23. Contract design Flashcards
1
Q
Factors
[Ample Direct Factors]
A
Administration Market for the product Profitability Level and form of benefits Early leaver benefits (discontinuance)
Discretionary benefits Interests + needs of stakeholders Risk appetite Expenses vs. charges, cross-subsidies Competitive price Terms and conditions, transparency and simplicity
Financing requirements [capital requirements + financing method] Accounting Consistency with other contracts Timing of contributions/premiums Options and guarantees Regulation/legislation Stakeholders
2
Q
Customers’ needs are influence by
A
Capacity to pay
Risks covered
Benefits needed at different times in the future
Attitude to financial risk
3
Q
Provider’s needs are influenced by
A
Chosen market
Available capital
Available expertise
4
Q
Improving marketability
A
- Attractiveness
- Innovation [options + guarantees]
- Simplicity
- Transparency
- Low charges
5
Q
Options related to premiums
A
- Waiver benefit
- Increase/decrease premium
- Payment frequency
6
Q
Options related to benefits
A
- Lump sum vs regular income
- Protected no claims discount
- Adding rider benefits
7
Q
Examples of discretionary benefits
A
- Life insurance: with-profits contracts
- General insurance: NCD rating system
- Pension funds: level of discretionary pension increases
8
Q
Factors to consider when setting discontinuance benefit terms
A
- Policyholders reasonable expectations
- Market practice
- Worth of policy
- Term to maturity
- Practical considerations:
> Ease of calculations
> Frequency of changes in terms
9
Q
Products sold on price
A
- Term assurance
- Motor/house insurance
- Whole life assurance
- Employer’s liability
10
Q
Products not sold on price
A
- With-profits savings contracts
- Unit-linked savings contracts
- LTC [chosen on basis of level of care/conditions for payment]
11
Q
Examples of conflict between factors
A
- Profitability vs Competition
- Guarantees vs reducing financing requirement
- “Bells and whistles” for marketability vs administrative simplicity
