insurance risk management product design & development
TRANSCRIPT
Confidential 1
Insurance Risk Management
Product Design & Development
Underwriting
Pricing
Strategy, Policies and Procedures
18 May 2016
YOU.0020.0001.0002
2 Confidential
Contents
1. Scope & Purpose ............................................................................................................................. 3
2. Risk Management Framework ......................................................................................................... 3
3. Objectives ........................................................................................................................................ 3
4. Insurance Risk Management Strategy ............................................................................................. 4
4.1 Product design and development strategy .............................................................................. 4
4.2 Pricing Strategy ....................................................................................................................... 8
4.3 Underwriting Strategy ............................................................................................................ 12
5. Procedures and Controls ............................................................................................................... 16
5.1 Product development procedures ......................................................................................... 16
5.2 Pricing procedures ................................................................................................................ 17
5.3 Underwriting procedures ....................................................................................................... 17
6. Monitoring and review of the insurance risk management framework .......................................... 18
6.1 Approval by the Board of Directors ....................................................................................... 18
6.2 Independent review of IRMS compliance ............................................................................. 19
Appendix 1. Product Development Process ...................................................................................... 20
Appendix 2. Pricing Process ............................................................................................................. 21
Appendix 3. Underwriting Process .................................................................................................... 22
Appendix 4. Actuarial Underwriting Process ..................................................................................... 23
YOU.0020.0001.0003
Confidential 3
1. Scope & Purpose
This document relates to the insurance operations of regulated subsidiaries of Youi Holdings Pty Ltd
(“Youi”), including Youi Pty Ltd and Youi NZ Pty Ltd.
The overall purpose of this document is to outline strategies, policies and procedural guidelines
currently implemented and specifically relating to:
Product Design & Development
Underwriting
Pricing
The above areas represent key elements of Youi’s Insurance Risk Management Framework (IRMF).
The following information will identify all management responsibilities and controls designed to ensure
appropriate and effective risk management procedures are implemented and maintained within these
areas to ensure both quality and integrity of the IRMF.
2. Risk Management Framework
This document forms part of the risk management framework of Youi and is derived from the insurance
risk management arrangements of the Outsurance Holdings group (“Outsurance”). This document will
be reviewed and monitored regularly by the Executive Committee (Exco) and the Board. Senior
managers and designated employees are responsible for adherence, management & control at an
operational level. Authority has been delegated to senior employees for certain responsibilities within
the risk management framework.
Strategies, policies & procedures are subject to continual refinement as the business grows and
develops, with new lines of business or geographies covered.
3. Objectives
Insurance risk is defined as the risk that inadequate or inappropriate underwriting, product design and
pricing will expose an insurer to financial loss and the consequent inability to meet its liabilities. The
Insurance Risk Management Strategy (IRMS) has been developed by Youi to ensure the company’s
product design and development, pricing and underwriting activities are prudently and soundly
managed.
YOU.0020.0001.0004
4 Confidential
The key objectives of the IRMS which aim to mitigate insurance risk include:
Product development principles and guidelines encouraging development of new innovative
products or product enhancements which do not unnecessarily expose the company to undue
risks, produce underwriting and business profitability for Youi, but also seek to be cost-effective
from a consumer standpoint.
Pricing principles and procedures developed in accordance with Youi’s actuarial guidelines and
taking into consideration impacting market forces, designed specifically to minimise the risk of
inaccurate pricing. Procedures have also been created to timeously detect potentially
dangerous deviations of actual experience compared to estimates allowed for in premium
calculations.
Underwriting processes integrated into the operating system and workflow which allow for the
enforcement of sound underwriting principles to balance the objective of effectively managing
risk and exposure against the need to write sufficient business to cover overheads.
4. Insurance Risk Management Strategy
The Board, assisted by the Exco, is ultimately responsible for the Insurance Risk Management Strategy.
4.1 Product design and development strategy
Product design involves the introduction of a new product or the enhancement or variation of an existing
product. Youi currently intends only to provide cover for the traditional personal lines risks. These
include:
Residential Building
Householder’s Contents
Personal Property – all risks
Motor Vehicle
Motorcycle
Caravan & Trailer
Pleasurecraft – specific trailer vessels
Personal Liability and Sole Trader/Small Commercial Business Liability
The perils covered include Insurance Industry standard accidental damage, storm & tempest, theft and
liability perils.
