P61SP SPECIMEN PAPER P61 Life, critical illness and disability underwriting This Specimen Paper is intended as a guide to candidates preparing for an examination in Life, critical illness and disability underwriting. It provides candidates with an insight into the different style of questions in the question paper and indicates the depth and breadth of answer sought by examiners. It also indicates the structure of the full question paper which will be presented to candidates when they sit the examination from April 2013. The answers presented in the question paper provide an outline of the key points which candidates could beneficially cover in responding to the questions. They are not intended as a definitive answer to each of the questions: in many instances the examiners can allow scope for well reasoned, alternative views to gain good marks. Careful preparation is a major factor in achieving examination success. Giving attention to these specimen questions should therefore help candidates to feel more confident that they are prepared for the forthcoming examination, and can demonstrate their knowledge to its full extent. P61SP
CONTENTS Important guidance for candidates...2 Specimen paper...5 Examples of answers...11 P61SP 1
IMPORTANT GUIDANCE FOR CANDIDATES Introduction The purpose of this Specimen Paper is to help you to understand how examiners seek to assess the knowledge and skill of candidates. You can then demonstrate to the examiners that you meet the required levels of knowledge and skill to merit a pass in this unit. During your preparation for the examination it should be your aim not only to ensure that you are technically able to answer the questions but also that you can do justice to your abilities under examination conditions. Before the examination Make sure you have a copy of the current Diploma in Insurance Information for Candidates Details of administrative arrangements and the regulations which form the basis of your examination entry are to be found in the current Diploma in Insurance Information for Candidates brochure, which is essential reading for all candidates. It is available online at www.cii.co.uk or from Customer Service. Study the syllabus carefully It is important to study the syllabus, which is available online at www.cii.co.uk or from Customer Service. The questions in the question paper are based directly on the syllabus, so it is vital that you are familiar with it. Read widely Your knowledge should be wider than the scope of one book. While books specifically produced to support your studies will provide coverage of the syllabus areas, you should be prepared to read around the subject. A reading list can be found at the end of the syllabus. Make full use of the Specimen Paper You can use Specimen Papers as mock question papers, attempting them under examination conditions as far as possible, and then comparing your answers to the examples of good ones. Understand the nature of assessment Each Specimen Paper contains a full question paper and examples of good answers. The examples of good answers show the type of responses the examiners are looking for, and which would achieve high marks. However, you should note that there are alternative answers to some question parts which would also gain high marks. For the sake of clarity and brevity not all of these alternative answers are shown. Know the structure of the examination Familiarise yourself with the structure of the question paper and the time allowed to complete it. This information can be found on the question paper included within each Specimen Paper. P61SP 2
In the examination Do justice to yourself in the examination Assuming you have prepared adequately, you will only do justice to yourself in the examination if you follow two common sense rules: Spend your time in accordance with the allocation of marks as indicated on the question paper. If you do not complete the whole question paper, your chances of passing may be reduced 1considerably. Do not spend excessive time on any one question. If you have used up the time allocation for that question, leave some space, go on to the next question, and only return to the incomplete question after you have completed the rest of the question paper. The maximum marks allocated to each question and any constituent parts are given on the question paper; the number of marks allocated is the best indication of how much time you should spend answering it. Take care to answer the precise question set. You will see that the examples of good answers provided in this Specimen Paper are quite focused and precise; alternative answers would only 2be acceptable if they still answer the question. However brilliantly you write on a particular topic, if it does not provide a satisfactory answer to the precise question as set, you will not score the marks allocated. Many candidates leave the examination room confident that they have written good answers, only to be mystified when they receive a disappointing result. Often, the explanation for this lies in a failure to think carefully about what the examiner requires, before putting pen to paper. Order of tackling questions Tackle the questions in whatever order you feel most comfortable with. Generally, it is better to leave any questions which you feel less confident in answering until you have attempted those with which you are more familiar, but remember not to spend excessive time on your good questions. Handwriting Provided your handwriting is legible, you will not lose marks if it is untidy. We recommend that you do not write in block capitals, because you will be slowed down so much by doing so and, paradoxically, block capitals can become more difficult to