C22 Contract Design

Question 1

List parties involved in the design process

Answer 1

List parties involved in the design process (PPALAFSA)
1. Provider
2. Provider’s customers
3. Actuaries
4. Lawyers
5. Accountants
6. Financial backers
7. Sales Team
8. Administrators

Question 2

State the factors influencing providers’ needs

Answer 2

Client’s needs influenced by:
1. Chosen market
2. Capital available
3. Expertise available
4. Objectives of the client

Question 3

State the factors influencing providers’ customers’ needs

Answer 3

Client’s customers’ needs influenced by:
1. Capacity to pay
2. Risks to be covered
3. Benefits needed at different times in the future
4. Attitude to financial risk
5. Financial sophistication of the customer

Question 4

Describe the needs of the other parties involved in the contract design

Answer 4

TBD

Question 5

Why is it important to consider the risk appetite of the intended customer of a financial product?

Answer 5

Sales of the product will be optimized if the product can be designed to be suitable to customers with a wide range of risk appetites

Question 6

Give an example of how design of a saving product can be made suitable to customers with a wide range of risk appetites

Answer 6

Different investment funds, eg low, medium and high risk

Question 7

Give an example of how design of a general insurance product can be made suitable to customers with a wide range of risk appetites

Answer 7

Different levels of cover, eg third party or fully comprehensive

Optional benefits / levels of cover

Question 8

Describe how legislation or regulation can provide a more attractive fiscal environment for a product, and the key implication of this for the provider

Answer 8

Tax advantage, e.g. Sum assured in a minimum of a specified multiple of premium paid.