If a new product or an enhancement of an existing product will be introduced by Youi, the following
procedures are to be followed:
YOU.0020.0001.0005
Confidential 5
4.1.1 A business case needs to be provided
A sound business case for any new product development or enhancement must be developed and
should include the motivation underpinning the requirement for a new product or enhancement. For
example, this motivation may have been initiated by Youi’s Sales and Client Services employees,
identifying a specific client need. This need may have been created by either a product currently being
offered in the market via a competitor, or an additional product feature is identified which adds value to
Youi’s existing offering. Further attributes of a sound business case would also include; consistency
with organisational goals & objectives, current product positioning, prior evidence of product
underwriting and expense profitability and specific market entry requirements.
4.1.2 Product Review Committee
Department Managers will review the business case to initially determine the feasibility of the new
product or enhancement, in terms of market acceptance & positioning. Should the business case not
be feasible, it will be dispensed without further consideration, with reasons for rejection being
documented. However, if upon agreement by Department Managers there is substantial benefit to Youi
via the introduction of a new product or enhancement; it will be submitted to Actuarial for further review
and testing.
4.1.3 Market Testing
Market testing is required for all new products. This testing is completed to determine if there is a
significant market need for a new product and what the market expectations would be concerning
product benefits and features. Market surveys and focus groups would be the most appropriate
research vehicles for new product testing, with this function most likely being outsourced to specialist
market research companies. For existing product development & enhancements, the decision on
whether market testing will be required resides with Actuarial and will take into account the following
rationale:
Significance of product enhancement
Cost-Benefit Analysis
Market Impact Analysis
Should the result be substantial in these cases, then market testing/research will be approved. If the
Actuarial decision determines it is only a minor or insignificant product development or enhancement or
if the enhancement will simply bring Youi up to the level of products already offered in the market,
market testing will not be conducted.
YOU.0020.0001.0006
6 Confidential
4.1.4 Cost/benefit analysis
This process will be completed to determine the viability of a new product or substantial product
enhancement, as well as prioritise the development if there are multiple new products currently
positioned for potential market release. The analysis will require a projected income statement to be
documented for the new product to determine the long term cost/benefit arising from it. This may take
the form of a variation to the latest business plan, rather than a stand-alone projected income statement.
The achievement of the required return on capital, as required by The Board, will also be tested as part
of this process. This process will be balanced against the need to offer a cost-effective product offering
to clients as a requirement to ensure adequate sales volumes and sustainability of the product. If this
balance is unable to be achieved as a result of this analysis e.g. resulting from high expenses
associated with the product, then the new product idea will be rejected at this stage, with reasons
recorded.
The impact on the amount of capital and/or reinsurance required by the company and impact on the
expected break-even date will also be considered in this analysis. Any initiative which has material
capital, reinsurance or break-even implications will require more careful planning and approval.
4.1.5 Risk identification and assessment
To determine which potential risks, accumulations and concentrations emanating from the new product
are relevant, actuarial risk identification and assessment will be undertaken. The exposure resulting
from the product will be modelled via scenario modelling, using the projected income statement.
4.1.6 Requirements for limiting risk
Various measures can be taken to limit the risk/exposure. These include:
Limits on the benefits provided – no unlimited liability to be provided.
Diversification must be achieved across different groups and geographical areas to reduce the
risk of concentration and accumulation.
Various Reinsurance measures will also be considered to limit the size of individual exposures
as well as aggregate catastrophe exposures. The greater the uncertainty, the lower the
retention levels that will be sought.
4.1.7 Policy documentation and signoff
Following completion of the above processes, all new product developments and enhancements will be
forwarded to the Exco, who will ultimately be responsible for final sign off and policy wording review.
Should the new product be substantial or enhancement likely to impact significantly on business
operations, the Exco will subsequently seek Board approval before a product implementation plan is
initiated. In the event, a product enhancement is not substantial, i.e. operational impact is only minor,
YOU.0020.0001.0007
Confidential 7
then the Exco will ensure the development is forwarded directly for implementation, whereby a Project
Plan for product implementation will be developed by Actuarial.
