I've looked through a couple of the questions on the examiners script, my script and my marks. I dare not look at too many or it'll give me an aneurism.
An example, Question 8 (i) for three marks
Describe the following pricing models:
(a) Tariff
(b) Qualitative
(c) Cost plus.
My answers were:
Tariff
Used in Germany – the regulator sets the premium rates or sets restrictions on the rates , requiring legitimate reason for premium rates to change
I think this matches Tariff points one and three below, unless being overly harsh
Qualitative
Used when data is sparse
We use subjective and expert opinions instead of quantitatively
I think this matches Qualitative points two and four below, unless being overly harsh
Cost plus
This is the most common used method – we use objective and statistical analysis to calculate the risk premium, and then load/adjust
I think this matches Cost plus points one and two below, unless being overly harsh
I scored 2.5 and 1.5 out of three here by the two examiners.
I was awarded two marks.
The examiners report has the following:
Tariff
- Where the regulator has significant influence over the rates [½]
- Regulator will either set fixed rates or provide little flexibility to insurance companies in deciding rates [½]
- Rates may have to be filed with regulator / rating changes need their approval [½]
- Minimum and maximum premium rates may be set by the regulator [½]
- The companies have to differentiate themselves on the basis of marketing and qualitative factors like improved claims processing. [½]
Qualitative
- Where we cannot determine the ‘correct’ price purely by numerical analysis [½]
- . . . . so we must take account of subjective factors / judgment of underwriters [½]
- Might be because of heterogeneous risks or new products. [½]
- Or if data is incomplete or sparse or prone to errors [½]
Cost Plus
- If sufficient data is available, prices are set based on statistically driven analysis [½]
- Premium is the cost of expected claims loaded for expenses, profit, etc. [½]
How they can justify scoring such different marks is outrageous.
If two markers disagree on a point, to say "lets split the difference" is outrageous.
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