Question

What is a limitation of the cash flow method in insurance pricing?

a.

It is less time-consuming and costly compared to the formula method

b.

It relies on unreliable data input, leading to unreliable output

c.

It allows for generalization of premium rates for all insurance products

d.

It does not require consideration of the term structure of interest rates

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (b).It relies on unreliable data input, leading to unreliable output Explanation:One limitation of the cash flow method in insurance pricing is that it relies on the accuracy and reliability of the data input. If the data used in the model is unreliable, the output generated by the model may also be unreliable, following the principle of "garbage in, garbage out."

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