The Project Plan will be forwarded to various Departments for further creative work and testing, inclusive
of – IT, Compliance, Claims, Communications, Marketing and external legal review. The Project Plan
will include the following schedule items as well as responsible persons, due dates and dependencies:
Computer administration system specification
Development and testing plan
Documentation changes including wordings, schedules and scripting on system
Communication to staff
Training of staff and updating of training manuals
Marketing plan
Development of reports to measure progress/success of new product
4.1.8 Levels of delegation for approval
The levels of delegation for the approval of a new product will depend on the following:
1. Additional capital requirements for new product or enhancement; and
2. Higher Degree of risk/uncertainty associated with new product or enhancement in comparison
to existing products
If any of the factors described above are present, full Board approval will be required to proceed with
such a product. Any other product changes, regardless of how insignificant it may appear, will require
approval of the Exco.
4.1.9 Post implementation review
A post implementation review is critical to determine if the new product or enhancement is performing
as expected, or otherwise. Data Warehouse reports will enable the measurement of all assumptions as
prescribed in the model income statement and developed as part of the cost/benefit analysis. This will
enable the speedy identification of deviations from expected numbers to allow corrective action to be
taken, if required. In the case of a new product or enhancement performing poorly, with limited corrective
measures available to alter performance, the post implementation review will allow for the product to
be discontinued before any significant adverse damage has impacted upon the business. Conversely,
this post implementation review will also identify reasons for a new product or enhancement performing
above expectations.
YOU.0020.0001.0008
8 Confidential
4.1.10 Monitoring compliance
Elements of the compliance monitoring will be conducted using data warehouse reports. Audits will be
undertaken on policies and claims to ensure correct application of policies and procedures. Client
satisfaction surveys and Youi wall feedback analysis will also be conducted to ensure the client
experience of the new product has been accepted, as intended. These surveys will also enable Youi to
receive valuable feedback regarding possible product improvements or alterations.
4.1.11 Product Evolution
Over time, it is expected that policy wordings will be reviewed and updated no less than once a year.
This evolution will respond to observations relating to claims trends, contentious/claimsco claims, IDR
matters and formal feedback from operational departments, including sales, retention, client services
and all parts of claims. A formal sharepoint site will be maintained to allow suggested enhancements
to be logged.
The actuarial department will be responsible for managing the timely update and maintenance of the
Product Disclosure Statements (PDS) including aspects not specifically related to the insurance product
that are also contained in the PDS.
Changes to the PDS will be reviewed by a committee comprising all relevant operational and support
areas with all wording changes signed off by a representative of each area.
Where a major change in product design is proposed, the Board will be informed and the process
described earlier in this section will be followed. Examples of such a major change include covering
flood when flood previously was not covered.
4.2 Pricing Strategy
Pricing of an insurance product involves the estimation of claims costs and other business costs arising
from the product and the estimation of investment income arising from the investment of the premium
income attaching to the product. Pricing risk may occur where the claims, costs, or investment returns
arising from the sale of a product are inaccurately estimated.
4.2.1 Delegation of Pricing Authority
The Youi Board approved delegation of authority in relation to pricing and underwriting is included in
the company Delegation of Authority document. This is categorised in 6 ‘Tiers’, examples of which
include:
Tier 0:
YOU.0020.0001.0009
Confidential 9
Where an underwriting change has been implemented since a policy was written in conjunction
with a pricing change. The price must be adjusted manually at the same time the underwriting
is over-ridden.
Override of driving suspension relating to ‘acceptable’ reasons such as medical conditions.
Tier 1:
Discounts of more than 50% per individual policy
Adding new vehicles or areas
Other underwriting overrides including Flood area reviews
Tier 2:
Changes to rating differentials or underwriting rules affecting less than 10% of quotes
Accepting risks with sums insured of more than the upper limits of current XOL treaties
Underwriting overrides where precedent is set where no override has previously been done
Changes to the discount authority by skill set
Tier 3:
Changes to rating differentials or underwriting rules affecting more than 10% of quotes
Tier 4:
Changes to the absolute level of the premium rate in any capital city
Tier 5:
Changes to the Pricing & Underwriting Strategy
Formal processes are maintained in sharepoint to record pricing changes made in accordance with
Tiers 1 to 5.
4.2.2 Risk identification and assessment
Risk identification and assessment is undertaken by means of monitoring various reports. These
include:
Claim frequencies, average claim size and loss ratio by each rating factor as well as certain
combinations of rating factors. This is also referred to as one-way and multi-way analysis.
Analysis is conducted over various time periods to identify possible trends.
Analysis is also performed by the period in which the business was underwritten to determine
the performance of the different underwriting and rating policies.
Exposures by region or suburb to determine potential losses and accumulations.