read than joined-up writing when done quickly. Answer format Unless the question requires you to produce an answer in a particular format, such as a letter or a report, you should use bullet points or short paragraphs, since this allows you to communicate your thoughts in the most effective way in the shortest time. The good answers give an indication of which style is acceptable for the different types of question. Calculators If you bring a calculator into the examination room, it must be a silent, battery or solar powered, nonprogrammable calculator. The use of electronic equipment capable of being programmed to hold alphabetical or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. It is important that you show all the steps of any calculation in your answer. The examination is testing your ability to carry out all the appropriate steps in calculating a value. A proficient mathematician is someone who follows the correct method, i.e. carries out the appropriate steps. The majority of the available marks will be allocated for demonstrating the correct method of calculation. After the examination All Diplomas in Insurance examiners, one of whom will mark your answer book, are either active practitioners in the insurance industry or are experts on the subject. They have been specially trained to mark question papers using a detailed marking scheme. The marking of each examiner is closely monitored by a Senior Examiner during the marking period and sampling of marked answer books is carried out. P61SP 3
After all the answer books have been marked, a moderation meeting is held, at which all available statistical information is considered, together with the views of the Senior Examiner for that unit and other assessment experts. At the meeting, a pass mark is set to ensure that the standard of knowledge and skills required to gain a pass in the examination is comparable with that of previous question papers. P61SP 4
P61 THE CHARTERED INSURANCE INSTITUTE DIPLOMA SPECIMEN PAPER UNIT P61 Life, critical illness and disability underwriting The Chartered Insurance Institute 2012 P61SP 5
THE CHARTERED INSURANCE INSTITUTE P61 Life, critical illness and disability underwriting Instructions to candidates Read the instructions below before answering any questions Three hours are allowed for this paper which carries a total of 200 marks, as follows: Part I 14 compulsory questions 140 marks Part II 2 questions selected from 3 60 marks You should answer all questions in Part I and two out of the three questions in Part II. You are advised to spend no more than two hours on Part I. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. The number of marks allocated to each question part is given next to the question and you should spend your time in accordance with that allocation. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. It is important to show each step in any calculation, even if you have used a calculator. If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. Answer each question on a new page. If a question has more than one part, leave six lines blank after each part. P61SP 6
PART I Answer ALL questions in Part I Note form is acceptable where this conveys all the necessary information 1. Describe the specific factors that would influence the underwriting approach to an application from a professional actor with regard to life, critical illness and income protection insurance. (10 marks) 2. (a) Describe briefly the condition known as Barrett s oesophagus. (7 marks) Identify how a patient with this condition should be medically followed up. (2 marks) (c) State the underwriting considerations for life and critical illness insurance for an applicant with this condition. (2 marks) 3. State the information you would need to obtain from a diabetic applicant taking insulin in order to assess the quality and control of the diabetes. (11 marks) 4. (a) Explain briefly how an echocardiogram is performed. (5 marks) State three important uses of echocardiography in the investigation of heart disease. (6 marks) (c) State the particular advantages of echocardiography. (3 marks) 5. State the following: (a) the features of glaucoma; (4 marks) how glaucoma is treated; (4 marks) (c) the underwriting considerations for life, critical illness and disability insurance for an applicant with glaucoma. (2 marks) P61SP 7
6. Explain what is meant by haematemesis and outline three common conditions which may give rise to haematemesis. (9 marks) 7. (a) Describe the anatomy of the lungs. Illustrate your answer with a diagram drawing particular attention to the way the blood circulates through the lungs and to the muscles which move air in and out of the lungs. (8 marks) Explain what would happen to a patient who inhales a piece of meat which blocks a bronchus leading to one of the lobes of the lungs. (7 marks) 8. (a) Define the term money laundering. (2 marks) Outline the legislation governing money laundering and the procedures an insurance office must take to counter it. (4 marks) 9. (a) State the features of osteoporosis with particular reference to: (i) The appearance of the bones. (2 marks) (ii) The factors which may contribute to the development of this condition. (iii) The treatment offered. Explain what the underwriting considerations are for an applicant with osteoporosis for life, critical illness and income protection insurance. (4 marks) (2 marks) (2 marks) 10. Describe briefly (a) the condition known as polycythaemia rubra vera; (3 marks) how this condition is treated; (2 marks) (c) why is it necessary to be cautious underwriting a life policy in an applicant who has polycythaemia rubra vera; and (2 marks) (d) in what other ways can polycythaemia arise. (4 marks) 11. (a) Describe Raynaud's phenomenon. (3 marks) Explain the underwriting considerations for life, critical illness and income protection for an applicant with Raynaud's phenomenon. (3 marks) P61SP 8
