First step toward the Underwriting
October 5, 2015
Naoyuki Tsukada Senior Underwriter FUWJAssistant Manager of Underwriting TeamLife Underwriting and Planning Dept.The Toa Reinsurance Company, LimitedJapan
The Toa Reinsurance Company, Limited
4/1998 joined GE Edison Life junior underwriter
1/2004 transferred to Taiyo Life junior / senior underwriter
1/2007 transferred to Toa Reinsurance Company senior underwriter
2/2011 get the title “ fellow of UWAJ* “ 4/2011 member making the qualification exam of UWAJ* 10/2015 today
Naoyuki Tsukada
* UWAJ : Underwriters Association of Japan
ជម្�បសួ�រ ។
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The purpose of this seminar
I came to shake hands to Cambodia
Let’s study significance of risk selection
Let’s understand the mission of underwriting
Let’s take the first step toward the underwriting
Let’s shake hands with the surrounding underwritersto develop the underwriting market
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The Toa Reinsurance Company, Limited
Chapter 1 : Risk selection
Chapter 2 : Basic of underwriting
Chapter 3 : Medical underwriting method
Conclusion
Table of Contents
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What is risk selection ?
Chapter 1
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What is the risk for life insurance ?
The risk for life insurance is the factor which occurs insurance event
Risk factors are Death or Hospitalization or Surgery etc caused by Disease or Accident
Life insurance must consider the probability that these risk factors occur
Incidence rate become stable that the number is bigger ( law of large numbers )
Keep actual incidence rate within expected incidence rate
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The factors increasing incidence rate
The factors increasing incidence rate are
• Age
• Gender
• Occupation
• Avocation / Hobby
• Residence
• Lifestyle
• Disease
• Heredity / Family History
• Application
• Anti-selection
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The factors increasing incidence rate
Age
young or elder•Mortality rate is increasing higher with age
Gender
male or female•Mortality rate of female is lower than male in Japan
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Occupation
hazardous or not•Accident risk and Mortality risk are increased by
work environment•Possibility of moral hazard by work environment
Avocation / Hobby
hazardous or not• Sky diving, Car race, Scuba Diving, Snow mountain climbing
etc
The factors increasing incidence rate
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The factors increasing incidence rate
(No.91 in 1993, Journal of Japanese Insurance Medicine )
Mortality ratio by occupations in Japan
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The factors increasing incidence rate
Residence
climate / lifestyle / industry•The area having diet style of high salt content is high
incidence rate of cerebrovascular disease
Lifestyle
smoke / alcohol / food•Smoke is risk of pulmonary disease, cancer etc•Alcohol relates liver disease, pancreatitis etc
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Disease
fatal or not•Physical state, past and current medical history of
applicants
Heredity / Family History
cancer / diabetes mellitus etc•Several disease are associated with family history
The factors increasing incidence rate
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Application
face amount / policy plan•High amount may be high mortality•Mortality vary from premium payment mode
Anti-selection ( Adverse selection )
fraud, moral hazard•Bad healthy people tend to want to buy life insurance
The factors increasing incidence rate
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The factors increasing incidence rate
(No.96 in 1998, Journal of Japanese Insurance Medicine )
Mortality ratio of suicide by each amount
year
MortalityRatio
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The factors increasing incidence rate
Average hospitalization days by each hospitalization cover per 1 day
HospitalizationDays
Hospitalization cover per 1 Day
Japanese Yen
(No.91 in 1993, Journal of Japanese Insurance Medicine )
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The factors increasing incidence rate
Mortality ratio of Medical exam by each premium payment mode
(No.88 in 1990, Journal of Japanese Insurance Medicine )
MortalityRatio
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Significance of risk selection
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Significance of risk selection
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Significance of risk selection
Life insurance must keep actual incidence rate of risks within estimated incidence rate
If the risks over estimated incidence rate occur under the same premium rate, Life insurance company may go bankrupt
So, Life insurance company must give the entire group of same risk class fair deal
If the insurer do not select applicants, the insurer will be selected to the contrary
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Significance of risk selection
Anti-Selection ( Adverse selection )
•Healthy people normally doesn’t feel needs of life insurance
Not healthy people tend to want to buy life insurance
•The applicants can choose life insurance freely
High incidence rate people may apply by choice
Stabilize the incidence rate and keep fairness of premium payment
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Significance of risk selection
Which man does look like a bad man ?
