Chapter 11 & 12 - General Business Environment

Question 1

Key risks to insurer if the product sold does not meet the need of the customer: (2)

Answer 1

1. Persistency risk
2. Reputational risk

Question 2

Main distribution channels: (4)

Answer 2

1. Independent intermediaries
2. Tied agents
3. Own sales force
4. Direct marketing

Question 3

4 main forms of direct marketing:

Answer 3

1. Mailshots
2. Telephone selling
3. Press advertising
4. Internet selling

Question 4

Why does independent intermediaries have more stringent underwriting?

Answer 4

1. They can encourage anti-selection
2. Their customers tend to seek higher cover
3. Prices will need to be competitive, which may only be achievable by careful selection of good risks

Question 5

8 common regulatory restrictions on an IC:

Answer 5

1. Restriction on the types of contract that a life insurance company can sell
2. Restrictions on the premium rates, or charges that can be used for some types of contract
3. Restriction on rating factors that can be used to calculate premiums, for example age or gender
4. Requirements relating to the terms and conditions of the contracts offered, for example with regard to how paid-up policy and surrender values are to be calculated
5. Restrictions on the channels through which life insurance may be sold or requirements as to the procedures to be followed or the information required to be given as part of the selling process
6. An indirect constraint on the amount of business that can be written
7. Restrictions on the ability to underwrite
8. May limit what a company would like to do ito investment

Question 6

2 most common methods in which IC are taxed?

Answer 6

1. Tax on the annual profits of the business, where broadly profit means the excess in change in the value of assets over the change in the value of the liabilities
2. Tax payable on investment income less some or all of the operating expenses of the company