Experience rating – Underwriting part II
it is either retrospective or prospective. Prospective means where we take the future trend and retrospective means where we take the current trend.
the disadvantages of experience rating- a biased trend data may be available, lack of information for each claim, change in expanding and contracting limits in the experience period, completeness and credibility of data, and the occurrence of loss is an uncommon event.
Fundamentals of Exposure-based rating- Here we consider portfolio composition and premium distribution commensurate to risk. 2. rate is decided based on exposure independent of actual claims, 3. rates are sometimes decided based on similar risk in the other market 4. this method is mainly used in reinsurance, 5. often used as a benchmark as sufficient data is not available.
IRDA guidelines 2016 file ad Use-to protect the insured’s interest, to ensure speedy and orderly growth of industry, highest standards of integrity, soundness and fair dealing, and speedy settlement of genuine claims. to promote fairness and transparency in the financial market and build reliable MIS, to take action in case something is wrong, to bring the optimum amount of self-regulation,
Principles for Product development- The evolving needs of customers are to be taken into account, the product should be genuine, and risk transfer. 3. due diligence for real protection 4. adherence to basic principles of insurance, 5. fair and transparent products 6 Pricing on appropriate data and study 7 Price should stand on its own, no cross-subsidization 8 Proposed schedule rate based on the present schedule of rates, 9 if rates on reinsurance base, we should make sure that it is proper 10 if rates are not available, may charge comparable rates from other markets 11. competition should not lend to unprincipled rates.
Retail products like motor mediclaim, and TV insurance are sold to individuals, and commercial products like fire, burglary, and project insurance are sold to corporations, trusts, etc.
Product Filing aspects- Documents required 1 Questionaire- IRDA has the right to ask questions. 2. Unique Identification Number 3. Product Approval
Procedure: 1. Must file the underwriting policy as approved by the board, if there is any change subsequently than all those changes, if insurers wish to withdraw any product they can do so after intimation to IRDA, Underwriting policy should provide all as required by IRDA guidelines, Product design, rates terms, etc must be same as per boards approved policy, Underwriting policy should specify the activities of PMC (product management committee).
constitution of PMC- Actuary, Chief Underwriting Officer, Chief Financial officer, Chief Marketing Officer, Chief Risk Officer, Compliance Officer, Head of Reinsurance.
Functions of PMC- Artificial legal person, separate and distinct entity, perpetual succession, common seal, distinction between management and ownership, limited liability, transferability of shares, maintenance of books of accounts, annual audit, access to information & books.
File and Use-Major aspects- 1. all products need to be recommended by PMC 2 CEO after his satisfaction with PMC will file the product with Authority 3 No marketing without approval 4. Authority will either question or no question within 30 days 5. Insurer if makes any change should ensure that these changes are made in all documents 6. Other than IRDA suggestions no other changes should be made 7 If at all some changes are required, the product should not be changed in its basics 8 Each query is to be examined by PMC including the liars 9 PMC will forward the response to the CEO who submits within 15 days to IRDA10 Procedure is to be completed within 2 months 10 Insurer after receipt shall finally inform the IRDA policy wordings I PDF so that IRDA can upload the same within 15 days.