Left man ? Right man ?
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Significance of risk selection
The fact is ・・・
left man may be a bad man or both ?
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For risk selection
Medical Underwriting
•Physical state, past and current medical history of applicants
Non-medical Underwriting
•Occupation, Avocation, Financial, Moral risks etc
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Basic of Underwriting
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Chapter 2
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Life table
Mortality costs represent expected cost of paying the death benefit on the number of deaths within an insured group over a period of time.
Actuaries determine this probability by analyzing data in standardized life table of national population, or owncompany’s mortality data.
Japanese standardized life table of life insurance, male
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Agex
Number of survivorslx
Number of deathdx
mortality rateqx
Life expextancyex
40 97,391 144 0.00148 39.6741 97,247 157 0.00161 38.7242 97,090 171 0.00176 37.7943 96,919 186 0.00192 36.8544 96,733 204 0.00211 35.92
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Calculation of premium for death benefit
Face amount : 1,000,000 Yen, male age 40 in Japan
Principle of equivalence•Premium and Benefit should be equal
P : PremiumL : Number of survivorsd : Expected number of deathq : Expected mortality rate (= d/L)
P x L = Face amount x dP = Face amount x d/LP = Face amount x q
Premium = 1,000,000 Yen x 0.00148 = 1,480 Yen
Principle of equivalence
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Underwriting Philosophy
Accept the applicants as many as possible
Law of large numbers
Give the entire group of same risk class fair deal
Principle of equivalence
Offer the more lower premium to the applicants
Give the chance to accept the insurance to people who had given up to be insured
Avoid Anti-selection
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Risk classification
Standard Substandard PostponeDecline
● Standard class is also broken down into Preferred class
How do medical underwriting give the applicantsa fair deal ?
Medical underwriting use the medical state of the applicants to classify into the 3 classes
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Life expectancy
Healthy group lives longer
45.70 years 46.49 years 47.01 years
General Population Insured StandardInsured Preferred
Non-smoker
39.41 years 40.15 years 41.56 years
General Population Insured StandardInsured Preferred
Non-smoker
Japanese life expectancy of age 40 - male
Japanese life expectancy of age 40 - female
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Risk classification
It’s unfair that both healthy group and not healthy group are same premium
Not healthy group doesn’t live longer than healthy group
Healthy group will pay the premium for a long time,but Not Healthy group will not
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How does Underwriting categorize risks ?
