Casualty Actuarial Society (CAS) Practice Exam

How can claims managers help maintain an insurer's underwriting profit?

1. By minimizing customer claims

2. By managing all claims function expenses

3. By increasing claim allowances

4. By outsourcing claims management

The correct answer is: By managing all claims function expenses

The correct approach involves managing all claims function expenses. This encompasses a comprehensive strategy where claims managers actively monitor and control costs associated with the claims process. Effective management of these expenses can lead to a significant impact on the insurer's overall operational efficiency and profitability. When claims function expenses are kept in check, it contributes to a healthier underwriting profit. This includes focusing on aspects such as optimizing claims processing efficiency, negotiating settlements judiciously, investing in fraud detection, and ensuring that administrative costs related to claims management are minimized. Such diligent management creates a balance between handling claims effectively and ensuring that the costs do not escalate disproportionately, thus reinforcing the insurer's financial stability and profitability. While minimizing customer claims, increasing claim allowances, and outsourcing claims management might have short-term benefits, they do not directly contribute to a sustainable profit margin from underwriting in the same way that careful expense management does. Maintaining a careful balance of these aspects ensures the insurer remains competitive in the market while still achieving sound financial results.