YOU.0020.0001.0010
10 Confidential
4.2.3 Reflecting Emerging Experience in Prices
Premiums are determined on a cost plus basis. A generalised linear model is fitted to claims and
exposure data to estimate the underlying risk premium. Allowance is factored for expenses and then
the cost of capital to arrive at the internal office premium, excluding government charges. Expenses are
divided between those varying according to the number of claims, amount of claims, number of policies
and premium amount to be able to achieve the most accurate premium loadings for these expenses.
The model is updated on an ongoing basis to reflect changes in experience. Adjustments to the
premiums of existing clients are also reviewed on a monthly basis to reflect the latest changes in
underlying experience and inflationary forces on costs.
In addition, analysis of sale success by means of conversion rate analysis and mix of business analysis
will be used to highlight segments where potential underpricing exists.
4.2.4 Profit and loss analysis/Monitoring price movements
Loss ratios and operating ratios are monitored per period and per underwriting period to determine the
effect of pricing changes on profitability of the different tranches of business that were subject to
different prices.
The development of profit margins on tranches of business over time is also projected to estimate
ultimate profitability of the different tranches of business.
Business performance and material price changes are report to the Exco monthly and the Board
quarterly, including product and underwriting period breakdowns as appropriate.
4.2.5 Price discounting and extended underwriting authorities
Price discounting authorities are controlled via SUMMIT. Mandates vary according to staff classification
on SUMMIT.
In sales areas, the default maximum discount available is 10% with the team manager able to override
this to 15%. Client care and retention employees on some policies will have up to 50% discount.
The client services and retention department managers have discount authority up to 35% to allow
timely processing of customer grievances arising due to staff errors. They also have access to extended
ranges of agreed value to allow agreed values to be reset to the previous value in cases of an erroneous
change.
Client services and retention department managers also have access to allow the addition of optional
covers on a policy at times when ordinarily the options would not be available.
The Chief Actuary and senior Actuaries are able to give up to 100% discount and have further
extensions to agreed value ranges.
YOU.0020.0001.0011
Confidential 11
The absolute maximum discount is set by reference to the target operating margin and appropriate
delegation controls. Discounts resulting in an expected loss can therefore not be authorised unless
there are mitigating circumstances.
The normal agreed value ranges are selected based on the underlying vehicle (car or motorcycle), its
usage and the glass-guide value of the vehicle.The main category of mitigating circumstances is
correcting staff or systems errors. Such discounts can only be applied once necessary processes have
been completed, including the review of the sales call in question and entry of the feedback item in the
compliance process.
All discounts will be monitored using standard data warehouse reports.
4.2.6 Process for pricing to respond to competitive and other external environmental
pressures
Market pricing and environmental changes must be monitored carefully to enable premium adjustments
to be implemented wherever necessary. Examples of external influences are:
changes in cost due to climate changes
changes in legislation
demographic trends
economic trends
changes in the level of competition. Competitor premiums will be used as a guideline but not
as the main determinant of pricing in future, as the pricing philosophy is primarily based on a
cost plus system.
4.2.7 Monitor deviations of actual price from technical underwriting pricing
Given the centralised business model and the small mandates provided to sales advisors, the deviation
from the technical underwriting pricing will be small. However, deviations are monitored by calculating
the ratio between actual prices and the true underlying prices on a monthly basis. These ratios are also
affected by updates to the underlying technical rates over time as the latest technical rates are used for
this comparison. These ratios are also used in the renewal process of existing clients.
4.2.8 Monitoring Compliance
The Youi premium calculation is centralised and controlled from a single source. This means premiums
cannot be varied from the true price except for the discounting mandates. Discounting mandates are
small and also system controlled, based on the seniority of the responsible employees.
Discount reports are reviewed regularly to monitor the discount averages, maximums and discounts
per individual sales person. Where discounts exceed targets, sales commission is adjusted downwards.
In a worst case scenario, the mandate can also be removed.
YOU.0020.0001.0012
12 Confidential
Risk exists around data being collected that does not reflect the actual situation of the customer. Such
errors result in premium leakage. Adherence of sales advisors to mandatory scripting, as well as
following appropriate sales processes including faithfully reflecting customers’ answers in data entry,
providing accurate advice and not leading customers is monitored through call audits performed by
sales managers and group risk and compliance. Where errors are found, the appropriate feedback
loops are completed and the advisors appropriately trained on correct approach.