Risk classification
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Risk classification
Mortality Ratio for lifeMorbidity Ratio for health
Underwriting requirement
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Risk classification
Mortality Ratio for lifeMorbidity Ratio for health
Underwriting requirement
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Mortality ratio
Mortality Ratio (MR) is ratio of Actual mortality rate divided by Expected mortality rate x 100%
MR = Actual mortality rate / Expected mortality rate x 100%
* Actual mortality rate = Actual number of death / number of survivors
* Expected mortality rate = Expected number of death / number of survivors
MR = Actual number of death / Expected number of survivors x 100%
If Actual mortality rate is within Expected mortality rate,UW can get the mortality profit
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80% 124% 125% 500% >500%
Mortality ratio
Almost Japanese company’s case
Categorize the applicants into Standard, Substandard, Postpone or Decline classes
From MR100 to MR124 is Standard class
Standard Substandard PostponeDecline
● Standard class is also broken down into Preferred class
MR
100%
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Rating for medical underwriting
UW must categorize the applicants as to each risks
Life expectancy of insured in Japan at age 40
Substandard class must pay additional premium according to MR
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MR Male Female
100 40.15 years 46.49 years
150 36.26 years 42.96 years
200 33.52 years 40.41 years
250 31.40 years 38.39 years
300 29.68 years 36.72 years
350 28.24 years 35.29 years
400 27.00 years 34.04 years
450 25.92 years 32.93 years
500 24.96 years 31.93 years
Life Expectancy
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Mortality Ratio
MR is based on insurance experienced studies and or medical literature, current clinical informationon prognosis of disease
Minor increase in MR is generally classified intoStandard class
Living insurance is generally more conservative thanlife insurance
MR vary from standardized mortality rate (= pricing)
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Morbidity ratio for health insurance
Morbidity Ratio is ratio of Actual morbidity ratedivided by Expected morbidity rate x 100%
If Insured accept the exclusion, insured doesn’t need to pay extra premium (insurer may not rate extra morbidity ratio)
Exclusion is hospitalization cover to exclude the claimpayment of disease or injury regarding one or moreparticular body parts
Exclusion = Body parts x year
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Example of exclusion list, body parts
Eye Ear Nose Oral cavity Parotid gland / Salivary gland Thyroid Pharynx / Larynx Bronchi / Lung Esophagus Stomach / Duodenum Liver / Gallbladder / Bile duct Pancreas Kidney / Urinary duct Small intestine / Colon Bladder / Urethra
Prostate Testis Breast
Uterus Ovary / Fallopian tube appendix
Spine Hip joint, left or right Knee joint, left or right
etc
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Risk classification
Mortality RatioMorbidity Ratio
Underwriting requirement
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Medical evidence
UW need underwriting requirement to get the medical evidence
Medical underwriting use the medical evidence for risk classification
Medical evidence
•Past and current personal medical history
•medical examination, Laboratory test Build, Blood Pressure, Urinary test, ECG, Blood test etc
•Family history
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Medical underwriting requirement
Underwriting questionnaire
Medical Examiner’s reportincluding ECG and or Blood test
Paramedical report (In Japan, Health interviewer)
Routing Check-up
APS (Attending Physician Statement)
Laboratory report
Other specified tests
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Medical underwriting requirement
Mortality ratio of standard class each UW requirement in Japan
(No.90 in 1992, Journal of Japanese Insurance Medicine )
MortalityRatio
MR become low with more information
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Medical underwriting method
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Chapter 3
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What organs are important ?
Most careful things for medical underwriting is
dysfunction of important organs for our living
Material matter of Medical underwriting
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1947 1955 1965 1975 1985 1995 2005 2014
Mortality rate(per 100,000)
Cancer
Cardiovascular disease
Pneumonia
Cerebrovascular disease
AccidentSuicideLiver diseaseTuberculosis
TuberculosisPostwar sanitary conditions
Cerebrovascular diseasedevelopment of antihypertensive
Pneumonia Aging Society ?(Japanese Health, Labour and Welfare Ministry)
Japanese trend in major cause of death
Japanese major cause of death
