Page 155 - Risk Management in current scenario

The first driver of profitable growth is Volume, Cost, Claims and Margins.
The Volume is a clear function of design of the products, cost of the
products and customer centricity of the insurance Company. Profit is
margin times the volume.

The second driver of profitable growth is Pricing- Design, Target Market,
Mortality assumption, Underwriting, etc. The Design of the product helps
in laying down the features of the product that the customers may be
interested. The target market is one of the key areas to be decided so
that the appropriate mortality assumption may be set. If the target
market is affluent and product is priced for this segment and the actual
sale happen part in affluent and part in middle class, the likely claim
experience will be worse than expected. This is because the claim
experience of the middle class is expected to be higher than affluent for
which the product is not priced. So it is very important that the actual
sales happen in the same target market for which it is priced.

Leveraging reinsurance- Leveraging reinsurance is another aspect of
profitable growth as reinsurance helps setting up the mortality
assumptions, laying down the underwriting guidelines and setting the
retention level which reduces the claim volatility. Reinsurance is
particularly helpful when the when there are large number of
unanticipated claims occur due to certain unexpected events which is not
priced in the product. This is a one of the key risk mitigating tools used
in the insurance sector.

Data analytics helps in understanding the pattern of the past claim events
helping in taking the mitigating action or reverse the trend. This helps in
improving claim ratio, spotting fraud trends, analyze mortality claim
experience, and analyze cause wise analysis of death, identifying the
interrelationship between different factors which is otherwise difficult to
identify.

The next section discusses about the risks that may impact the insurance
business through higher than planned number of claims.

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