• Danger
• Bracket creep
• Threshold weakness
• Superimposed inflation

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Weekly benefits

• Typically X of pre-injury earnings
• Step-downs after period of time
• Caps on benefits
• Commutation / redemption of benefits
• Negotiated or based on a scale
• May include wrap up of other benefit entitlements
• What does RTW mean?

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Legal costs

• Investigation
• Factuals and medical
• Legal costs
• Dispute management

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Long term care

• Home care / Residential support
• Catastrophically injured
• Provision of benefit
• Lump sum benefit
• Separate LTC programs

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Lifetime Care and Support (LTCS) - Background

• LTCS is a Scheme which manages treatment and care
  expenses for people with catastrophic (mainly
  spinal cord and brain) injuries from motor
  vehicle accidents
• Commencement of no fault coverage
• Children 1 October 2006 and
• Adults 1 October 2007
• Approximately 125 of these injuries per annum at
  an approximate average cost of 2.4m per claimant
  (currently only 60 of these receive compensation)
• Managed by separate authority, the new Lifetime
  Care and Support Authority

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Lifetime Care and Support (LTCS) - Impact

• NSW CTP premium pool will contract by 14.3
• LTCS funded by 66 per greenslip
• 20 increase in average premium
• 46 reduction in premium retained by insurers
  (which includes an expected 10 per policy
  reduction for reinsurance and cost of capital)
• Lower reinsurance costs transfer of costliest
  and most litigious claims to LTCS Scheme
• Lower capital intensity the impact of LTCS on
  GWP of the listed insurers is expected to be
• -1.1 for IAG
• -0.8 for Promina
• -0.6 for Suncorp and
• -0.2 for QBE

Liability limited by a scheme approved under
Professional Standards Legislation
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Actuarial involvement

• Outstanding claims valuations
• Pricing
• Monitoring
• Capital management
• Risk management
• Costing implications of scheme re-design
  proposals
• Funding projections
• Agent remuneration arrangements

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Self insurance

• All people/companies self insure risks
• Key to self insurance is
• Level of excess
• Understanding of the risk retained
• Internal allocation / smoothing / management
• Risk management
• Workers compensation self insurance is regulated
• Captives
• Effect on schemes of large employer exits

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Self insurance

• Reasons for self insurance
• Viability of self insurance
• Reinsurance arrangements required

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Top tips

• Get an understanding of various products
• Heads of Workers Comp/ Heads of CTP
• Use your own experience
• Look at a set of insurance company financial
  statements
• Look at disclosure forms

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Going forward

• Assignment
• More tutorials
• On-line discussion forums
• Past exams
• Questions?