CH 7 (WM) Flashcards
List the stakeholders to be considered in the design of HC products. [2]
- Customers ✓
- Insurers ✓
- Regulators ✓
- Distributors ✓
- Other internal parties, e.g. IT department ✓✓
- Other external parties, e.g. actuarial profession ✓✓
List the main product design factors (“targets”) to be considered during the Product design and pricing phase. [2.75]
- Customer acceptability ✓
- Marketability ✓
- regulator requirements ✓
- needs of distributors ✓
- price competitiveness ✓
- adequate profitability/RoC ✓✓
- company culture in product style and price ✓
- systems and other internal constraints ✓✓
- UW methodology ✓
List the other aspects of product design and pricing that should also be considered. [2.25]
- risk pricing (incl. reinsurance) ✓✓
- financing requirements ✓
- cross-subsidies and equity ✓✓
- cost of offering guarantees ✓
- premium/benefit change at renewal/review ✓✓
- conflict between product design factors ✓
State the “customer acceptability” requirements to be considered during the product design process. [2.25]
Product should be designed to meet customer needs,✓✓ and/or provide some element of customer gain✓ (the perceived value of the benefit exceeds the cost of premiums)✓.
To be attractive the product must be clear about✓:
- benefits provided in terms of the claims triggers and cash values✓✓
- the amounts and variability of premiums✓✓
There must be sufficient benefits to justify the price charged.✓✓
Describe the product design factors that can improve the marketability of the product. [ ]
List some of the methods insurers can use market research to help in the design of their products. [0.75]
- sample surveys ✓
- focus groups of customers/potential customers ✓✓
State the “regulatory requirements” to be considered during the product design process. [1.5]
- regulator may have requirements on product design ✓✓
- new contracts may need to be approved before launch ✓✓
- premiums may need approval from regulator to prevent over-charging ✓✓
State the “distributor needs” to be considered during the product design process. [3.5]
- Product should be capable of being sold via normal sales methods.✓✓
- Consultation with sales consultants is important.✓✓
- Product should be competitive in order to achieve sales targets.✓✓
- Actuaries should involve sales & marketing teams in early in design of products.✓✓
- This will give the actuary insight in customer needs.✓
- Actuary may also be involved in training sales consultants✓ about product features and commission structures, etc.✓✓
- The iterative process…✓✓
State the “Adequate profitability/ RoC” considerations during the product design phase. [1.25]
- profit = amount sold * profit margin per policy ✓✓
- sufficient margins should be retained✓, also competitiveness should be maintained✓.
- premiums should cover profits + expenses + claims.✓✓
Company culture in product style & price
- consistency with other products
- company may wish to ensure the charging & benefit structure of new policy are at least similar to existing business.
- major changes may lead to development of systems.
Why:
- Less cost in
- systems development
- sales literature
- sales training
- Being fair to existing policyholders vs new
Systems and other internal constraints
-Actuary must be aware of system implications when coming up with a new product. There may be constraints.
-The key considerations are:
1.systems must record of process of insurance
2.provide info to enable profit assessements
3.new products may require systems reorganisation.
4.any launch may require reappraisal of priorities
5.expenses relating to system changes must be
included in product costing.
6.time must be allowed for dev & testing.
7.communication with key system decision maker.
Admin systems
-system requirements of a product may limit either benefits or charging structure to be adopted.
Systems & other internal constraints: Data capture
- Information technology must:
- capture individual policy details at inception
- align these to claims info
- combine policy & claims date to monitor profit
- group by risk traits
- be able to add external data
- be able to model and project
Underwriting methodology
-Medical underwriting
-Is very important aspect to premium determination.
-eg excl of pre-existing conditions is crucial to
product development & premium charged.
-Importance of underwriting
-more important for long-term policies with
guaranteed premiums.
-Claims underwriting
-insurer should use this in pricing & product design
process.
-claims procedures should be consistent with underwriting used to accept a policy at inception stage.
Risk pricing
- Actuary will estimate likely benefit outgo from contract design. Most update data is needed.
- Statistics may vary by product & territory.
- Reinsurer assistance may be of particular importance.
-Risk characteristics
-the level of risk brought by contract should be considered.
-The risk should be within the insurer’s risk appetite if
above the reinsurer excess risk.
-Reinsurance
-decision to reinsure will be part of pricing process, eg
helps determine policy limits.
-inexperienced insurer may rely heavily on reinsurer.
Financing requirement
- Insurer wants capital efficient products if it doesn’t have a lot of capital.
- Unit-linked products reduce financing requirements.
- Guarantees have a big influence on the reserves that need to be established.
