Hi, I am facing difficulty grasping few concepts/terms in the notes: 1. Initial funding: Discussed as part of Benefit inflation assumption in Chp.15. 2. Claims management: What exactly is it? What are the tasks included under this? 3. What is worksite marketing, as discussed in Chp.8? 4. Why is the discussion about who initiated the sale of the contract so avidly discussed? What is it's significance? 5. Is Realistic basis different from best estimate (discussed in chp 13 Section 4.2 Assumptions for EV talks about realistic basis)? Thanks
Hi Meher 1. If we charged the correct risk premium for each year of the policy in isolation, then the premium would need to increase for two reasons: the inflation of the benefit and the higher age of the policyholder. However, the Core Reading is suggesting that the premium will only increase at the rate of benefit inflation. So the initial premium rate must be more than required to cover just the cost of the benefits in the first year in order to cover some of the cost of the higher claim probabilities in later years - this is what the Core Reading means by initial funding. 2. Claims management covers the usual checks at the claims stage, eg identity checks, validation of the claim (gathering evidence, checking for exclusions). It can also cover activities designed to reduce claims, eg visits from health professionals to get an IP claimant back to work more quickly. 3. Worksite marketing just means that the salesperson actually visits the employer to sell the contracts to the entire workforce. Typically they might host a presentation to the entire workforce and then stay on site for the following week to see any individual employees that are interested in taking up the policies on offer. 4. It tells us a lot about how much work is required to make a sale, what kind of work is required, and how many sales will be made. For example, if we are relying on the policyholder to initiate the sale then we need them to have a strong sense of a need for insurance and we need them to be well aware of our brand so that they approach us. 5. I would say that realistic and best estimate assumptions are the same. Best wishes Mark
Thank you for your prompt responses Mark, Further to point 1. Is this only in terms of level premium paying policies? Separately, does initial funding apply on group policies too?
Hi Meher Point 1. applies to level premium policies, but it also applies to policies where the premium increases with inflation - which is the part of the course you were referring to. It doesn't apply to short-term policies such as group business, as we don't have the effect of policyholders ageing over the policy duration. Best wishes Mark