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(Japanese Health, Labour and Welfare Ministry)
Yellow is important organs
Japanese major cause of death in 2014
Japanese major cause of death
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TOP10 Cause of death Mortality rate %
1 Cancer 293.5
2Cardiovascular
Disease 157.0
3 Pneumonia 95.4
4Cerebrovascular
Disease 91.1
5 Old Age 60.1
6 Accident 31.1
7 Renal Failure 19.8
8 Suicide 19.5
9Aortic AneurysmAortic Dissection
13.1
10 COPD 12.9
TotalTOP10 Cause of death Mortality rate %
1 Cancer 357.8
2Cardiovascular
Disease 151.2
3 Pneumonia 106.1
4Cerebrovascular
Disease 90.1
5 Accident 37.0
6 Old Age 30.0
7 Suicide 27.6
8 COPD 21.3
9 Renal Failure 19.6
10 Liver Disease 16.4
MaleTOP10 Cause of death Mortality rate %
1 Cancer 232.5
2Cardiovascular
Disease 162.5
3Cerebrovascular
Disease 92.0
4 Old Age 88.6
5 Pneumonia 85.2
6 Accident 25.6
7 Renal Failure 19.9
8Aortic AneurysmAortic Dissection
12.1
9 dementia 11.8
10 Suicide 11.7
Female
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Material matter of Medical underwriting
Cancer has systemic risks and occurs to every part of the body, develop metastasis
The disease in Brain or heart, Lung, Kidney, Liver may lead to fatal
If these organs become dysfunction, the insurance event
may occur easily
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Cancer in Japan
Incidence casesMortality
Number of new incidence cases and mortality (x100)
(GLOBOCAN 2012, International Agency for research on Cancer, WHO)
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Cancer in Cambodia
Incidence casesMortality
Number of new incidence cases and mortality (x100)
(GLOBOCAN 2012, International Agency for research on Cancer, WHO)
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Material matter of Medical underwriting
Another cause of dysfunction of organs
•Standpoint of time
Acute : Injury Physical / chemical cause (burn injury, Drug, Poison) Infection (bacterium, virus )
Chronic: Arteriosclerosis Cancer Chronic inflammation, Chronic infection Autoimmunity
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Material matter of Medical underwriting
For Medical insurance
The disease of high mortality ratio are usually high morbidity ratio
The disease which is not important for life insurancemay become important for medical insurance
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Material matter of Medical underwriting
Top 10 disease of medical insurance’s claim payment number in Japan – male –
No 0-29 30-39 40-49 50 over
1 appendicitis anus disease another digestive disease another digestive disease
2 another respiratory disorder another digestive disease anus disease benign or unkown neoplasm
3 another digestive disease gastric / duodenal ulcer gastric / duodenal ulcer gastric / duodenal ulcer
4 gastric / duodenal ulcer appendicitis benign or unkown neoplasm cerebrovascular disease
5 anus disease another liver disorder another liver disorder ischemic heart disease
6 another liver disorder another respiratory disorder disc hernia anus disease
7 disc hernia disc herniabilestone /gallbladder and bile disorder
another liver disorder
8 pneumonia pneumonia appendicitisbilestone /gallbladder and bile disorder
9musculskeletal system disorderconnective tissue disease
benign or unkown neoplasmurinary tract stonekidney stone
diabetes mellitus
10 benign or unkown neoplasmurinary tract stonekidney stone
another respiratory disorder pneumonia
Age
(No.91 in 1993, Journal of Japanese Insurance Medicine )
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Material matter of Medical underwriting
Top 10 disease of medical insurance’s claim payment number in Japan – female –
No 0-29 30-39 40-49 50 over
1pregnancy / delivery andcomplication
pregnancy / delivery andcomplication
benign or unkown neoplasm benign or unkown neoplasm
2 appendicitis benign or unkown neoplasm another digestive disease another digestive disease
3 benign or unkown neoplasmbreast andreproductive disorder
bilestone /gallbladder and bile disorder
bilestone /gallbladder and bile disorder
4 another digestive disease another digestive disease anus disease cerebrovascular disease
5 another respiratory disorder appendicitis another liver disordermusculskeletal system disorderconnective tissue disease
6 pneumonia pneumonia gastric / duodenal ulcer pneumonia
7breast andreproductive disorder
another liver disorderbreast andreproductive disorder
another liver disorder
8 another urinary tract disorder anus diseasepregnancy / delivery andcomplication
eye disorder
9 another liver disorderbilestone /gallbladder and bile disorder
musculskeletal system disorderconnective tissue disease
gastric / duodenal ulcer
10musculskeletal system disorderconnective tissue disease
another respiratory disorder appendicitis another respiratory disorder
Age of Female
(No.91 in 1993, Journal of Japanese Insurance Medicine )
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How does Underwriting assess the medical evidence ?
