Preparation of the methodology for calculation of the redemption amounts, as an integral part of insurance regulations in accordance with the requirements of the Article 28 of the Law of Ukraine "On Insurance"
Risk Institute conducts development and preparation of actuarial methods on calculation of surrender values (redemption amounts) and reduced amounts of insurance as an integral part of insurance regulations in accordance with the requirements of the Article 28 of the Law of Ukraine "On Insurance". Through this process insurance products become more attractive to customers, while remaining loss-free even in the case of early termination and termination of payment of insurance premiums.
Risk Institute also conducts an audit of the existing methodology for calculation of the redemption amounts and reduced insurance amounts, evaluates their adequacy, corrects methodological mistakes.
The most typical mistakes that we identify when calculating the redemption amounts:
• underestimation / overestimation of administration expenditures of the company;
• underestimation / overestimation of marketing expenditures of the company;
• calculation of redemption amounts, excluding changes in the rates policy and provisioning principles that have occurred since the issue of the policy (calculation of gross reserve by prospective method).
Urgent problem for Ukrainian life insurance market is reducing the amount of insurance due to termination of insurance premiums payment by the insured person. If payment of insurance premiums is terminated prior to the moment when under the insurance agreement the redemption sum has been formed, the agreement shall be terminated by the insurer usually unilaterally. However, termination of payment at a later stage of agreement requires reduction of the insurance sum. The procedure for calculating the reduced insurance sum shall be developed by a qualified actuary subject to specific features of the products and structure of the expenditures for acquisitions and administration of each individual insurer. Incorrect approaches to reduction lead to arising of losses at the moment of reduction. The reduction on the basis of net reserve excluding actual expenditures incurred under the insurance agreement can be an example.
