Question 1

You are the Complaints Manager for ABC Ltd, a UK-based pet insurer.

A UK-based policyholder of ABC Ltd submitted a claim for veterinary fees, after their dog suffered an injury
whilst with the policyholder on a family holiday in France. ABC Ltd rejected the claim on the basis that
European veterinary fees cover is excluded from its standard insurance policy wording.

The policyholder is unhappy with this response as, when they purchased the policy, they specifically stated to
ABC Ltd that they frequently holiday in European countries and required cover for their dog.

The policyholder has also advised that they are unclear as to what cover is provided by the insurance policy
wording, due to its length and complexity.

In addition, the policyholder is unsure if they are able to cancel this policy mid-term and still receive a return
premium, as this is also unclear from the documents provided.

A) Explain, with justification, how the policyholder can be deemed to have received unfair treatment
from ABC Ltd.
B) Identify, with justification, two actions that could be taken by ABC Ltd, to prevent future policyholders
receiving similar unfair treatment

Answer

In this scenario, the policyholder is unhappy with ABC Ltd whom are the insurer as ABC Ltd have rejected the
policyholders claim for veterinary fees as their dog was injured whilst on a family holiday in France. There are
grounds to which the client has been treated unfairly and these are detailed below.

A) Principle 6 of the Principles for Businesses as noted in the FCA handbook states that a firm must pay
due regard to the interests of its customers and treat them fairly (CII Study Text M80 Underwriting
Practice 23/24).

Firstly, the policyholder has clearly stated to ABC Ltd that they are frequently travelling on holidays to
European countries and require cover for their dog, whom will be travelling with them. Upon
receiving this information, ABC Ltd should have advised the policyholder that there is an exclusion of
cover for their dog under the standard policy whilst in Europe, however they have failed to do this.

Secondly, The policyholder has also advised that they were unaware of the levels of cover provided by
the policy due to the policy wordings length and complexity. To ensure that there is contract
certainty, the policy terms should be clearly expressed and unambiguous (CII Study Text M80
Underwriting Practice 23/24). Given the policyholders comments, one could argue that the exclusion
was not clearly stated, even after the policyholder advised ABC Ltd of their needs.

Finally, The policyholder is uncertain about whether they can cancel the policy mid-term and receive a
return premium. This lack of clarity in the provided documents adds to the unfair treatment. ABC Ltd
have an obligation to clearly communicate the terms related to policy cancellation, including any
potential return premiums. The ambiguity in this aspect can be seen as unfair treatment on the
policyholder.

B) There are several improvements that ABC Ltd could implement to avoid or minimise their
policyholders receiving the same treatment as above. Two of these improvements are as follows.

(i) Under Principle 2 of the Principles for Businesses, A firm must conduct its business with due skill,
care and diligence (CII Study Text M80 Underwriting Practice 23/24). Therefore, ABC Ltd should
focus on the providing continuous training and development of staff to ensure that they have the
necessary capabilities to identify policyholder needs and investigate further should there be a
need. Given that the client has specifically provided information to ABC Ltd regarding their travel
 to Europe with their dog, the customer should have been made aware of this particular exclusion
so that they are able to make an informed decision.

(ii) The second area that ABC Ltd should look to take action is within their policy documentation.
Under Principle 7 of the Principles for Businesses, A firm must pay due regard to the information
needs of its clients, and communicate information to them in a way which is clear, fair and not
misleading (CII Study Text M80 Underwriting Practice 23/24).

Given that the client has commented advising that they were unsure of the policy coverage due
to the length and complexity of the policy wording, it would be prudent of ABC Ltd to invest in
creating more user-friendly and easily understandable policy documents. This may involve
simplifying language into plain English and avoiding insurance jargon, using clear examples, and
providing simplified summaries of coverage and exclusions. By making policy documents more
accessible, policyholders can better understand the terms of their coverage, reducing the
likelihood of misunderstandings and disputes.

Question 2

SDR Ltd is a motor insurer, underwriting both personal and commercial motor insurance policies. SDR Ltd
specialises in high-value vehicles in its personal motor account.

SDR Ltd intends to grow both its personal and commercial motor insurance accounts. The categorisation and
classification groups for these accounts have not been reviewed for some time and this has led to difficulties in
underwriting and rating individual risks.

A) Explain briefly, factors to be considered when categorising risks within SDR Ltd's motor accounts.
B) Explain briefly, factors to be considered when classifying risks within SDR Ltd's motor accounts.

Answer

Here, SDR Ltd whom are a motor insurer are intending to grow both their personal and commercial motor
accounts, however the categorisation and classification groups for these accounts have not been reviewed in
some time. This is leading to difficulties underwriting and rating individual risks.

A) Given that SDR Ltd have not reviewed their personal and commercial accounts for some time, there
are several factors that they may want consider when they are categorising risks within their motor
accounts. Their aim should be to group together risks with similar features and characteristics, which
will have a similar degree of hazard and claim profiles (CII Study Text M80 Underwriting Practice
23/24).

(i) The first categorisation to possibly consider is the type of vehicle that SDR Ltd would be looking
to insure. For example, it is noted that SDR Ltd already specialise in high value vehicles on their
personal account. Given this, are they considering to continue to insure this type of personal
vehicle or are they moving to less valuable family vehicles. Likewise, they should consider what
types of commercial vehicles they are looking to insure, for example, small individual vans or
fleets of lorries.

(ii) The second categorisation to possibly consider is the geographical areas in which they are looking
to insure vehicles. As SDR Ltd already specialise in high value vehicles on their personal account,
it is likely that they will have an area grouping for these vehicles. This is something that can be
updated by using crime statistics and can then be incorporated into their commercial vehicle
account.

B) Normally, risks are firstly classified by account and then by class of business (CII Study Text M80
Underwriting Practice 23/24). Therefore, SDR Ltd would look to classify risks by either personal or
commercial business and then subsequently by whether they are private car, commercial vehicle or
 motor fleet. Once SDR Ltd have established this, they can then consider further classifications of each
class of business and some of these considerations are discussed below.

(i) The first factor for SDR Ltd to consider when classifying risks on their personal and commercial
motor accounts is the usage of the vehicles that they are insuring. Different types of vehicle
usage will present varying levels of risk to SDR Ltd. They will need to potentially consider the
usage that they want to insure, for example social use only on private vehicles as opposed to
business use or minor business use only on commercial vehicles, as opposed to haulage.

