ALU 202 Chapter 2 Cost-Benefit Analysis of
Underwriting Requirements:– Questions & Accurate
Answers
Save
Terms in this set (109)
A cost-benefit (cost/benefit) study cost (expenses) associated with gathering and
compares the analyzing underwriting requirement information, with
the benefit derived from the identification of extra
mortality found by the requirement.
Benefit refers to insurance benefit dollars that would be paid out if
the requirement were not ordered. These studies are
also referred to as protective value studies.
Cost/benefit studies are an integral whether the dollars invested in obtaining evidence to
part of the risk-management process. assess a risk are producing an adequate return on
Such studies provide information to the company's investment.
assess
Underwriting requirement expenses budgetary item found within the new business and
can often be challenged due to high underwriting department. The underwriter needs full
or increasing costs to the grasp of both the expenses paid out as well as
organization. In many companies, benefits derived from underwriting requirements.
vendor expenses are a
Underwriters who have developed lacking. Underwriters who walk into the chief
skills enabling them to communicate actuary's office claiming a requirement should be
and defend both the expense and the removed because their study determined only 3% of
savings bring value to their cases contained mortality hits, have not yet mastered
organization. All too often, some of the benefit side of the equation.
these skills are
,At most companies, expenses are defined. A primary objective of this chapter is to help
easily underwriters become comfortable in understanding
both sides of the equation, with a focus on the
mortality benefit side of the equation. This broader
understanding enhances underwriters' value to their
organization.
Underwriting is always evolving. companies to set direction for the underwriting
Cost/benefit studies are an integral department. Existing studies need updating due to
component used by changes in pricing, underlying mortality tables, actual
experience, and the competitive landscape.
There are new vendors entering the relevant to the underwriter. In many cases, these new
life insurance industry all the time with data elements need to be valued by the underwriting
new and different ideas on what department to determine if, when, and where, these
information is requirements bring value. Cost/benefit studies can
help.
Insurance companies create tables for cost/benefit studies, where break-even points define
age-and-amount underwriting at what age and face amount a requirement is
requirements that indicate when a justified. Cost per case is a fixed number. The
requirement is needed. These tables mortality rate by age is also a fixed number, for
are based on a variety of factors, one example, a mortality rate of two deaths per thousand.
of which is
That, by itself, is meaningless in a cost/ $1 million, two extra deaths mean $2 million in
benefit study if it is not tied to some payment and when the face amount is $100,000, then
face amount. For example, when the two extra deaths adds up to $200,000. In a break-
face amount is even calculation, the cost of testing will be balanced
by the benefit the mortality dollars saved, which
depends on face amount. That is why both age and
face amount matter in age-and-amount requirement
tables.
Given this background, the industry is dynamic requirement testing in which the proposed
introducing insured 's requirement path depends on key features
known at each decision tree branch. In other words,
conditional probability defines what requirements to
pursue.
, This process can be thought of as mini disease, and thus mortality, is estimated based on
cost/benefit studies where prevalence known features. Cost/benefit work can help define
of these decision points.
In the 1970s and 1980s many studies Harry Woodman and Rick Bergstrom took up the
were presented at the national banner in producing cost/benefit studies published
underwriting meetings. As that in On the Risk in the 1990s and early 2000s.
practice waned, authors such as
Since then, fewer studies have been valuable to their organizations and insights can
published in the journal. The industry generate a competitive advantage. They are still
believes these studies are very being done, but fewer are shared with the industry.
This is one more reason to understand requirement, it does not mean the same decision
how to conduct a study. Just because applies to all companies.
one company does not get a
Mortality assumptions, and thus product pricing, will impact a company's guidelines.
When it comes to cost/benefit studies, underwriter's skill set growth. Spreadsheets, such as
actuaries are the underwriter's ally. In Excel, should be a mainstay for number crunching.
fact, actuaries can contribute to the There will be no calculation errors if formulas are
entered correctly.
Spreadsheets can handle many tasks cost/benefit study including result summarizations,
associated with the table construction using pivot tables, if-then
statements, and a host of other activities. As more
underwriting information becomes digitized,
underwriters' skills need to expand to leverage the
power.
Excel can easily convert data into BMI, this can be converted into individual rating
underwriting ratings. For example, if a decisions with a table of BMI underwriting ratings
dataset includes and Excel 's lookup functionality.
