Casualty Actuarial Society (CAS) Practice Exam

How can claims managers effectively contribute to maintaining underwriting profit?

1. By approving all claims without consideration of cost

2. By implementing cost control measures and monitoring expenses

3. By reducing the volume of claims processed

4. By marketing more aggressively

The correct answer is: By implementing cost control measures and monitoring expenses

Claims managers play a crucial role in maintaining underwriting profit by implementing cost control measures and monitoring expenses. Effective claims management involves not only ensuring that legitimate claims are paid promptly but also that costs associated with these claims are kept in check. This can be achieved through various strategies, including rigorous expense tracking, negotiating with service providers, and identifying areas where costs can be minimized without compromising on the quality of claims services. Implementing cost control measures helps in reducing the overall claims expenses, which directly impacts the underwriting profit by ensuring that claims outflow does not exceed the premiums collected. Moreover, by monitoring expenses, claims managers can identify trends and inefficiencies, allowing for proactive adjustments to claims handling processes that can lead to substantial savings and ultimately contribute to a healthier bottom line for the organization. In contrast to other options, approving all claims without consideration of cost can lead to unnecessary expenditures that will harm profitability. Reducing the volume of claims processed does not inherently improve underwriting profit unless it results from higher claim quality or fewer genuine claims. Lastly, while aggressive marketing can increase business, it does not address the cost control aspect of claims management directly; thus, it may not lead to sustainable underwriting profit without efficient claims handling.