Demonstrating calculations

Discussion in 'CP3' started by Trevor, Mar 28, 2022.

  1. Trevor

    Trevor Ton up Member

    Hi,

    I have a question about explaining basic calculations. Some of the exam questions involve an audience, perhaps a policyholder is unhappy about a premium increase in their policy. In certain cases, they would ask for a full explanation about it or to recalculate them.

    Regardless of the technical skills of the audience, do we need to include a high-level proof of how the premium increase is derived?
    I thought this will be helpful for the reader because we will convince them where did the increase came from, and numerical examples will prove the calculation is correct.

    I understand that including too much technical information will confuse them, so we need to keep it brief and simple. However it may be hard to reconcile the numbers without going more in detail. One example is the 2014 CA3 paper (Witten - XYZ Compulsary Insraunce).
    In this case, a finance director is unhappy that the premium increased 9 folds.
    A simple approach is to pick up the most significant parts of the increase, and then show that these roughly compound up to 9 times. However, if we do a simplified calculation, we can only calculate something that shows a 15 times increase. I thought this is unacceptable because the reader will not trust our calculation being double of what they see. But the examiner report mentions roughly 15 times increase, and say "the premium is correct".

    Can I know if we actually need to roughly derive the premium increase, or it would be sufficient to explain the source?
     
  2. Helen Evans

    Helen Evans Ton up Member Staff Member

    Hi Trevor

    I would say that as a general rule we should always aim to err on the simple side, ie give the minimum necessary to explain the issue whilst at the same time satisfying the audience. Often in questions there will be a lot of numbers/detail and one of our key jobs will be to work out how much of that information is essential to impart to our audience.

    The CA3 report for 2014 is interesting in that the examiners do mention in their notes that good candidates made the link between the 15 x increase and the overall impact on premium of 9x ... but I'm not sure the model solution then reflects this fully. I certainly think a succinctly explained link to why 9x was appropriate and would leave the audience satisfied, which is what we are seeking.

    I hope this helps

    Helen
     

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