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CP3 September 2018 Exam

C

Cat8142

Member
Hi, in the september 2018 exam, the customer wants to know how their premium has been calculated. I don't work in life but I would have assumed in reality you don't share confidential rating factors. How do you know what approach to take, e.g. what you would do in real life or just use the information given?
 
Hi,
The purpose of the CP3 exam is to produce a written piece of communication that explains a scenario that may typically be faced by an actuary in their day to day work. This communication will be aimed at a non-actuary, although the target audience’s level of financial knowledge and understanding will vary from question to question. In this scenario, the client is annoyed and is complaining about the level of the premium she has been quoted.
Ideally, you are right about the fact that no insurance companies would provide information about the rating factors they have used to arrive at the commercial premium as these are sensitive information. However, a quick look at the pre-scenario material, we see that you have been provided information about how the premiums are calculated and given the scenario that the client is concerned on the level of premium (coupled with the request "Please explain precisely how you arrived at my premium") - judgement would call for the use of the rating factors with how the premium has been calculated to convince the client that there has been no error in the calculation of the premium.
Hope this helps.
All the best for Monday!
 
I wrote something which I felt would be a realistic communication sent by an insurance company and failed this exam! My reasoning was as you say - an insurance company would never engage in a detailed discussion on how premiums are set with a customer. Especially a customer who from the scenario material does not seem to be at all financially savvy.

Fortunately I have since passed CP3.
 
Note that the marking schedule credits an alternative, simpler, approach of explaining the difference between the price comparison site figure and the final premium. This simpler approach, avoiding explaining the full premium calculation, is what I'd have favoured in the exam (and it is what we use in our suggested solution in ASET).
 
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