(ii) The second factor for SDR Ltd to consider when classifying risks on their personal and commercial
motor accounts is the age ranges of the drivers that they are looking to insure. Given that they
already specialise in high value vehicles on their personal account, it is likely that SDR Ltd are
aware of the claims statistics for drivers within each relevant age banding. They could use this
information to predict the probably frequency and severity of claims for each age range and then
adjust their underwriting guidelines to enhance profitability. For example, they could look to
exclude drivers under the age of 25 on commercial vehicles.

By carefully considering these factors when categorising and classifying risks, SDR Ltd can effectively
streamline their underwriting processes, optimise their risk selection, and enhance profitability in both their
personal and commercial motor insurance accounts.

Question 3

You are an underwriting manager at EF plc, a commercial lines insurer.

EF plc's underwriting strategy has historically been to focus on complex commercial property, motor and
liability risks, with a minimum individual class premium of over £25,000.

EF plc has recently purchased JK Ltd, a much smaller insurer focused on small and medium-sized enterprises
(SMEs), with the majority of premiums below £5,000. JK Ltd insures a large number of plumbing risks within its
SME portfolio.

You need to absorb JK Ltd.’s business into EF plc's business and consider their distribution needs.

A) Explain, with justification, the most appropriate distribution channel for EF plc, for each of the
following risks:
(i) Complex commercial risks with a premium over £25,000.
(ii) SME risks with a premium below £5,000.
(iii) JK Ltd.’s portfolio of plumbing risks.

B) Discuss the potential challenges that may arise for EF plc in having multiple distribution channels.

Answer

This question relates to EF Plc’s underwriting strategy and the most appropriate distribution channels available
following the acquisition of a much smaller insurer, who have a different portfolio of risks.

A) There are several different distribution channels available to EF Plc and the best avenue to pursue is
dependant on the type of business that they are dealing with. These are listed below.

(i) The most appropriate distribution channel for the complex commercial risks, with premiums over
£25,000 is via intermediaries. Generally speaking, commercial risks with a premium of over
£25,000 are likely to be more complex than your standard insurance and therefore, the level of
expertise would suit a specialist intermediary.

Not only this, but given the needs of these commercial customers, there is likely to be a lot more
communication between the intermediary and the client which can be very labour intensive.
 Intermediaries will be able to offer a tailored and personalised service, whilst understanding the
clients requirements of what is likely to be a bespoke policy.

Furthermore, dependant on the clients bespoke requirements, an insurer may even place an
underwriter in the intermediaries office in order to provide an in-house underwriting function for
the broker (CII Study Text M80 Underwriting Practice 23/24). This would allow the intermediary
to turnaround business quicker and improve client relationships.

(ii) The most appropriate distribution channel for the SME risks with a premium below £5,000 would
be a combination of both intermediary and direct sales. The insurer could possibly benefit from
the use of intermediaries for the risks that are closer to £5,000 as they may potentially have more
resources available to administer these types of policies. For the risks that are on the smaller
side, the insurer may benefit from having a direct distribution channel with in-house staff that
deal with enquiries.

(iii) The most appropriate distribution channel for JK Ltd.’s portfolio of plumbing risks would be either
via a direct sales route or by adopting the use of a delegated authority scheme that would be
administered by a coverholder.

It is likely that the portfolio of plumbing risks inherited from JK Ltd are very similar and therefore,
EF Plc could look to harmonise their offering in this respect by opting for a standardised policy
wording that would cater for this particular trade. Further to this, EF Plc could look to utilise any
systems they currently have, for example online quoting platforms to reduce underwriting costs
and should a particular risk fall outside of this, they can then be considered on a case by case
basis.

An alternative option for EF Plc would be to partner with a specialist insurance broker who have a
firm knowledge of the risks posed by the plumbing trade so that they can utilise this by way of a
delegated authority arrangement. This would help reduce both administration and underwriting
costs for EF Plc as the broker could hold underwriting authority.

B) There are many challenges that EF Plc may face by the adoption of various different distribution
channels and these are discussed below.

(i) The first challenge that EF Plc may face by having multiple distribution channels is difficulty in
managing these consistently across the organisation. Management of distribution will require a
consistent approach that sets standards for underwriting, customer service and pricing. Should
there be any mismanagement within the organisation, it is likely that EF Plc’s strategies may
become misaligned and discrepancies may appear which could cause confusion and additional
complications surrounding EF Plc’s underwriting strategy and internal operations.

(ii) The second challenge that EF Plc may face by having multiple distribution channels is the need for
various different resources within their organisation. Each distribution channel will require its
own dedicated resources for marketing, staff training, and customer support. Therefore, EF plc
must carefully allocate the relevant resources to maintain the effectiveness of each channel
which may result in additional costs and may have an impact on their overall pricing and
underwriting strategy.

(iii) The third challenge that EF Plc may face by having multiple distribution channels is the potential
for different regulatory requirements for each channel. EF Plc are likely to utilise the use of both
intermediaries, direct sales and delegated authority arrangements to distribute their products.
Each of these channels may be subject to different regulatory requirements, for example, should
EF Plc utilise a delegated authority arrangement, they will need to ensure that the coverholder
whom is underwriting risks on their behalf is being regularly monitored as they are ultimately
responsible.
 Furthermore, should EF Plc utilise a direct sales route, which may potentially be via the use of
comparison websites, they will need to ensure that they are providing enough information to
clients to allow them to make an informed decision.

Proactively addressing these challenges will require effective communication, robust internal systems, and
solid strategic decision-making. Having these things in place should allow EF Plc to optimise the performance
of each distribution channel while maximising the overall business value.

Question 4

You are a household underwriter for RW plc, an insurer. The following data shows the value of 20 household
property insurance claims, in GBP, occurring over the past month in RW plc's household insurance account:

A) Construct a frequency distribution table for the value of claims.

B) Calculate, showing all your workings, the arithmetic mean of the frequency distribution table you
have constructed in (a) above.
C) Explain how the frequency distribution table you have constructed in (a) above, can assist RW plc in
the underwriting of this household insurance account.
D) Explain how the arithmetic mean you have calculated in (b) above, can assist RW plc in the
underwriting of this household insurance account.

Answer

In this scenario, we are a household underwriter for RW Plc who are an insurer. We have been provided with a
data set stating the value of 20 household claims over the last month.

A) Below is the frequency distribution table for the value of claims.