Underwriting Requirements:– Questions & Accurate
Answers
Save
Terms in this set (109)
A cost-benefit (cost/benefit) study cost (expenses) associated with gathering and
compares the analyzing underwriting requirement information, with
the benefit derived from the identification of extra
mortality found by the requirement.
Benefit refers to insurance benefit dollars that would be paid out if
the requirement were not ordered. These studies are
also referred to as protective value studies.
Cost/benefit studies are an integral whether the dollars invested in obtaining evidence to
part of the risk-management process. assess a risk are producing an adequate return on
Such studies provide information to the company's investment.
assess
Underwriting requirement expenses budgetary item found within the new business and
can often be challenged due to high underwriting department. The underwriter needs full
or increasing costs to the grasp of both the expenses paid out as well as
organization. In many companies, benefits derived from underwriting requirements.
vendor expenses are a
Underwriters who have developed lacking. Underwriters who walk into the chief
skills enabling them to communicate actuary's office claiming a requirement should be
and defend both the expense and the removed because their study determined only 3% of
savings bring value to their cases contained mortality hits, have not yet mastered
organization. All too often, some of the benefit side of the equation.
these skills are
,At most companies, expenses are defined. A primary objective of this chapter is to help
easily underwriters become comfortable in understanding
both sides of the equation, with a focus on the
mortality benefit side of the equation. This broader
understanding enhances underwriters' value to their
organization.
Underwriting is always evolving. companies to set direction for the underwriting
Cost/benefit studies are an integral department. Existing studies need updating due to
component used by changes in pricing, underlying mortality tables, actual
experience, and the competitive landscape.
There are new vendors entering the relevant to the underwriter. In many cases, these new
life insurance industry all the time with data elements need to be valued by the underwriting
new and different ideas on what department to determine if, when, and where, these
information is requirements bring value. Cost/benefit studies can
help.
Insurance companies create tables for cost/benefit studies, where break-even points define
age-and-amount underwriting at what age and face amount a requirement is
requirements that indicate when a justified. Cost per case is a fixed number. The
requirement is needed. These tables mortality rate by age is also a fixed number, for
are based on a variety of factors, one example, a mortality rate of two deaths per thousand.
of which is
That, by itself, is meaningless in a cost/ $1 million, two extra deaths mean $2 million in
benefit study if it is not tied to some payment and when the face amount is $100,000, then
face amount. For example, when the two extra deaths adds up to $200,000. In a break-
face amount is even calculation, the cost of testing will be balanced
by the benefit the mortality dollars saved, which
depends on face amount. That is why both age and
face amount matter in age-and-amount requirement
tables.
Given this background, the industry is dynamic requirement testing in which the proposed
introducing insured 's requirement path depends on key features
known at each decision tree branch. In other words,
conditional probability defines what requirements to
pursue.
, This process can be thought of as mini disease, and thus mortality, is estimated based on
cost/benefit studies where prevalence known features. Cost/benefit work can help define
of these decision points.
In the 1970s and 1980s many studies Harry Woodman and Rick Bergstrom took up the
were presented at the national banner in producing cost/benefit studies published
underwriting meetings. As that in On the Risk in the 1990s and early 2000s.
practice waned, authors such as
Since then, fewer studies have been valuable to their organizations and insights can
published in the journal. The industry generate a competitive advantage. They are still
believes these studies are very being done, but fewer are shared with the industry.
This is one more reason to understand requirement, it does not mean the same decision
how to conduct a study. Just because applies to all companies.
one company does not get a
Mortality assumptions, and thus product pricing, will impact a company's guidelines.
When it comes to cost/benefit studies, underwriter's skill set growth. Spreadsheets, such as
actuaries are the underwriter's ally. In Excel, should be a mainstay for number crunching.
fact, actuaries can contribute to the There will be no calculation errors if formulas are
entered correctly.
Spreadsheets can handle many tasks cost/benefit study including result summarizations,
associated with the table construction using pivot tables, if-then
statements, and a host of other activities. As more
underwriting information becomes digitized,
underwriters' skills need to expand to leverage the
power.
Excel can easily convert data into BMI, this can be converted into individual rating
underwriting ratings. For example, if a decisions with a table of BMI underwriting ratings
dataset includes and Excel 's lookup functionality.