Additional data quality analysis is performed using routine MIS reports of mix of business by key factors
and characteristics such as address match rate. Automated outlier reporting is also used to identify
improbably mixes of data at an individual advisor or team level.
4.3 Underwriting Strategy
Underwriting is the process by which an insurer determines whether or not to accept a risk and, if
accepted, the terms and conditions to be applied and the level of premium to be charged. Weaknesses
in the underwriting process and in the types and levels of controls and systems can expose an insurer
to the risk of operational losses which may threaten the long-term viability of the insurer.
4.3.1 Youi’s willingness and capacity to accept risk
The Outsurance group, inclusive of Youi, has a preference to large volume, small risks which are
independent and not exposed to undue accumulation risks. For this reason Youi will only cover personal
lines risks for industry standard conventional perils. Youi also believes in buying adequate reinsurance
cover to provide protection against volatility. Two important principles which are followed in deciding
whether to accept a risk or not, are:
If the risk is exceptionally complex, it should not be underwritten and therefore declined.
A price cannot be fixed for a moral risk.
4.3.2 Youi’s risk appetite and geographical scope
Youi only intends on underwriting personal lines classes of business and sole trader/small commercial
lines. These currently include motor, householders and houseowners, motorcycles, caravan/trailer,
watercraft and (small) business liability.
The geographical areas in which these classes are underwritten are all states and mainland territories
of Australia and New Zealand excluding:
Northern Territory (All products)
WA North of Geraldton (Home insurance)
Locations identified as having greater than 1% ARI Flood Risk (Home insurance)
YOU.0020.0001.0013
Confidential 13
4.3.3 Formal Risk Assessment Process
Criteria for risk assessment.
o The criteria for risk assessment are similar to those used for premium rating including
some additional factors. These factors include: age, licence type, licence duration,
previous claims experience, licence demerit points, risk address, use, security, vehicle
model, safety features like ABS, vehicle modifications etc.
Methods for monitoring emerging experience.
o Emerging experience is monitored for each level of criteria. Single way and multi way
analysis is conducted. Ultimately this will provide an indication of the effectiveness of
current measures and whether any changes are required or not.
Methods by which emerging experience is used in the underwriting process.
o Based on the analysis completed, thresholds for underwriting processes can be altered
to improve underwriting. Insured amounts above a certain threshold will activate
additional questions to be asked to enable additional underwriting to be completed.
Thresholds for the acceptance of risks can also be altered, depending on the results of
the analysis. Special conditions will also be activated, based on certain criteria and
these can also be altered, based on the results of the analysis.
o A post claims underwriting review is also conducted. This review takes the form of an
increase in the requirements set for risks, increases for excesses, limitations or
exclusions of cover, endorsements, or in the worst case example - cancellation of
cover. A formal multi-claimant process is used to identify outlier risks based on their
experience and to actively manage them and align them within the scope of
underwriting guidelines.
4.3.4 Approval authorities and Definitive limits
Underwriting rules and authorities are programmed into SUMMIT. All information & data is centralised,
with no brokers using separate systems. There are two (2) levels of approval.
Underwriting limits.
o Risks above these limits (driven by the value of the insured item or certain other risk
profiles) are automatically referred to the Actuarial department. These risks cannot be
accepted without the necessary approval by Actuarial. These approvals will require
additional information and only certain Actuarial employees will possess the system
authority to process these approvals. A username and password is also a requirement
for this process.
o Within the actuarial function, 6 Tiers of underwriting delegation exist as outlined in the
Board-approved delegation of authority.
Tier 0:
YOU.0020.0001.0014
14 Confidential
Where an underwriting change has been implemented since a policy was
written in conjunction with a pricing change. The price must be adjusted
manually at the same time the underwriting is over-ridden.
Override of driving suspension relating to ‘acceptable’ reasons such as medical
conditions.
Tier 1:
A list of ‘acceptable review’ items is maintained in sharepoint. This list shows
‘knockout reasons’ which are acceptable for review.
A member of the department may prepare a formal document, stored in
sharepoint, outlining the risk and recommendation for acceptance or rejection
and any additional conditions or premium loadings.
The authorised team member will review the document and then formally
approve, reject or approve with further changes.
Following approval necessary overrides and conditions are applied.
Examples include high value individual items or high value buildings or
contents in home insurance,
Tier 2:
For extremely high value premises where facultative reinsurance is required,
or other precedents, a similar process to a Tier 1 is followed, except two
delegated team members must approve.