Claim Costs Frequency

£1,000 1
£2,000 3
£5,000 5
£7,000 1
£8,000 2
£10,000 1
£15,000 3
£18,000 1
£25,000 2
£50,000 1

B) To calculate the arithmetic mean of the above frequency distribution table, we must first add an
additional column to our table, which multiplies the figures provided within the previous columns of
the above table (CII Study Text M80 Underwriting Practice 23/24). This is detailed as below.
Claim Costs Frequency
 (x) (f) (fx)
£1,000 1 £1,000
£2,000 3 £6,000
£5,000 5 £25,000
£7,000 1 £7,000
£8,000 2 £16,000
£10,000 1 £10,000
£15,000 3 £45,000
£18,000 1 £18,000
£25,000 2 £50,000
£50,000 1 £50,000
Total (∑f) 20 £228,000

Now we have this information, we can use the formula x = ∑fx / ∑f to find the arithmetic mean of our
frequency distribution table.

By replacing the letters in our formula with the numbers on the above frequency distribution table,
our calculation would be x = £228,000 / 20 = £11,400.

Therefore, the arithmetic mean of our frequency distribution table data is £11,400.

C) The frequency distribution table will serve as a valuable tool for RW Plc to gain an insight into the
distribution of claim values within their household insurance account. Frequency distributions can be
used to summarise all types of numerical data and they offer a comprehensive overview that will
enable RW Plc to make informed decisions regarding their underwriting strategies.

By carefully examining the frequency distribution table, RW Plc can pinpoint any patterns in claim
values. This understanding is crucial for assessing risks and making any necessary adjustments to their
insurance policies. For example, if the table reveals a notable frequency of claims at higher values, RW
Plc may need to reconsider their pricing models or coverage limits. They might choose to increase
premiums or adjust policy terms to better align with the potential losses associated with these higher-
value claims.

Furthermore, the frequency distribution table may allow RW Plc to potentially anticipate future claim
trends and therefore proactively adapt their underwriting approach.

D) The arithmetic mean can serve as an essential tool which will assist RW Plc in understanding the
frequency and severity of claims within their portfolio. By calculating the average claim value, RW Plc
will gain insight into the central tendency of their claims data, helping them gauge the typical financial
impact of insurable events on their household insurance account. (CII Study Text M80 Underwriting
Practice 23/24).

The arithmetic mean can play an important role in risk management for RW Plc. It may assist them in
assessing their exposure to potential losses by providing a baseline for estimating the total payout
they may need to cover for claims over a given period.

By using this information, RW plc can make informed decisions about the pricing of their insurance
policies. Furthermore, they will be able to ensure that by setting premiums that align with the average
claim value, they are collecting sufficient premium to cover expected payouts whilst also factoring in
operational costs and profit.

Question 5
You are an underwriter for LMN plc, a commercial insurer. LMN plc underwrites a range of property and
liability insurance risks.

You have been asked by an insurance broker to consider a new business proposal that requires consideration
of both property and liability insurance for a large risk. The risk consists of a modern factory, located on a busy
industrial estate in a major city.

The risk has a large number of employees who operate hazardous machinery on a daily basis. There is a
designated risk manager who ensures health and safety measures are followed, including ensuring up-to-date
procedures are adhered to.

The broker has advised you that the factory is well maintained and has the relevant fire protection and alarm
systems.

A) Explain, with justification, five significant underwriting considerations for you, when establishing the
risk premium for this new business proposal.
B) Identify, with justification, the underwriting expenses LMN plc should include to ensure an
appropriate premium is charged for this new business proposal.

Answer

In this scenario, we are an underwriter for LMN Plc, who are a commercial insurer that underwrite a range of
property and liability risks. We have received a new business proposal from a broker that consists of both
property and liability and requires our consideration.

A) There are many considerations that need to be taken in to account when reviewing the information
for the proposed new business and these are listed below.

(i) First and foremost, we must be clear on what it is that we are actually being asked to insure,
therefore, this will mean a careful consideration of the subject matter of the insurance. The
subject matter is the object, property or potential liability described in the policy as being
covered (CII Study Text M80 Underwriting Practice 23/24).

In this instance, the subject matter of the insurance would be the property itself along with any
contents and stock, the liabilities to employees and the public and also liabilities to neighbouring
businesses.

(ii) The second consideration that we must make when establishing the risk premium is the size of
the actual risk and its potential exposure to a loss (CII Study Text M80 Underwriting Practice
23/24).

There are many different measures that we can consider to help us understand the size and
exposure presented by this potential new business. For example, the construction of the factory
building in relation to potential fire risks, whether there are adequate security measures in place
in relation to theft risks, the location of the premises being on a busy industrial estate in a major
city, again the potential theft, vandalism and liability risk and the large number of employees that
are operating hazardous machinery on a daily basis, leading to a large personal injury risk.

(iii) The third consideration that we must make when establishing the risk premium is the scope of
cover that is being requested by the broker and client. This will include things like any excesses,
policy limits, extensions or restrictions (CII Study Text M80 Underwriting Practice 23/24).

To assist us in arriving at the risk premium, there are a number of considerations that we must
make within the scope of cover. For example, the sum insured requested for the factory building
and any contents or stock within and whether the client has requested any additional covers, like
accidental damage, contents in transit or contents in the open.
 Furthermore, what limit is the client requesting in respect of their liabilities under the policy to
both the public and employees. The higher limits that may be provided by the underwriter may
expose them to substantially larger claim payouts and therefore are likely to attract a higher
premium.

(iv) The fourth consideration that we must make when establishing the risk premium is the clients
claims experience. Accurate interpretation and effective use of the claims experience is vital to
the pricing process (CII Study Text M80 Underwriting Practice 23/24).

Should the client have a history of frequent or severe claims then this may indicate inadequate
risk management practices or potential underlying issues with the property or operations, which
is likely to lead to future losses. Alternatively, should the client have a clean claims history, this
can be indicative of effective risk mitigation measures and therefore there is less likelihood of a
future claim arising.

(v) The fifth consideration that we must make when establishing the risk premium is the potential for
changes in the future.

There are many considerations about the future that must be analysed when arriving at a risk
premium for the proposed new business. For example, climate change and the impact this is
having on things like weather related events leading to a loss, changes in legislation and how this
impacts the potential for claims costs (CII Study Text M80 Underwriting Practice 23/24).

Furthermore, we must consider the potential for emerging risks for which we do not yet fully
understand. An example of this is the asbestosis cases that have come to light from practices in
the 1960’s and 1970’s. Given that the client in this case is operating with a large number of
employees, using hazardous machinery, we must consider the potential for future liability claims.

B) When calculating the premium that should be charged for this particular risk, we should always
consider an element of underwriting expenses that need to be factored in to ensure that we are
covering relevant overheads along with the hope of also securing a profit.

