Page 158 - Risk Management in current scenario

impossible to totally eliminate the fraud, however, simultaneously, fraud
cannot be priced because the genuine customers will suffer by paying
the higher premium.

Risk Management of Mortality Risk

Insurance is a business of taking risk, so to make the business profitable
and sustainable the Company must have preference for taking risk and
where not to take risk. This risk preference helps in targeting the market
based on their expertise and risk taking ability. For example, the target
market could be to stay in the urban area or to enter into the rural area
and if to enter into the rural area, and what is volume of business to do
from the rural area. Whether we want to expand over the entire country
or get restricted to certain cities. Different states within the country
exhibit different death rate, so the choice become important.

In the management of mortality risk, it is important to define the risk
appetite and stay within the risk appetite. Risk appetite is the maximum
loss that the institution can bear which is defined by the Board.

Mortality risks is generally a sources of profit because mortality
experience moves in a predictable manner unless there have been
external forces such as sales fraud, anti-selection, emergence of new
disease, Flood, Earthquake, natural calamity etc. However, for
such natural calamity, insurance Companies purchase Catastrophe
reinsurance.

156 | Risk Management in Current Scenario