12. (a) Explain briefly the features of a transient ischaemic attack. (7 marks) State how the condition is usually treated. (2 marks) (c) State the underwriting considerations for life, critical illness and income protection insurance for an applicant with a history of transient ischaemic attack. (2 marks) 13. Explain why certain forms of haemophilia are only found in males. (6 marks) 14. (a) Explain insurable interest. (2 marks) Explain how legislation has limited insurable interest. (2 marks) (c) State three examples of when insurable interest is present in life assurance. (6 marks) P61SP 9
PART II Answer TWO of the following THREE questions. Each question is worth 30 marks. 15. A man of 45 applies for life assurance for a 10 year term for 400,000. He states on his application that 3 years ago he had a stent put into one of his coronary arteries. He declares he has been well since, has had no chest pain and has gone back to work as a manager of sales staff for a pharmaceutical company. He says his lifestyle has improved since this procedure. He has cut down on his smoking and drinking. He has taken more exercise and his weight has come down slightly. Discuss what the key risks are for this applicant and the extra information you would need to assess each of these risks. (30 marks) 16. You are responding to an application for key person life cover for a 25 year term for 1,000,000. The proposed insured is a healthy 44 year old female Financial Director of a manufacturing company. She earns 50,000. Last year s profit was 150,000. (a) Identify the information you would need to ascertain her key person status and to explore the financial justification for cover. Describe how sums assured in the circumstances are calculated and discuss whether the level of cover that has been applied for should be granted. (20 marks) (10 marks) 17. A man of 25 applies for life, critical illness and income protection insurance for a sum of 25,000 per annum with a deferred period of 13 weeks. Two years before his application, he had a motorcycle accident in which he had multiple injuries including a back injury. He states that he is working at an office job and can move about the office reasonably well. However, when he has to go any distance he uses a wheel chair. State what extra information you would need to collect and discuss how you would use this information to assess the risk for all three types of insurance. (30 marks) P61SP 10
Example answers for Part I (Compulsory questions) 1. Each applicant must be considered as an individual in a group with very varied risks. Life style risks: Varied hours. May be increased use of drugs and alcohol. May be excessive travel. Minor ailments may interfere with work. Earnings may be variable and possibly short-lived. In most cases standard rates for life and for critical illness. Moderate rating or even decline for income protection. May be wise to exclude Total Permanent Disability or amend the definition. 2. (a) Barrett s oesophagus is a condition where the lining of the lower end of the oesophagus resembles that of the intestine (columnar cell) rather than the normal oesophagus (squamous cell). It is usually diagnosed as a result of endoscopy in a patient who is complaining of acid regurgitation. It is a pre-malignant condition. Patients should be endoscoped every 2 years and biopsies taken looking for early signs of malignant change. (c) Provided their follow up is satisfactory, a small extra premium for life and income protection is appropriate. Critical illness should be declined. 3. HbA1c (glycosylated haemoglobin). A single value might not be fully representative and a series of values including a recent one would be more useful. A value of 7% or below is good; a value approaching or above 8% is poor. The number of admissions to hospital for diabetic emergencies is a guide to degree of control. The number of hypoglycaemic attacks increases with poor control. A GP report or a medical report may reveal adverse life-style features. P61SP 11
4. (a) The ultrasonic sensor is usually applied to the chest wall but if the structures near the back of the heart are to be examined then the sensor may be introduced into the oesophagus (transoesophageall echo) under light sedation. (c) Three from: Examination of the valves of the heart to detect narrowing (stenosis) or leakage (incompetence). Looking at the structure of the heart in the assessment of congenital heart disease. Looking at the thickness of the walls of the chambers of the heart in conditions such as cardiomyopathy and severe hypertension. Measuring rate of flow of blood through the heart valves using a Doppler technique. Detecting pericardial effusion. Advantages are: Usually not invasive nor unpleasant for the patient Relatively inexpensive Does not use ionising radiation 5. (a) Glaucoma is a condition where the fluid pressure inside the eye is increased because the ducts draining fluid from the eye become blocked or narrowed. Untreated it will lead to deterioration in vision and ultimately to blindness. The structure of the eye in some people predisposes them to develop glaucoma in an otherwise healthy eye but in other cases it may result from underlying disease of the eye for example uveitis or following trauma. Treatment initially is with drops which constrict the pupil. This manoeuvre alters the shape of the eye slightly and opens up the ducts sufficiently to reduce the pressure. A simple test can measure the pressure and needs to be repeated at regular intervals to monitor treatment. If drops fail then surgery to create an exit for fluid from the eye is performed. In spite of these measures some patients suffer worsening of their vision. (c) Unless there is some underlying cause which merits its own rating then ordinary rates can be offered for life insurance. Critical illness and disability insurance may be declined or the eyes excluded. P61SP 12