(i) The first underwriting expense that should be factored in to our premium calculation is the costs
involved with the processing and administration of the policy. This can range from factors like,
staff costs, buildings costs where the underwriter is based, I.T costs and general operational
costs.

(ii) The second underwriting expense that should be factored in to our premium calculation is the
costs involved with any potential specialist input for the policy. For example, this could be the
cost of site surveys to inspect the safety procedures in the case of the hazardous machinery,
along with increased input by actuarial or underwriting staff (CII Study Text M80 Underwriting
Practice 23/24).

(iii) The third underwriting expense that should be factored in to our premium calculation is the cost
involved with claims handling. There is potential for a large claim on the policy given the large
number of employees and handling these claims could be very costly and therefore this must be
factored in to the premium.

(iv) The fourth underwriting expense that should be factored in to our premium calculation is any
additional costs incurred by LMN Plc for reinsurance undertakings. Given that this is a single risk,
then it may require facultative reinsurance cover, the cost of which should be incorporated in to
the underwriting premium.
 (v) The fifth underwriting expense that should be factored in to our premium calculation is any
remuneration that is owed to the broker for the introduction of the new business. Dependant on
the agreement with the broker, there will be an element of commission whether pre agreed or
negotiated individually that will need to be factored in to our premium calculations.

Question 6

You are a senior underwriter for TZ Ltd, a commercial combined insurer.

TZ Ltd's current underwriting strategy is to focus on medium-sized business risks. Within these businesses, TZ
Ltd plans to avoid exposure to significant employers' liability risks.

As part of its growth plan for next year, TZ Ltd is considering a change to its underwriting strategy. This change
will involve expanding its risk appetite to include significant employers' liability risks.

The Board of TZ Ltd is aware that the solvency and capital requirements will be affected by this proposed
change in strategy.

You have been asked how this proposed change in strategy will influence reserving and accuracy of pricing.

A) Discuss how TZ Ltd's proposed expansion in its risk appetite would impact its reserving.
B) Explain, with justification, two of TZ Ltd's business functions that you should liaise with, to achieve
both accurate reserving and pricing, for significant employers' liability risks.

Answer

Here, we are a senior underwriter for TZ Ltd who are a commercial combined insurer, who mainly focus on
medium-sized business risks. Currently, TZ Ltd avoid exposure to significant employers liability risks, however,
they are considering changing their underwriting strategy to include significant employers liability moving
forward.

The board of TZ Ltd are already aware of the effects of this change on the solvency and capital requirements
and would like to understand the impact on their reserving should they proceed with this change.

A) Insurers are required to hold reserves that are adequate to ensure that they are able to meet their
liabilities in the future should they arise. Currently, TZ Ltd will hold smaller reserves due to their
current risk appetite and the fact that they are avoiding large employers liability risks.

Generally speaking, employers liability insurance is a type of long tail insurance policy, which means
that claims can sometimes arise many years after an incident has actually taken place. A common and
recent example of this is the many cases of asbestosis from the 1960’s and 1970’s whereby workers
were regularly exposed to asbestos. Unbeknown at the time were the hazards of this and symptoms
were only recognised decades later.

For us to be able to predict the outcome of the change in risk appetite and ensure that adequate
reserves are held, we would need to assess the claims data that we have available for at least the last
seven to ten years (CII Study Text M80 Underwriting Practice 23/24). Should this data not be available
internally, there may be a need for this to be obtained externally. Once this data is available, we
should assess it to understand both the frequency and severity of large employers liability claims and
if there are any trends that can be identified.

By using new claims triangulations or new actuarial models, we can then forecast the potential for
future claims by looking at past claims that have been incurred. Whilst doing this, we must also take
in to consideration the claims that have either not yet been reported, or the claims that have been
reported and the current reserves on them are not adequate. Once this analysis is complete, we
should then have a clearer picture of the risks posed by widening our risk appetite and the impact this
could have on our reserving policies.
 It is likely that the change in risk appetite will have a significant impact on the current reserving
practice and should TZ Ltd go ahead with this plan, they will need to carefully consider their reserving
policies to accurately reflect the significant increase in exposure by accepting the employer liability
risks.

B) It is important that within TZ Ltd, all of the different divisions work together to ensure that they are
achieving their corporate objectives (CII Study Text M80 Underwriting Practice 23/24). In terms of
reserving and pricing, it is pivotal that the underwriters liaise with the following two business
functions.

(i) The first business function that we should liaise with to ensure accurate reserving and pricing is
the actuary function. The actuarial function of TZ Ltd will play a critical role within the company
and they will use their mathematical, analytical and statistical modelling skills to try to predict
uncertain future financial events (CII Study Text M80 Underwriting Practice 23/24).

Given that TZ Ltd do not hold sufficient information on significant employers liability risks, it
would be prudent of the underwriters to work closely with the actuarial function to ensure that
they can obtain enough data to develop effective models and accurately forecast the potential
for future claims. Furthermore, the actuary will normally assist in providing detailed claims
projections, including that of ‘incurred but not reported’ exposures when assessing future claims
potential (CII Study Text M80 Underwriting Practice 23/24).

The actuarial function will also investigate other factors, ranging from policyholder behaviour,
impacts of legislation and the current economic and financial conditions to arrive at their
conclusion.

Given their expertise, it is vital that the underwriting and actuary functions work in conjunction
with one another to predict future claims as accurately as possible and ensure that their
reserving and pricings are correct.

(ii) The second business function that we should liaise with to ensure accurate reserving and pricing
is the claims function. It is imperative that the claims and underwriting functions integrate
effectively if TZ Ltd are going to be successful (CII Study Text M80 Underwriting Practice 23/24).

The claims function also plays a critical role within the insurer as they will assess and manage
insurance claims, including those of their current book of smaller employers liability risks. The
claims function will be able to provide the underwriting function with various insights in to
current claims trends, patterns of losses and areas of potential concern. This information is
invaluable for the underwriting function to ensure that the reserving and pricing models are
accurate and up-to-date.

Furthermore, the claims function will be able to review current policy wordings to ensure that the
cover provided by the underwriter is as it was intended. Should the cover provided be wider than
the underwriter intended, this may have an impact on the reserving and pricing models in place
as TZ Ltd may end up paying claims it had not originally planned for.

Given the information that is readily available from the claims function, it is vital to TZ Ltd that
both the underwriting and claims functions work closely together to ensure that their reserving
and pricing strategies are as accurate as possible.
Question 7

You are the Underwriting Manager for XYZ plc, a household and private motor insurer.