Underwriting overrides where precedent is set where no override has
previously been done
Tier 3:
Changes to underwriting rules affecting more than 10% of quotes will be
discussed in the actuarial forum including the CEO, Chief Actuary and Group
Actuary and as appropriate minuted for action.
Tier 4:
Are presented to and approved by the Exco
Tier 5:
Changes to the Underwriting Strategy are approved by the Board.
Reinsurance limits
o Risks above these limits (driven by the value of the insured item) are automatically
referred to the Actuarial department. These risks cannot be accepted without
appropriate additional reinsurance being arranged, as described in the Reinsurance
Management Strategy (REMS). Tier 2 Approval must be gained from two of the Group
YOU.0020.0001.0015
Confidential 15
Head of Actuarial, Youi Chief Actuary and Experienced Actuary before an override is
performed. They will ensure appropriate reinsurance cover is in place. Reports are
also generated to ensure these limits have not been breached.
Cover limits.
o These represent absolute limits of cover. No risks above these limits may be accepted.
No overrides are permitted to accept risks above these limits. These limits represent
the level beyond which even facultative reinsurance will not be purchased due to the
unique nature of the individual risks and the specialist assessment required. Reports
are also generated to ensure these limits have not been breached.
4.3.5 Risk and aggregate concentration limits
These limits are controlled as follows:
1. Risk limits are programmed within the insurance administration system and cannot be accepted
without the required authority and processes being followed.
2. Risks above thresholds at individual addresses are referred to the Actuarial/Underwriting
department to underwrite and evaluate the concentration at the specific address.
3. Aggregate concentrations per suburb or region are monitored by means of standard
aggregation reports and are reported to the Board quarterly.
4.3.6 Monitoring compliance
Risk and Compliance.
o Risk and Compliance will conduct audits as part of their audit plan to confirm that:
Policy Definitions were applied as per the underwriting requirements.
All website scripting, including additions and proposed changes, were passed
through the Youi business and compliance sign-off regime; and that no
variations were included without such sign-off.
Service Quality.
o Service Quality will conduct audits as part of their audit plan to confirm that:
Where customer contact took place by telephone, scripting was read by
employees as prescribed by the system, in particular mandatory scripting.
Where customer contact took place by telephone, all questions were conveyed
accurately by Youi employees, and that the information was fully understood
and accepted by clients.
All overrides, approvals and discounts were conducted per approved business
rules. To this end exception reports are used to identify potential problem
areas; including analysis of data grouped by product, risk, period, team and
responsible persons.
Team Managers.
YOU.0020.0001.0016
16 Confidential
o Team Managers will conduct audits as part of their audit plan to confirm that:
Where customer contact took place by telephone, scripting was read by
employees as prescribed by the system, in particular mandatory scripting.
Where customer contact took place by telephone, all questions were conveyed
accurately by Youi employees, and that the information was fully understood
and accepted by clients.
Reviews by Department Managers or portfolio management.
o Department Managers will review and report on portfolio performance and individual
underwriting quality assessments on a monthly basis. These reports will be discussed
at general management meetings.
Peer review.
o Peer review is completed on a regular ongoing basis with policies written being
randomly selected for evaluation. The whole underwriting process is confirmed, voice
recordings are reviewed and feedback is provided to Department managers and
employees regarding potential problem areas, where additional training may be
required.
Assessment of broker procedures.
o Not relevant because of direct business model negates the requirement for brokers.
Audits of ceding companies.
o Not relevant as Youi is only a direct writer and not a reinsurer.
5. Procedures and Controls
5.1 Product development procedures
All product development procedures and controls forming part of the Insurance Risk Management
Framework are illustrated in Appendix 1: Product Development Process, inclusive of:
Establishing a business case for new or enhanced products;
Product Review Committee
Actuarial Review
o Market testing and analysis;
o Cost/benefit analysis;
o Impact Study;
o Risk identification and assessment;
Requirements for limiting risk e.g.: diversification, exclusions and reinsurance (including
confirmation that either the existing reinsurance will provide protection or new reinsurance
protection is being provided);
YOU.0020.0001.0017
Confidential 17
Executive Committee (Exco) Review;
Board Review (where applicable);
Project Plan including Specifications; Scoping; Development Testing & Implementation
(including milestones);
Processes to ensure policy documentation is adequately drafted to ensure both organisational
& legal compliance;
Clearly defined and appropriate levels of delegation for approval of all material aspects of
product design;
Post-implementation review; and
Methods for monitoring compliance with product design policies and procedures.