6. Haematemesis is the vomiting of blood usually mixed with stomach contents. The blood may be fresh, or if it has been in the stomach some time it may look black and not be recognised as blood by the patient. Three common conditions from: Peptic ulcer either gastric or duodenal. Stomach cancer. Bleeding oesophageal varices in a patient with cirrhosis of the liver and portal hypertension. A tear in the wall of the oesophagus after repeated vomiting typically in a patient with alcoholic gastritis. 7. (a) Diagram shows circulation and also points out the intercostal muscles and the diaphragm. P61SP 13
If a bronchus is blocked then the air in the lung beyond it will gradually be absorbed and this part of the lung will collapse. Provided the lungs are otherwise healthy the patient will not be unduly breathless though he might initially feel an unpleasant sensation in the chest and some tightness. If he does not have immediate treatment then the collapsed lung may become infected and he will develop pneumonia possibly with pleurisy and a pleural effusion. He will need a bronchoscopy to remove the obstruction and allow the lung to reexpand. Physiotherapy and antibiotics will be required 8. (a) The process by which money acquired illegally is fed by an applicant into the financial system only to emerge as an untraceable applicant s asset. The Money Laundering Regulations 2003 make it a criminal offence for financial institutions and their employees failing to set up effective systems for combating money laundering, including failure to report knowledge or suspicions. Each insurance office must appoint a Reporting Officer. 9. (a) (i) There is a deficiency in the protein matrix of the bones leading to a loss of calcium from them with consequent weakness. The structure is less dense and takes on a honey comb appearance. (ii) Contributory factors are: An early menopause Taking steroids long term As a natural process of ageing Rarely in association with an underlying disorder such as Cushing s syndrome or multiple myeloma. (iii) Treatment: In a woman with an early menopause, prophylactic treatment with HRT may be considered. In an established case long term therapy with drugs such as phosphonates may be used to slow the progression of the disease and prevent further fractures. Underwriting: Provided there is no underlying disease, and there have not been multiple fractures then standard rates for life for ten years could be given. Similarly for critical illness. Caution should be exercised for income protection and a mild to moderate extra should be considered. P61SP 14
10. (a) Polycythaemia rubra vera is a condition of the bone marrow which can be regarded as a lowgrade neoplasm, where too many red cells are produced. The haematocrit is consequently raised and the blood may become viscous leading to thromboses. Treatment is by repeated venesection which requires long-term follow-up and cooperation from the patient. Sometimes cytotoxic drugs such as hydroxy-carbamide are used. (c) Underwriters should exercise caution because in the long-term, fibrosis of the bone marrow may supervene with anaemia and low white cell count. Occasionally the condition may progress to myeloid leukaemia. (d) Polycythaemia may also arise as a consequence of hypoxia in someone with a normal bone marrow When the amount of oxygen in the arterial blood falls as in chronic chest disease or some forms of congenital heart disease, or when time is spent at high altitude then as a compensatory mechanism the red cell count rises and the haematocrit increases. 11. (a) Raynaud s phenomenon is a condition where the subject is hypersensitive to cold. The extremities (usually the fingers) turn blue and white in response to only mild degrees of cold. Occasionally the condition is induced by prolonged use of vibrating machinery.. Sometimes, especially when the condition begins later in life, there is an underlying cause such as systemic sclerosis. Sometimes, usually when there is an underlying cause, the Raynaud s is so severe that there is gangrene of the finger tips. These severe cases are sometimes referred to as Raynaud s disease. In a large majority of cases the condition is mild and of no great consequence and normal rates apply for life and CI. Caution for TPD and IP if the work is outdoors in cold weather or involves vibrating machinery. In those cases where there is an underlying cause the rating would be for that cause. 12. (a) TIA is a temporary loss of neurological function usually lasting less than 24 hours and with no evidence of infarction. Eventually the patient may have a stroke. It is thought to be caused by a small embolus either from the heart (for example in atrial fibrillation) or from the arteries leading up to the brain. The symptoms depend on the part of the nervous system involved. There may be transient hemiparesis or sometimes speech disturbance. The attacks may be recurrent. (c) Treatment is initially with anticoagulants or aspirin and attempts are made to find the source of emboli with careful imaging of the heart and the arteries in the neck. Critical illness and disability insurance would generally be declined and a heavy extra premium would usually be required for life. If all investigations were negative and the patient has been free from attacks for 5 years a more lenient approach might be possible. P61SP 15
