5.

0 NATURE PROCESS
Key aspects:
 Examining the underlying cause and effect associated with the new product
A company strive to become more flexible to meet ever-changing market demand and
conditions, they constantly look for innovation and ways to improve their products. Its’ goal is to
manage the entire organization in a manner that allow it to excel in the delivery of a product or
service that meets customer needs.

A way for us to analyse these causes and effect of a retrenchment insurance product is to
collect data about the real-world system regarding retrenchment. Identify what seem to be the
primary factors to create an insurance product to help consumers. Secondly, use a
mathematical analysis to make conclusions. Use statistical measurement to determine the
effects of retrenchment insurance whether it would bring profit or loss towards the company. We
should also look for anomalous or unexpected or inconsistent data. For example, when a
department continuously suffers losses due to poor demand for its products during a pandemic
and it closes down, the employees of the department has risk of being retrenched. This
unexpected event should be overlook and calculated to avoid downturn towards the insurance
company.

 Choosing assumptions for product’s future experience

The role of assumption is to clearly document decisions that have been made, to populate the
assumptions in order to be able to run the model, to calibrate the model where possible and to
test how dependent the output of the model is to the value chosen for any particular
assumption.

An approach that can be adopted in order to set assumptions for a model is through an expert
opinion. A value may be set for a parameter such as the future unemployment rate or future
labour market. The value chosen is usually highly subjective and any report based on the model
should state the values used for these critical assumptions and the sensitivity of the results to
the values chosen. For example, information such as reasons for retrenchment, number of
employees likely to be affected and their job categories, selection criteria must all be taken into
account to ensure that the assumption has been set accurately as is reasonably possible.
Another way is to establish a product development organization. All parts of a company have a
stake in new product development. Data processing and manipulation, analysis, sign-off
processes, implementation into systems and other processes, auditability, checking, and
validation are all areas where the team may improve. For example, underwriting, administrative
investment, accounting, actuarial and more are required during the process so they can be
more amenable to different kinds of ideas to ensure the best assumptions of a product.

 Using the resulting model to understand how changes in the cost and volume affect
profitability
Cost-volume-profit analysis is used to determine whether there is an economic justification for a
product to be manufactured. To arrive at the target sales volume required to earn the desired
profit, a target profit margin is added to the break-even sales volume, which is the number of
units required to pay the costs required to manufacture the product. Profits from consumer
purchases of retrenchment insurance, for example, are estimated on a variable cost basis, or, if
absorption costing is used, production volumes are considered to be equal to sales volumes.
The decision-maker might then compare the product's sales estimates to the desired sales
volume to determine whether the product is worthwhile to manufacture.

6.0 RISK ASSESMENT AND UNDERWRITING

6.1 Risk Assesment Process

The definition of a risk assessment is a systematic process of identifying risks within a

workplace, then implementing reasonable control measures to remove or reduce them. A
suitable and sufficient risk assessment must be carried out prior to a product or plan being
carried out in order to eliminate, reduce or suitably control any associated risk.

1) Identifying risks
Risk of a firm may retrench are to enhance execution and profitability, lessen cost,
improve quality and enhance competitive advantage.
 Intense and fierce competition in the market where there is a continuing trend of
negative industry forecasts or competitors resorting to cut their staffs to minimize
budget
  Failing to keep up or adapt to big industry trends and changes such as the use of
modern technologies by organisations that previously relied heavily on manpower
that could potentially lead to retrenchment.
 Sales of a firm that have been decreasing over the years, as well as a steady decline
in revenue.
 Poor demand for products due to economic change or trends.

2) Identifying who might be harmed by those risks

Next, identify who might be harmed by those potential risks. It should also be noted how
they could be affected, be it through direct contact or indirect contact using a qualitative
and quantitative measures.
 Junior employees
 Part-time workers
 Interns
 Foreign workers

3) Evaluating risk severity and likelihood and establishing suitable precautions

 Consider the important risks first. For instance, retrenchment that cause by a sudden
unexpected events such as the pandemics, natural disaster and uncertainties.
 Design strategies which minimize risk and cost while maximizing opportunity and
value
 Work plan for implementation

4) Implementing controls and recording your findings

Recording your findings on a risk assessment form is an easy way to keep track of the
risks and control measures put in place to reduce the identified risk. The form includes:
 What risks were found: operational risk, market risk, credit risk
 Person(s) or groups affected: junior employees, interns and foreign workers

5) Reviewing your assessment and re-assessing if necessary.

The frequency with which risks should be monitored depends very much on the scale of
the risk as well as on the speed with which changes will occur in the risk exposure which
will require management attention to avoid losses.
6.2 Underwriting Process
1) Agent as first underwriter
Our agent is told what types of applicants are acceptable, borderline or prohibited. For
example, in retrenchment insurance, an agent may told not to solicit applicants who on a
verge of retirement, resignation, termination or suspension due to your own willful or
deliberate misconduct or unlawful behavior. The agent often has authority to reject an
individual immediately, subject to subsequent disapproval of the application and
cancellation by a company underwriter. Thus, it is important that agent follow company
policy when soliciting applicants for insurance.

2) Souces of underwriting information

 Application: In retrenchment insurance, the application provides information on
the financial status of their respective company, the type of position they hold
and other loss control features
 Agents report: Many insurers or brokers may submit an application that does not
completely meet the underwriting requirements of our company such as the level
of education of an individual because the recurrent pattern of job loss is higher
for workers with less than a high school education.
 Inspection report: The underwrite may require to visit the location of an
individual’s work place and asses the quality of work to their employers.

3) Making an Underwriting Decision

First, the underwriter can accept the application and recommend the policy to be issued.
Secondly, to accept the application subject to certain restrictions or modifications. For
example, before a retrenchment insurance policy is issued, the applicant needs to have
an exemplary performance record at work to secure their position in the company. The
third decision is to reject the application. If an application is rejected, the rejection should
be based on a clear failure to meet the the insurer’s underwriting standard.
Risk pooling and the law of big numbers are two statistical concepts that insurers use to make
money. Insurers pool risks by admitting a large number of policyholders who are unlikely to lose
money. They are aware that some of those policyholders will suffer a loss in the future, but they
believe they will be in the minority. The law of large numbers is based on the premise that as
the number of risks increases, losses become easier to foresee. Insurers can better estimate
losses if they insure a large number of risks rather than just a few. Predicting losses is an
important aspect of the rate-setting process. Insurers require the capacity to precisely anticipate
losses in order to set rates that reflect the risks they insure.

 length of service
 skills assessment
 disciplinary record
 performance record
 absence record (excluding maternity)
 knowledge and qualifications.
 Ability, experience, skill and occupation qualifications;
 Age;
 Family situation;
 Length of service and status (that is, non-citizens, casual, temporary, permanent).