Role of Actuaries & Exclusion of Perils

8/13/2019 Role of Actuaries & Exclusion of Perils

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Role of Actuaries & Exclusion

of PerilsPresentation by

Jasmeet Kaur

Jyotsna PanwarPunit Yadav

Shubham Arora


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Actuary

Professional who will ascertain in advance theuncertain events that could take place in future and

come to financial conclusions. An individual who will analyze important data such

as mortality, sickness, injury and disability.

Responsible for collecting the data to forecast futurerisk and see hoe these predictions will affect variousaspects of insurance.

Expert in reviewing and analyzing insuranceoperations, reserves and underwriting procedures.


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Legal mandate

IRDA mandated appointment of actuaries to beknown as appointed actuaries to certify certainoperations of the insurance companies.

Regulation which talk about such legalrequirements are:

1. IRDA(Appointed Actuary) Regulations, 2000

2. IRDA(Assets, liabilities and solvency margins ofinsurer) Regulations, 2000


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Claim Reserving Its required in the case of: Claim reported but not fully settled Claim remaining unreported

The expenses associated with handling and discharging such claims Claims and expenses of unexpired policies presently in the books

Actuary does the reserving based on statistical techniques and hisexperience and judgment. Some methods employed are:

Average cost per claim method

Loss ratio methodsBlends (combination of two or more methods)

Besides technical methods judgment finds important place in claimreserving as certain amount of assumptions is required in taking thefinal decision.


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Designing a product

Product must be designed in a way that they canbe priced appropriately from perspective of bothinsurer and insured.

Actuaries assist in identifying market needs,competitors product and social and

demographic trends. Their job involves assessing the feasibility of

product design features , and compensationschemes.


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Pricing a product

Actuaries play key role in determination ofprices which are competitive and reasonable

taking into considerations factors like:Cost of the benefits by product design need to

be estimatedExpenses involved in commissions,

underwriting costs and other policyadministration costs and overhead costPrices must reflect the rate of return insurer

expects to earn.


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Determination of solvency margin

Claims are the biggest liability of an insurancecompany thus solvency margin is important so as to

protect the policyholders interest and ensure thehealth of the industry.

Appointed actuary is liable to monitor the solvencymargin of the companies on regular basis and to

certify the outstanding claims provisions relating toIBNR.

In case of breach of the solvency margin the actuaryis duty bound to inform the same to IRDA


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Risk management

Insurer is exposed to different types of risks suchas underwriting risk, credit risk, liquidity riskand operational risk.

Actuary identify specific risk and consider andquantify their relevance to business.

They often design a reinsurance program to dealwith excess amount of risk, and negotiate theterms of such contracts


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Functions of Actuaries

Pricing and product design

Safeguarding Policyholders interest

Establishing aggregate policy and claimliabilities

Determining appropriate capital

Direct responsibility to board and regulators


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Exclusion of Perils


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A peril, is defined as the actual cause of thedamage resulting in financial loss.

Excluded perils can generally (but not always)be remedied either by an exception to theexclusion, an endorsement or the purchase of a

separate policy.When viewed in the light of reason, policy

exclusions are not unreasonable as withoutmany of the exclusions contained in property

and liability policies, premiums would beprohibitively high and fewer viable carrierswould be available to accept the risk.


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Main reasons of exclusion of peril

The peril is better covered elsewhere

The loss or damage is catastrophic in nature The loss or damage is not accidental or unforeseen

The insurance carrier is willing to provide coverage;they just want more information and more premium

The insurance carrier wants to control the amountof coverage granted

The loss results from a speculative or businessrisk.


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The peril is better covered elsewhere

Some exclusions exist because there is a moreappropriate coverage form available to provide

the needed protection.

Example : Money loss is excluded in thecommercial property form because this exposure

is better covered under a crime policy


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The loss or damage is catastrophic innature Insurance was not designed to respond to

community disasters, only to individual

disasters.

Certain perils have the potential to result inwide-spread damage the industry is not

structured to handle Example: Earthquake


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The loss or damage is not accidentalor unforeseen An insurable loss is one that is accidental,

unforeseen, definite in time and place and is

measurable Intentional acts of the insured are excluded in nearly

every insurance policy Also falling outside the definition of insurable loss

are losses that are likely to or will happen, damagespecifically controllable by the insured and knownevents.

Example: Wear and tear to property is going tohappen, failure to care for the property.


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The insurance carrier is willing to provide

coverage; they just want more information andmore premium

Endorsements are available to remove or narrowthe breadth of some policy exclusions, allowing

the insured to customize coverage to fit its needs

Before granting extended coverage insurancecarriers often want more information about the

insured plus some additional premium


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The insurance carrier wants to control theamount of coverage granted

Excluding coverage and giving some of it backallows the insurance carrier to dictate the exact

amount of coverage they are willing to offer.They control the breadth of coverage.

Taking coverage away and giving it back in pre-

determined amounts makes far more sense andreduces the potential for confusion.


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The loss results from a speculativeor business risk Speculative risk or business risk involves the

chance of loss, of no change or gain. Insurance is

not designed to protect the insured from a badinvestment or bad business decision.

Example: Product recall exclusion (which can be

covered by endorsement) and the commercialproperty policys special cause of loss exclusionsvoluntary parting and delay, loss of use or lossof market.

Documents

Role of Actuaries & Exclusion of Perils