C22 Contract Design Flashcards
List seven parties involved in the design process
List parties involved in the design process (P PAL AFSA)
1. Provider
2. Provider’s customers
3. Actuaries
4. Lawyers
5. Accountants
6. Financial backers
7. Sales and marketing Team
8. Administrators
State the factors influencing providers’ needs
Client’s needs influenced by:
1. Chosen market
2. Capital available
3. Expertise available
4. Objectives of the client
What is meant by ‘chosen market’ in the context of providers’ needs
The chosen market may relate to the demographic and economic composition of the customers (eg age, gender, wealth). It may also refer to several factors, all relating to the General Economic and Commercial Environment, for example:
legislation
taxation
accountancy standards
assets available – investment and risk characteristics
State provision of benefits
competition from other financial services providers in the market of the country / countries concerned.
State the factors influencing providers’ customers’ needs
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
6. Income, wealth
Describe the needs of the other parties involved in the contract design
TBD
Why is it important to consider the risk appetite of the intended customer of a financial product?
It is important that the financial structure as designed meets the risk profile of the intended customer, and that the risks involved in the product are clearly explained to the customer.
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
Give an example of how design of a saving product can be made suitable to customers with a wide range of risk appetites
For savings products, whether insurance contracts or benefit schemes, this can be achieved by offering a range of investment choices, low, medium and high risk
Give an example of how design of a general insurance product can be made suitable to customers with a wide range of risk appetites
Different levels of cover, eg third party or fully comprehensive
Optional benefits / levels of cover
Describe how legislation or regulation can provide a more attractive fiscal environment for a product, and the key implication of this for the provider
Tax advantage, e.g. Sum assured in a minimum of a specified multiple of premium paid.