Material matter of Medical underwriting
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Underwriting manual
Underwriters use underwriting manual
Underwriting manual indicates the extra mortality ratio of each disease by age or gender, elapsed years, with or without operation etc
Example of Disease A
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Fully recovered < 40 < 50 < 60 60 or olderWithin 1st year PP PP PP PP
2nd year +300 +250 +200 +1503rd year +250 +200 +150 +1005th year +200 +150 +100 +757th year +150 +100 +75 +50
10th year +100 +50 +25 0 Thereafter +50 +25 +25 0
Age
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Numerical rating system
Numerical rating system
This system is devised by Dr. Oscar H. Rogers andMr. Arthur Hunter, actuary of NY life in 1919
This system is used all over the world now
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Numerical rating system
Base Rating is 100% : Standard class
•Actual mortality rate = Expected mortality rate
•Actual number of death = Expected number of death
The factor affecting MR is Extra Mortality Ratio (EM)
•The factor increasing MR add EM
•The factor decreasing MR deduct EM
Total Mortality Ratio (TM) = Base Rating + EM
MR = Actual mortality rate / Expected mortality rate x 100%
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Numerical rating system
Example : male at age 40 in Japan
•Hypertension, 165 / 94 mmHg
•Diabetes Mellitus, HbA1c 8%
EM
•Hypertension is 50%
•Diabetes Mellitus is 75%
TM = 100% + 50% + 75% = 225%
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Numerical rating system
Incidence number(per 1,000)
Systolic Blood presure mmHgTotal Cholesterol mg/dlImpaired Glucose ToleranceSmokeLVH, ECG
(Framingham Study, Kannel WB. Risk factors in hypertension. J Cardiovasc Pharmacol 1989)
Incidence risk of cardiovascular diseaseFemale of 40 age for 8 years
TM may not be simple addition
Each risk factor has synergetic effect
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Insurance medicine vs Clinical medicine
Insurance medicine is academia to predict the incidence rate of insurance event based on the medical data and insurance statistics
Clinical medicine is academia to relieve a current patient’s pressure
Clinical medicine consider the present, Insurance medicine consider the future
The result of assessment about medical status is different from Insurance medicine and Clinical medicine
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Example of Insurance and Clinical Medicine
Cold (rheum)
•Clinical Medicine
If patient doesn’t have serious symptoms, the doctor considers a cold and cure in a few days
• Insurance Medicine
The underwriter considers that the symptoms like a cold is possibility of a sign of serious disease and may postpone to accept the applicant until recovery
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Example of Insurance and Clinical Medicine
5-year survival rate of A disease is 99%
•Clinical Medicine
The doctor thinks no problem because A disease was treated appropriately and 5-year survival rate is 99%
• Insurance Medicine
If standardized mortality rate of male at age 40 is 0.001 and age 44 is 0.002, 1 person died in 1,000 people in 5 years
1 patient of A disease dies in 100 patients in 5 years
A disease at age 40 has 10 times risk of death compared to standard group
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Conclusion
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Conclusion
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Conclusion
Accept the applicants as many as possible
Give the entire group of same risk class fair deal
Offer the more lower premium to the applicants
Give the chance to accept the insurance to people who had given up to be insured
Avoid Anti-selection
Keep actual mortality rate within expected mortality rate
Keep the death benefit
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The underwriter is goal keeper of risk selection
Conclusion
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Conclusion
The recipe for underwriting …
Underwriting
Actuary
Sales
marketing
… is their relationship
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Conclusion
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Conclusion
I came to shake hands to Cambodia
Let’s study significance of risk selection
Let’s understand the mission of underwriting
Let’s take the first step toward the underwriting
Let’s shake hands with the surrounding underwritersto develop the underwriting market
68
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Conclusion
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Thank you !!