Boot Camp: Special Topics

Intro

This Boot Camp article on special topics covers 3 papers with a significant component of memorization. The topics are flood insurance, earthquake insurance and agricultural insurance, and the full BattleWiki articles are IBC.Flood, OSFI.Eqk, and Chev.Agric. These are all top 12 papers so are very important. They are tested in great detail, and you'll need to spend big chunk of time memorizing all the testable facts.

Note that there are also 2 papers on terrorism insurance, Webel1.TRIA and Webel2.TRIA but these have not been heavily tested. For that reason, they aren't part of your boot camp training. We'll cover those in your combat training.

Flood Insurance

Flood insurance has been part of the syllabus for a very long time, but the source reading was changed in 2016. The new version has different authors and the text is completely different from the previous version. That means there isn't a long history of relevant exam problems to guide your studying. Nonetheless, we know it is tested heavily, and in great detail, so I've created BattleCards for what I think are likely exam questions.

Canada is the only G8 country without a residential flood risk management program for overland flooding. (This is due to concerns over adverse selection.) Here, we examine international best practices for ideas on how to create a flood program for Canada. This is a nicely written paper!

For me, this paper is all about asking & answering these questions:

• Why doesn't Canada have a flood insurance programme? (fears of adverse selection - only people in flood-prone areas would buy it)
• Why does it matter? (climate change & trends like population growth make flood events more devastating)
• What can we do about it? (Look at what the other G8 countries have done)

The paper is not conceptually difficult, but it does require you to memorize quite a few lists, such as preconditions for a strong Flood Risk Management culture. The answer to that is:

• need flood maps (for planning & risk management)
• good Infrastructure (levies, sewers)
• policyholder Awareness of risk, methods of risk mitigation, and Financial Management for floods
• Incentives for individual risk management (by limiting Govt payouts for compensation)

Note that in the BattleCards, the mnemonic hint for remembering this list is: maps.IA$ where

• maps = flood maps
• I = Infrastructure
• A = Awareness
• $ = incentivize policyholder by limiting Govt $s for compensation

I hope that helps. (You should make up your own hints if mine aren't meaningful to you.)

The introductory section also covers a range of important issues related to flooding such as:

• reasons for non-coverage of OVERLAND flooding (BattleActs Hint: adverse.under.maps)
  • adverse MEANS fears of adverse selection
  • under MEANS Govt underinvestment in risk planning/mitigation
  • maps MEANS lack of effective flood hazard maps
• Then there are 4 examples of Govt underinvestment in risk planning (BattleActs Hint: BAIL me out!!)
  • B: Building codes are obsolete
  • A: Asset mgmt is poor
  • I: Infrastructure is lacking
  • L: Land use planning is inadequate

Help! Please BAIL me out of taking this exam! :-o

Note that in the mini BattleQuiz below, some of the BattleCards are actually old exam questions. Click E in the left-hand column to open a PDF with the full exam question and answer.

mini BattleQuiz You must be logged in or this will not work.

Earthquake Insurance

The old exam problems on earthquake insurance are incredibly detailed, so you might as well start memorizing now. (Some candidates like to save the memorization until about a month before the exam. That way you don't have to remember everything for as long. If that works for you, that's fine. But when I studied, I spread the memorization out over a longer period, and I would come back to these heavily tested items 10 or 15 times. Because the syllabus has SO MUCH to memorize, that was the only way I could feel confident on exam day.)

This paper covers risk management practices for insurers with material earthquake exposure (eqk-X, for short.)

There are 5 key principles for managing earthquake exposure: (Just memorize the names of the principles for now. We'll cover the details later.)

1. Risk Management:
   • eqk-X risk management policies are subject to oversight by BoD and implemented by Senior Management
2. Data Management:
   • data required for earthquakes is MORE than for traditional ratemaking
   • (further details provided in OSFI.Eqk - don't worry about it for now)
3. Models:
   • the user must understand (assumptions, methods, limitations) of earthquake models
4. PML: (Probable MAXIMUM Loss)
   • PML is the Total Expected Ultimate Cost which is the $-value of loss a major earthquake is unlikely to exceed
   • (further details provided in OSFI.Eqk - don't worry about it for now)
5. Financial Resources & Contingency Plan:
   • Financial Resources: quantification of how financial resources cover PML
   • Contingency Plan: how to continue efficient business operations after disaster

• These principles have been asked on (2015.Fall #16c), (2013.Fall #33). Note that they don't always ask for all 5 principles, but you should learn all 5 anyway. (All 5 principles have further details that are covered in the BattleCards.)

The MOTHER of all earthquake questions: What are the best practices for earthquake modeling?

This has been asked several times!!!! (2016.Fall #17b), (2016.Spring #17b), (2014.Fall #15a). Could the exam committee possibly be any clearer that they want you to memorize this???!!!!!!!!

• Answer: DAQKD-UP (This memory trick is pronounced: Dacked-Up)
  • (It's rude, but it sounds like F**KED-UP, which is what earthquakes do. They f**k you up. Now you'll never forget it!)

Abbreviation	Meaning	Best Practice
D	Docs	document use of model within Risk Management program
A	Alternatives	explain why a particular model is used versus alternatives
Q	Qualified	qualified staff needed to run in-house models regularly
K	Knowledge	AML (i.e. must have KNOWLEDGE of Assumptions, Methods, Limitations of Model)
D	Data	provide evidence to show that GRANULARITY & QUALITY of data is appropriate
– U	Uncertainty	understand how uncertainty affects: (capital adequacy, reinsurance requirements)
P	PML	if PML(model 1) ≠ PML(model 2): explain (differences, subsequent model adjustments)

Time for more BattleCard torture... :-)

mini BattleQuiz You must be logged in or this will not work.

Agricultural Insurance

The flood and earthquake papers have lots of detailed facts to memorize, but this agriculture paper is the worst. Plan to spend a significant amount of time memorizing.

This updated paper on agricultural insurance is interesting and well-written. There are 6 BRM programs (Business Risk Management programs) within the GF2 framework (Growing Forward 2). The bulk of the paper deals with the first BRM program, production insurance. (Production insurance nicely illustrates general actuarial pricing concepts. Self-sustainability is a critical part of the pricing of production insurance; stochastic methods are used.)

• What is this reading about? It is about something called GF2 (Growing Forward 2)
• What is GF2? It is a comprehensive federal-provincial-territorial framework for Canada's agricultural sector
• GF2 has 6 BRM programs (Business Risk Management programs):

BRM #	BRM program	Description
1	AgriIns (Agricultural Insurance)	protects against...production loss
2	AgriStability (Agricultural Stability)	protects against...margin decline
3	AgriInv (Agricultural Investment)	an investment fund...for small losses
4	AgriRecov (Agricultural Recovery)	protects against...disaster
5	AdvPmtsProg (Advance Payments Program)	provides...low-interest loans for CF mgmt (Cash Flow management)
6	WLPIP (Western Livestock Production Insurance Program)	protects against...fluctuation in livestock prices

An important related question is how each of these programs is funded:

• #1,2,3,6: receive producer, provincial, federal funding
• #4: receives provincial, federal funding
• #5: receives federal funding only

The BattleCards in the mini BattleQuiz cover Sections 1 & 2 from the paper...but that's just the tip of the iceberg. :-(

Note that the mini BattleQuiz covers some easy material not mentioned above. This is to keep the wiki articles shorter and less cluttered.

mini BattleQuiz You must be logged in or this will not work.

Summary

The Full BattleQuiz shows the BattleCards for previous mini BattleQuizzes all at the same time.

Full BattleQuiz You must be logged in or this will not work.

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