5.2 Pricing procedures
Youi’s pricing procedures and controls forming part of the Insurance Risk Management Framework are
illustrated in Appendix 2: Pricing Process.
This process reflects product pricing being responsive to competitive and other external environmental
pressures via:
Pricing Drivers
o Claims loss Ratio
o Claims Risk Identification
o Emerging Experience
o Profit/Loss Analysis
o Competition Analysis
o Sales Conversion
Review and implementation is conducted at the following levels of authority within Youi
Board Review
Actuarial Review
o MIS
The Exco
5.3 Underwriting procedures
Actuarial & Underwriting procedures and controls forming part of the Insurance Risk Management
Framework are illustrated in Appendix 3: Underwriting Process and Appendix 4: Actuarial Underwriting
Process, these include:
Details of the formal risk assessment process in the underwriting of insurance including:
o the criteria used for risk assessment;
YOU.0020.0001.0018
18 Confidential
o the process for monitoring emerging experience; and
o the process by which the emerging experience is taken into consideration in the
underwriting process;
o the process for setting approval authorities and the definitive limits to those authorities
(including controls surrounding delegations given to intermediaries of the insurer);
o consideration of risk and aggregate concentration limits; and
o the process for monitoring compliance with underwriting policies and procedures such
as:
1. internal audit (where it is established that the internal audit unit has the appropriate
skills and experience to perform such activities);
2. reviews by Department Managers or portfolio management;
3. peer review of policies underwritten (including details of the staff responsible for
undertaking the peer review, the frequency of such reviews and the reporting
arrangements for the results);
4. assessments of systems to ensure quality information.
6. Monitoring and review of the insurance risk
management framework
The Chief Actuary or his nominee will review the company’s IRMF at least annually (or as close to
annually as is practicable) to ensure that it accurately documents the company’s insurance risk
management strategies (IRMS). The review will take place in consultation with the Head of Actuarial of
Outsurance.
The IRMS will also be reviewed when there are material changes to the operations of the company.
The Chief Actuary or his nominee must review and amend the insurance risk management framework
and the IRMS to take into account the changes.
Any changes to any policy or procedure covered in the Insurance Risk Management Framework need
to be approved by the Exco.
6.1 Approval by the Board of Directors
The Exco will review the IRMS at least annually or whenever it has been amended. Following his review,
the IRMS will then be submitted to the Board Risk Committee (BRC) for review. Following their review,
the BRC will refer the IRMS to the Board for approval.
YOU.0020.0001.0019
Confidential 19
6.2 Independent review of IRMS compliance
The Risk and Compliance function will review the IRMS, adherence to the insurance risk management
framework, policies and procedures and compliance with Prudential Standard GPS 220 Risk
Management as part of their audit plan.
The Appointed Actuary will also review the IRMS when doing the Financial Condition Report (FCR) as
required by Prudential Standard GPS 310. The FCR covers the key risks and issues impacting upon
the financial situation of Youi. The Appointed Auditor will also perform regular independent reviews of
the IRMS, adherence to the insurance risk management framework, policies and procedures and
compliance with Prudential Standard GPS 220 Risk Management.
YOU.0020.0001.0020
20 Confidential
Appendix 1. Product Development Process
YOU.0020.0001.0021
youi
Appendix 2 Pricing Process
Group Head of Actuarial is
ultimately responsible for Pricing
Contained
Adjustment
Pricing Drivers
Board
Implementation
MIS Review
Gioup Head ct Aptuanal
Australia Head of Adman
Pricing
Adjustment
Required
Executive
Committee
obi Implementation I
NPhilosophyvz
Confidential 21
YOU.0020.0001.0022
youi
Appendix 3 Underwriting Process
Underwriting Drivers
Board
Approval of
Underwriting
Strategy
I Implementation I
Gnoup Head of Actuanal
Austrafia Head of Actuanal
Underwriting
Changes
Required
Non
Strategic
Change
Executive
Cornmittee
Implementation
7110
Strategic
Philosoptry
SUMMITAutomated
Underwriting
22 Confidential
YOU.0020.0001.0023
Confidential 23
Appendix 4. Actuarial Underwriting Process
YOU.0020.0001.0024