XYZ Ltd underwrites business in a geographical area that is experiencing an unexpected increase in the extent
of flooding.

The household and motor insurance departments work autonomously. Each department is responsible for its
own profitability and there is limited communication between them.

Following an internal review, you have become aware of a number of potential flood aggregation issues, in the
geographical area, across the household and motor portfolios.

A) Explain the potential risk of flood aggregation for XYZ plc.

B) Discuss how the potential risk of flood aggregation for XYZ plc that you have explained in (a) above,
could be managed, between the household and motor underwriting departments.
C) Explain, with justification, the extent to which catastrophe modelling could improve your
understanding of XYZ plc's exposure, to potential future flood claims.

Answer

Here, we are the underwriting manager for XYZ Plc, who are a private motor and household insurer. The
business in which we write is experiencing an unexpected increase in the extent of flooding and we have
noticed that there is a number of potential aggregation issues within the geographical area.

A) To explain the potential risk of flood aggregation for XYZ Plc, we must firstly understand what the
basic definition of aggregation is. Aggregation can be defined as an accumulation of insured risk to a
single insurer which exposes that insurer to a significant flow of claims arising from a single cause of
loss (CII Study Text M90 Underwriting Practice 23/24).

It is noted that XYZ Plc is a composite insurer underwriting both household and private motor risks.
This would suggest that when the different classes of business are underwritten, they are susceptible
to various exposures at the risk of being flooded. It is also noted that the different departments rarely
communicate and therefore, they are unlikely to be aware of an accumulation overlapping between
the different classes.

Given that flood claims are generally of a lower frequency and higher severity, there is likely very little
past claims data that XYZ Plc could use when setting underwriting guidelines and prices. With this in
mind, it is likely that should a claim arise whereby XYZ Plc have an accumulation of risk, the resulting
impact could potentially have adverse effects on both XYZ Plc’s financial stability and its overall
profitability.

To conclude, by having an aggregation of flood risk, there is potential for XYZ Plc to suffer significant
losses which are caused by one singular event.

B) There are various ways in which the potential risk of flood aggregation could be managed between
the different departments within XYZ Plc, some of which are discussed below.

(i) Firstly, it is noted that the household department and private motor department of XYZ Plc work
autonomously of one another. Given this, it would be prudent for XYZ Plc to put procedures in
place that require the two departments to exchange data and communicate effectively so that
any accumulation of risks can quickly be identified to avoid aggregation.

(ii) Secondly, XYZ Plc could look at the different underwriting criteria for both the personal motor
risks and household risks so that they could potentially unify their underwriting guidelines and
incorporate considerations for identifying possible aggregations of risk. For example, XYZ Plc
 could flag the postal codes of risks written in both departments allowing them to spot any
aggregation and address it early.

(iii) Thirdly, it would be beneficial for XYZ Plc to perform some scenario analysis to assess the
potential impact of various flood scenarios on both the private motor portfolio and household
portfolio. By performing a scenario analysis, it will help each department understand the
potential financial implications of flood aggregation. XYZ Plc will then be able to develop plans
that allow the departments to effectively manage this risk.

(iv) Finally, given that the claims for flood tend to be of a low frequency, albeit high severity, it is
unlikely that sufficient data will already be held to fully understand the possible maximum loss
that XYZ Plc could face should a catastrophic event occur. Therefore, the household and private
motor underwriters could use the assistance of an actuary, who will be able to source external
data surrounding the potential severity of flood claims, allowing them to set adequate prices to
cover these events.

To conclude, it is essential that both departments work together and communicate effectively so
that aggregation is identified early and avoided as much as possible.

C) Catastrophe modelling is a mathematical prediction model designed and primarily used by actuaries,
who work alongside underwriters to assess catastrophe exposures and the potential impact of any
associated loss (CII Study Text M80 Underwriting Practice 23/24).

With this in mind, there are several uses of catastrophe modelling that could help us improve our
understanding of the potential exposure that XYZ Plc have to future flood claims.

Firstly, catastrophe modelling can be used to plan and forecast the potential impact on XYZ Plc should
a large flood event occur whereby there is an aggregation of risks across both portfolios. XYZ Plc will
be able to use the model to simulate various scenarios and therefore estimate the likelihood and
potential severity of losses. This will help them gain an insight in to the potential financial losses that
could occur and therefore assist them with setting their underwriting guidelines and pricing practices.
It is essential that XYZ Plc are calculating prices correctly to ensure that they are collecting enough
premium to cover potential future losses and also hopefully make a profit.

Secondly, once the various scenarios have been tested, the catastrophe model can further be used by
XYZ Plc to ensure that they have sufficient reserves in place to cover a worst case scenario. Not only
will this be beneficial for XYZ Plc, it will also satisfy the needs of the regulators as a catastrophe
modelling programme is a cornerstone of any insurers overall financial modelling (CII Study Text M80
Underwriting Practice 23/24).

Thirdly, by using the catastrophe model, XYZ Plc will be in a better position to understand what level
and if they have any requirements for reinsurance protection, should a worst case scenario occur.
The purchase of reinsurance allows XYZ Plc to mitigate some of the potential losses as part of the risk
will be transferred to the reinsurer. Not only will the reinsurance assist in the protection against
catastrophe losses, it will also allow XYZ Plc to maintain their financial stability in the event of a large
claim event.

To conclude, catastrophe modelling can greatly enhance XYZ Plc's ability to understand and manage
its exposure to potential flood claims, ultimately improving the company's financial stability and
resilience in the face of catastrophic events.
Question 8

You are an underwriter for BCA plc, a UK-based commercial insurer, underwriting risks in the UK and Europe.
The majority of BCA plc's insurance products are distributed through global insurance brokers.

The market that BCA plc operates in is highly competitive with premium rates reducing rapidly and wider
insurance coverage being offered by other insurers. This has resulted in a decline in both BCA plc's retention
rates and new business success levels. BCA plc is significantly behind its budgeted income for this year.

BCA plc's Underwriting Director has planned expansion into geographical areas beyond Europe. This is a way of
both growing new business and meeting the needs of some of BCA plc's existing global policyholders.

You have been asked to review the likely implications of, and the procedures for, implementing this expansion.
This review is also to consider how these insurance products will be distributed.

A) Identify, with justification, three key benefits for BCA plc in expanding into the new geographical
areas.
B) Identify, with justification, three key challenges for BCA plc in expanding into the new geographical
areas.
C) Explain, with justification, the procedures BCA plc could implement, to expand into these new
geographical areas, and distribute its products within them.