13. The disease is transmitted by a recessive gene and is carried on the X chromosome. This abnormal gene is not found on the Y chromosome. Therefore females who only inherit one affected X chromosome are protected from the disease by the normal gene on the other one. The male who has only one X chromosome is not similarly protected and therefore suffers from the disease. 14. (a) The Life Assurance Act of 1774 stipulates that the insured must have a financial interest in the life to be assured and the sum assured must not exceed the value of the financial interest. (c) It was enacted to suppress gambling in insurance policies, preventing unscrupulous people from effecting life insurance on a person s life possibly without their knowledge. The Act provides that any such policy shall be declared null and void to all intents and purposes whatsoever.. The exact definition of insurable interest was not laid down in the original act but has been established by case law. Examples: Unlimited interest on a person on their own life. Unlimited interest on a person on the life of their spouse. A company on the life of a key person, limited to the extent of the person s value to the business. Partners and co-directors in a contractual capacity, limited to the extent of the person s value within the scope of the contract. P61SP 16
Example answers for PART II (Scenario questions) 15. A GP report would confirm the single stent and might give you information on: Lifestyle Smoking habits, alcohol, BMI, blood pressure readings. The report might give an indication as to whether he had really made any effort to improve his life-style. It would also tell you what medication he is taking and possibly indicate his compliance. Any blood test results, cholesterol, renal function blood glucose LFT s. It is likely that not all this information may be available from the GP report and that an up-to-date medical would be required. A medical would confirm BMI and blood pressure and look at the urine for protein and glucose. An ECG would be useful and could indicate an old myocardial infarction leading up to his stent insertion or possibly show persisting signs of ischaemia. If the ECG is definitely abnormal a report from the cardiologist may be useful. Risks Lifestyle: He is still smoking though perhaps not heavily. Persisting in this habit substantially increases the risk of progressive heart disease and also indicates that he is resistant to medical advice and could well be non-compliant with other aspects of it. Alcohol: It may be difficult to get an accurate assessment of his drinking but his appearance at medical and his LFT s including gamma GT may help. There is a suggestion that he is overweight and this may carry its own extra risk. Heart disease: He has established coronary artery disease at quite a young age. It would be important to exclude any specific underlying cause including hypercholesterolaemia, diabetes (blood glucose and urine glucose) and hypertension. If he is on treatment for any of these conditions then the possibility of noncompliance must be considered. It is very probable that his coronary heart disease will progress particularly since his lifestyle continues to be unfavourable, certainly with respect to smoking. 16. (a) Name of company and nature of business? How long the company has been in business? Number of employees? During the last three years what has been the turnover, gross profit and net profit figures? What is the key person s precise occupation? What has been the key person s gross salary over the last three years? Does the person have an equity share in the company and if so, what is the current value of the holding? Please explain: The reasons why the key person is considered to be so valuable. The basis on which the sum assured has been calculated. The reason why this particular class of policy and its duration have been chosen. Has the company effected or does it intend to effect policies on the lives of other key people? If so, please give details. P61SP 17
Sums assured may be calculated: Multiple of key person s salary usually 5 to 10 x salary. Multiple of net profit usually 5 x the average net profit over last 3 years is attributed to key person. Multiple of gross profit usually 2 x the average gross profit over the last 3 years that is attributable to the key person. In this case the salary and company profit are seemingly a little low to justify the sum assured requested. 17. You will need a GP report and also preferably a medical examination. These would tell you: The extent of his spinal injury. Does it involve his arms as well as his legs? Can he support his weight? Is he totally independent or does he require a carer for any activity? Has he had any pressure sores? Has he had any urinary or bowel problems? Is his present job the same as before his accident or has he had to accept one at a lower skill level? Has he had any other significant injury in particular a head injury and if so is he left with any other permanent disability for example visual or intellectual? After two years it is likely that his condition is fairly stable and there is no point in postponing the contract. The risks are increased by sphincter disturbance rendering him prone to urinary infection and longterm kidney damage. The risks are greatly increased by the presence of pressure sores. If he is totally independent and has only moderate weakness of his legs with no other features relating to his spinal injury and no other deficit, then he might be acceptable for life at a moderate extra premium. It is unlikely he would be acceptable for income protection or critical illness. P61SP 18