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April 2021 Q9 (ii)

A

Act

Member
Hi,

In this question the premium rates vary by policyholder age, SA and term. Does this mean that no underwriting would be carried out, or would underwriting still be used to decline certain lives but results just don't feed into pricing? Hence a possible reason for reductions in premium rates could be due to lower mortality due to more non-smokers taking out the contract than in 2011 - as the insurer doesn't price differently for smokers and non-smokers?

Thanks
 
Hi

My reading of the question is that underwriting would still be carried out (as is normal for term assurance) and that the 'premium rates vary by policyholder age, SA and term' refers to the company's 'standard' premium rates for those lives who pass underwriting and are accepted on standard terms.

As part (ii) asks for reasons for the reduction in the premium rates (rather than a reduction in the actual premium amounts being paid) I think ideally you'd just tweak your reason slightly: the reduction in premium rates could be due to the company's view of future mortality in 2021 being lower than in 2011, perhaps because it expects the proportion of non-smokers to be higher than it was 10 years ago, and the insurer doesn't prcie differently for smokers and non-smokers.

Hope this helps
Lynn
 
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