Answer

The focus of this scenario is that we are an underwriter for BCA Plc, whom are a UK-based commercial insurer,
underwriting risks in the UK and Europe. BCA Plc operate in what is currently a hard market due to premium
rates rapidly decreasing and wider coverage being offered elsewhere, we are seeing a decline in our retention
rate, leaving us being our budgeted income.

The underwriting director has planned expansion into geographical areas beyond Europe as a way of growing
new business.

A) There will be many benefits to BCA Plc of expanding into the new geographical areas and these are
listed below.

(i) The first benefit to BCA Plc in expanding into the new geographical areas is the potential to
access previously untapped markets. In the UK and other more developed areas of the world,
insurance has been common place and readily available for many years. Now that different parts
of the world are developing rapidly, it is becoming more apparent that these areas require the
safety net of insurance.

Provided that BCA Plc have a solid underwriting strategy, there is the potential for them to access
these areas and generate new revenue streams which would assist in offsetting the decline in
their current portfolio.

(ii) The second benefit to BCA Plc in expanding into the new geographical areas is that they could
look to spread any exposure they currently have on their portfolio to the aggregation of
catastrophe losses.

Aggregation is generally understood to mean An accumulation of insured risk to a single insurer

which exposes that insurer to a significant flow of claims arising from a single cause of loss (CII
Study Text M80 Underwriting Practice 23/24).

By expanding into different geographical areas, BCA Plc will reduce its reliance on one singular
market and spread the risk over several. This diversification could potentially help mitigate any
impact of catastrophe losses in a given area.
(iii) The third benefit to BCA Plc in expanding into the new geographical areas is the potential to
increase their brand awareness and global presence.

Currently, BCA Plc are only offering their services within the UK and European markets. By
extending its reach into wider geographical regions, BCA Plc will gain exposure to a larger
audience and more diverse customer base. Furthermore, this expansion will allow BCA Plc to use
its already established brand identity and expertise in insurance services, thereby reinforcing its
image as a dependable and credible insurer.

By expanding into other areas and reinforcing their brand, not only will BCA Plc attract new
customers, they may also attract the attention of other business partners that wish to
collaborate, for example local insurance brokers. These partnerships can assist with market
penetration and the acceleration of BCA Plc’s growth.

B) As much as there will be benefits to BCA Plc of expanding into the new geographical areas, there will
also be many challenges and these are listed below.

(i) The first challenge that BCA Plc may face by expanding into the new geographical areas is the
difference in regulatory requirements from what they are currently used to.

BCA Plc’s expansion into new geographical areas may involve the navigation of complex
regulatory frameworks and compliance requirements specific to each particular area. With this in
mind, BCA Plc must ensure that any of its products, underwriting practices, and distribution
methods comply with local laws and regulations, which could vary significantly from those in its
existing markets. There is a risk that should they fail to comply then this could result in legal
penalties and reputational damage.

Not only this, but BCA Plc will also need to consider the logistical implications of ensuring
regulatory compliance. For example, whether the potential profit to be made by penetrating
these markets outweighs the potential expense.

(ii) The second challenge that BCA Plc may face by expanding into the new geographical areas is the
difference in culture.

By operating in diverse and untested geographical areas, there will be many challenges that are
raised for BCA Plc. For example, there could be challenges brought about by different language
barriers, different local laws and beliefs or religion. The one obvious example of this would be the
takaful system of risk-sharing, which is fundamental to the Islamic culture (CII Study Text M80
Underwriting Practice 23/24).

BCA Plc must ensure that they adapt their marketing strategies, communication channels and
policies where necessary so that they not only adhere to the relevant regulations, but they also
adhere to any religious beliefs. Failure to do so may prove to be disastrous in terms of finances
and reputation (CII Study Text M80 Underwriting Practice 23/24).

(iii) The third challenge that BCA Plc may face by expanding into the new geographical areas is the
potential risk of political problems.

With many parts of the world developing at a rapid pace, there is potential for increased volatility
in terms of the current political regime these areas have in place. For example, one company
encountered serious losses following the overthrow of the former regime in Libya (CII Study Text
M80 Underwriting Practice 23/24).

Another example is the current ongoing hostilities between Russia and the Ukraine, which has
resulted in many countries, including the UK imposing sanctions. These sanctions have had a
significant impact on the various companies that trade within these areas (CII Study Text M80
Underwriting Practice 23/24).
 Although these events can be unpredictable, BCA Plc will need to consider the potential risk of
such events and how this could hinder their profitability.

C) There are many procedures that BCA Plc could put in place to expand into these new geographical
areas and distribute their products within them and these are discussed below.

Firstly, BCA Plc should integrate a solid market research and analysis procedure. Part of this
procedure will be to conduct a comprehensive review of the different geographical areas that have
the most potential for profitable growth, whilst aligning to their underwriting strategies and risk
appetite. Furthermore, this should involve a process to review any regulatory requirements and any
local laws to ensure that BCA Plc remain compliant.

Secondly, BCA Plc should adapt a procedure to review their current product design and enhance this
for the relevant areas they are looking to penetrate. They will need to review policy wordings and
coverage to ensure that they are meeting the needs of customers in targeted areas. This could involve
adapting policy wordings into local languages and also adapting policies to fit religious beliefs.

Thirdly, BCA Plc should integrate a robust procedure to identify the various different channels they
are looking to utilise to distribute their products. For example, to help assist with the facilitation of
entry to the new markets, BCA Plc could look to partner with local insurance brokers who have the
relevant expertise. Not only this, but these partnerships could also assist with understanding any local
regulatory requirements. If BCA Plc were to utilise a local agent then they should also ensure that
they have procedures in place to monitor their activities regularly to avoid any potential compliance
issues.

Finally, once BCA Plc have penetrated the new markets, they should have a procedure in place to
continuously monitor its performance. As this is a new market for BCA Plc, they are unlikely to have
sufficient previous data in which to make forecasts of future performance. Therefore, it would be
prudent of them to ensure that a procedure is in place that will allow them to continuously monitor
their performance and that of any appointed agents. By having this in place, BCA Plc can ensure that
they are continuously adapting and adjusting their strategies to maintain a high performance and
hopefully avoid the potential for significant losses.

Question 9

You are an underwriter for LAL plc, a commercial combined insurer.

An insurance broker you work with, has approached you with a proposal to underwrite a portfolio of small
restaurants. This would be under a scheme arrangement and the broker would run the scheme under a
binding authority agreement.

The broker has developed this scheme through another insurer over the past ten years. The broker has
significant claims data, which shows the scheme has a high frequency of claims, with relatively low average
value. The range of claims value is within a narrow distribution and there are few major claims.

