Page 17 - Risk Management in current scenario

For all such variables, actuaries working in the insurance Company make
assumptions about these variables based on the historical experience,
current demographic and economic situation about the future. Based on
this assumption, they arrive at a money value called Premium, in above
case we referred premium as Rs.10 for the sum benefit of Rs.100, 000.

Thus, Premium thus calculated represent a fair estimate of the price that
an insurance company offers to the customer and the objective of the
life company is charge this fair price and manage all the risks.

What are the key risks?

The key risks that the insurance Company faces are
X Claims could be more than expected
X More people can stop paying premium than assumed
X Actual expenses are more than taken in premium

X Actual interest rate lower or higher than expected

Similarly, here insurance company may have adverse experience by
various factors such as a change in demographic conditions, economic
conditions, human behavior, God's hand etc.

The insurance business is much more complicated than a game of roulette
because of various assumption and limited capital. The line of science
that is used to price and manage the insurance business is Actuarial
Science- a combination of statistics, economics, finance, accounts, and
many more. As all the risks cannot be priced, therefore, risk management
is used.

Fairness in the game of Roulette

The insurance business is based on "Utmost Good Faith". This means that
both the parties, insured and the insurer should have good faith towards
each other. Both the parties should provide complete, clear and correct
information to each other.

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