Casualty Actuarial Society (CAS) Practice Exam

What results can come from effective cost-containment practices in insurance?

1. Increased underwriting expenses

2. Reduced claims adjusting processes

3. Lower loss expenses

4. Enhanced marketing strategy costs

The correct answer is: Lower loss expenses

Effective cost-containment practices in insurance lead to lower loss expenses, which can be attributed to several factors. First, these practices often involve proactive measures aimed at preventing losses before they occur, such as implementing robust risk management strategies and encouraging safer behaviors among policyholders. This not only reduces the frequency of claims but can also mitigate the severity of claims when they do occur. By effectively managing and controlling claims costs, insurers can decrease the funds they set aside for reserves, ultimately translating into decreased loss expenses. This is beneficial not just for the insurance company, which can enhance profitability, but also for policyholders, who may enjoy lower premiums as a result of fewer losses in the pool of insured risks. By focusing on loss prevention, insurers can also improve their claims-adjusting processes, making them more efficient and less costly, further contributing to reduced overall expenses in the underwriting process. This emphasizes the importance of effective cost-containment practices in achieving a sustainable and profitable insurance model.