The broker is seeking very high levels of commission and highly competitive premium rates.

Historically, LAL plc has not underwritten many restaurants and therefore holds limited risk data.

A) Explain, with justification, how the law of large numbers could be beneficial to LAL plc, if they accept
the broker's proposal.
B) Explain, with justification, the most appropriate method of rating for this portfolio of small
restaurants.
C) Explain what additional risk data may be collected and considered by LAL plc, in the pricing of the
portfolio.
Answer

In this scenario, we are an underwriter for LAL Plc, who are a commercial combined insurer. An insurance
broker has approached us to underwrite a small portfolio of restaurants under a binding authority agreement.
The broker has adequate claims data that will assist us in deciding whether or not we want to pursue this
proposal. The broker is also seeking high levels of commission and highly competitive rates.

A) For us to be able to use the concept of the law of large numbers to help us decide whether or not we
should accept the insurance brokers proposal, we must first understand what exactly the law of large
numbers is and what it is used for.

Essentially, the law of large numbers is a method of predicting future events based on the data that
has been collected by similar events that have happened in the past. The law of large numbers says
that the actual number of events occurring will tend towards the expect number, where there are a
large number of similar situations. An example of this is flipping a coin 10,000 times, which would
almost certainly lead to something very close to 5,000 heads and 5,000 tails (CII Study Text M80
Underwriting Practice 23/24).

In this situation, the insurance broker has a significant amount of claims data that relates specifically
to the type of risk they are wanting us to underwrite. Therefore, by using this data and the law of
large numbers, we could assess the frequency and severity of claims and predict with some accuracy
and reliability the potential future number of claims and the costs involved.

Once the information regarding the potential future number of claims and their subsequent costs is
available, LAL Plc will need to assess this in depth and then decide whether or not they should accept
the brokers proposal. Should they go ahead and agree to underwrite the risks on behalf of the broker,
they will then need to develop their product and decide what underwriting guidelines and criteria
they should put in place. By doing this, LAL Plc will ensure that clients are contributing an equitable
amount to the common pool whilst ensuring their business model is as profitable and competitive as
possible.

B) There are many different methods LAL Plc could employ to rate the portfolio of small restaurant
businesses, however, on this occasion the most appropriate method of rating would be the burning
cost method.

The burning cost is essentially an experienced based rating method, whereby the underwriter prices
the risk based on the claims it has actually generated. Normally, this is calculated by taking the total
claims costs for a risk and dividing it by an appropriate measure of exposure (CII Study Text M80
Underwriting Practice 23/24). In this instance, risks could be priced by taking the total claims costs for
the individual restaurants and then dividing it by an exposure method, like wage roll.

Not only this, but the burning cost is best suited to risks that have a high frequency of claims but
within a narrow size distribution (CII Study Text M80 Underwriting Practice 23/24). It is noted from
the claim information supplied by the broker that the small restaurant businesses have a high
frequency of claims with low average value, they are within a narrow distribution and there are few
major claims.

There are many attractions to both the underwriters and prospective clients by using the burning cost
method to rate risks. Examples of which are that the rating method is easy to understand, the
premiums will be based on the individual clients own claims experience, thereby encouraging risk
management to obtain better premiums and there is no risk that the premium can be influenced by
the claims history of other companies (CII Study Text M80 Underwriting Practice 23/24).

To conclude, by using the burning rate method, LAL Plc can estimate the potential frequency and
severity of future claims arising and rate risks appropriately.
 C) To assist LAL Plc in setting the pricing model for the portfolio of small restaurant businesses, there is
various different additional pieces of data they may wish to consider.

Firstly, LAL Plc could look to employ the services of a risk surveyor, whom could visit the individual
restaurants and carry out on site risk assessments. This would provide the underwriters with exact
and independent information relative to the particular risk and assist in the underwriting process.
Furthermore, the risk surveyor may also be able to provide recommendations to the client to improve
their risk management, which in turn may result in better premiums.

Secondly, when looking to insure property risks, LAL Plc could benefit from using some form of
catastrophe mapping. Within the UK, there is an ever increasing risk to properties from the peril of
flood. With this in mind, the underwriters at LAL Plc could access websites like The Environment
Agency, which has a flood map rating areas on their potential risk of flooding. Not only would this give
the underwriter a better understanding of the risk, it would also assist them in understanding any
aggregation of risk across their business.

Thirdly, the underwriters at LAL Plc could use readily available information that they could find on the
internet to assist with pricing. There are many websites that provide updated statistics on specific
risks, for example, the police have a crime map (https://www.wiltshire.police.uk/area/your-area/)
which details criminal activities that have been reported in particular post codes. This could be of
benefit to LAL Plc when pricing risks that incorporate an element of theft cover.

To conclude, by using the various different resources available to them, LAL Plc can enhance their
understanding of the portfolio, which in turn allows them to make more informed decisions in
relation to their pricing and overall underwriting strategy.

Question 10

You are the Underwriting Director for PFM plc, a global insurer.

PFM plc has recently experienced a significant decline in its profitability on its property portfolio, which has
been attributed to a high number of claims.

In addition, the property portfolio has experienced an issue with claims fraud. Although the claims team have
identified and rejected some fraudulent claims, they have also reported that there are a number of paid claims
that they also believe could have been fraudulent.

In the last year, across a number of territories, PFM plc has received a large number of claims arising from
wildfires, earthquakes and floods.

PFM plc's reinsurers have expressed concern about how PFM plc controls its global insurance exposures. The
lead reinsurer has asked PFM plc to review how it manages these exposures.

The Board of PFM plc is concerned about the global insurance exposures and fraudulent claims. The Board
believe the fraudulent claims arise from an unfavourable economic downturn in many territories.

A) Explain, with justification, the most appropriate reinsurance arrangement that should be in place for
PFM plc.
B) Discuss the measures, other than reinsurance, PFM plc could take to control and limit exposure to
natural catastrophes.
C) Identify, with justification, four methods PFM plc should use to manage the fraudulent claims in its
property portfolio.
Answer

In this scenario, we are the underwriting director of PFM Plc who are a global insurer. There has recently been
a significant decline in PFM Plc’s profitability within their property portfolio, which is due to a high number of
claims being received, a lot of which are fraudulent. PFM Plc’s reinsurers have expressed that they are
concerned with the way in which PFM Plc are controlling their global exposures. Furthermore, the board have
also expressed their concerns regarding the global exposures and fraudulent claims.

A) There are several types of reinsurances that are available to PFM Plc, for example facultative
reinsurance, treaty reinsurance, proportional reinsurance and non-proportional reinsurance, amongst
others. Here, the best solution for PFM Plc would be a combination of both treaty reinsurance and
facultative reinsurance.

Firstly, treaty reinsurance is the most popular type of reinsurance arrangement and is normally
deployed when an insurer needs to cover a portfolio of risks. Under this type of reinsurance
arrangement, the reinsured is bound to offer a fixed amount of its business, which the reinsurer is
obliged to accept (CII Study Text M80 Underwriting Practice 23/24).

Given that PFM Plc have a portfolio of property risks it would be sensible for them to obtain
reinsurance on a treaty basis to cover the bulk of this. This would mean that PFM Plc would essentially
have one policy covering the majority of the properties as opposed to individual policies, which would
be difficult to administer.

Secondly, facultative reinsurance which is the oldest type of reinsurance and not as frequently used is
an optional type of reinsurance, meaning that both parties have a choice on whether they enter into
the contract or not. This type of reinsurance is normally used when coverage is required for an
individual large or unusual risk and whereby cover is excluded from the normal treaty reinsurance
policy (CII Study Text M80 Underwriting Practice 23/24).

Given that PFM Plc have received a large amount of claims resulting from wildfires, earthquakes and
floods it may prove beneficial to exclude these risks from their normal treaty reinsurance policy and
obtain standalone facultative reinsurance policies covering the properties that fall within the
particular geographical locations that have led to these claims.

To conclude, by having a combination of both treaty and facultative reinsurance PFM Plc will
hopefully have a robust risk management strategy that will aim to address both its profitability
concerns and those of the reinsurers regarding their global exposures.

B) Apart from reinsurance arrangements, there are many other measures that PFM Plc could potentially
implement to limit and control their exposure to natural catastrophes.

The first measure that PFM Plc could implement to assist in the limitation and control of their
exposure to natural catastrophes would be the use of catastrophe models. Catastrophe modelling is a
mathematical prediction model designed and used primarily by actuaries, who work alongside
underwriters in both insurance and reinsurance companies, to assess catastrophe exposure and the
potential impact of any associated losses (CII Study Text M80 Underwriting Practice 23/24).

PFM Plc could look to assess any previous claims data they hold to assess the potential exposure they
have for catastrophe losses over their portfolio of property risks. This would not only help them to
ensure they purchase adequate reinsurance, it would also assist them in setting correct premium
rates and estimating potential reserves for future claims.

The second measure that PFM Plc could implement to assist in the limitation and control of their
exposure to natural catastrophes would be the use of reinsurance pools. A reinsurance pool is
essentially a loss fund that is created by a group of insurers whereby each insurer contributes
premiums into the pool and then claims arising from a particular event are shared across the pool in
the same proportions.
 An example of this is the Pool Re scheme, which was set up in response to a number of terrorism
incidents in the early 1990’s which in turn led to concerns regarding whether the commercial market
had adequate capital to fund the scale of future potential losses (CII Study Text M80 Underwriting
Practice 23/24).

With this in mind, PFM Plc could potentially establish or participate in these reinsurance pools, for
example Flood Re, which would hopefully limit their individual exposure to natural catastrophe losses.

The third measure that PFM Plc could implement to assist in the limitation and control of their
exposure to natural catastrophes would be the use of co-insurance. Co-insurance refers to the
division of financial liability for a risk between multiple parties (CII Study Text M80 Underwriting
Practice 23/24.).

Essentially, this would mean that the risk would be shared between PFM Plc and another or several
other insurers. The reason for doing this is so that the risk is spread between multiple parties and
therefore PFM Plc are not solely liable to pay future claims.

This is very common within the Lloyds market where insurers may take a line or more in association
with other underwriters, thus spreading a large potential risk around the industry (CII Study Text M80
Underwriting Practice 23/24).

Finally, another measure that PFM Plc could implement to assist in the limitation and control of their
exposure to natural catastrophes would be to restrict their policy wording to exclude or limit cover in
respect of this type of claim. This is something that PFM Plc would need to consider thoroughly
though as by using this method they may render themselves uncompetitive with the rest of the
market and other insurers that are continuing to offer cover against natural catastrophes.

C) There are several different methods that PFM Plc could use to manage the fraudulent claims within its
property portfolio and these are discussed below.

(i) The first method that PFM Plc should use to manage the fraudulent claims within its property
portfolio is the use of expertly trained staff.

PFM Plc should ensure that they have adequate staff in place that are specifically trained in the
relevant techniques that allow them to identify potential fraudulent claims. For example, staff
should be trained on how to use investigative interviewing techniques, which essentially involves
developing empathy and rapport with the interviewee so that they can elicit the required
information (CII Study Text M80 Underwriting Practice 23/24).

(ii) The second method that PFM Plc should use to manage the fraudulent claims within its property
portfolio is a robust claims process.

PFM Plc should set out a strict internal policy across the whole company which details how claims
should be handled. There should be a process involved that requires different departments to
share data and also ensure that this data is meticulously checked. An example of this would be
conducting background checks on all clients and ensuring this process is not missed.

(iii) The third method that PFM Plc should use to manage the fraudulent claims within its property
portfolio is subscription to and the strict use of anti-fraud databases.

Anti-fraud databases have been set up so that insurers can share information across the industry
in the hope of combatting fraud and financial crime. An example of this is the Claims and
Underwriting Exchange, also known as CUE. CUE is a database that logs incidents that have been
reported whether a claim has been made or not. Insurers subscribing to this database have
access to this information and can check policyholder details to ensure there are no
discrepancies. If there are, then this can be investigated accordingly (CII Study Text M80
Underwriting Practice 23/24).
 (iv) Finally, the fourth method that PFM Plc should use to manage the fraudulent claims within its
property portfolio is the regular collaboration with anti-fraud bodies.

An example of this is the Insurance Fraud Investigators Group, who have members consisting of
insurers, investigators, loss adjustors and lawyers. They are a non-profit organisations dedicated
to the prevention and detection of insurance fraud (CII Study Text M80 Underwriting Practice
23/24). Another example is the Insurance Fraud Enforcement Department, which is a specialist
police unit that is funded by the Association of British Insurers.

By becoming a member to these anti-fraud bodies, PFM Plc can ensure they are sharing vital
data, which in turn allows them to have the relevant processes in place to spot potential fraud.

To conclude, by using these methods, PFM Plc can ensure that they are doing everything possible to prevent
fraudulent claims, not only for themselves but for the insurance industry as a whole.