Chapter 12 : GBE (2)

Question 1

What are the factors of the general business environment affecting a life insurers?

Answer 1

FEEL RP

Fiscal
Economic
Environment
Legal

Regulatory
Professional guidance

Question 2

How does the regulatory regime affect life insurers?

Answer 2

Gvt may impose restrictions on:

TRAP DUAT

T: Type of contract a life insurance company can offer
R: RATING FACTORS: Restrictions on rating factors used to calculate premiums
A: Restrictions on types of assets or amount of any particular assets.
P: Premium rates, charges

D: Restriction on dbn channels (sales procedures, training requirement, cool-off period, right of cancellation)
U: Restrictions on ability to underwrite (to avoid discrimination)
A: Indirect constraint on amount of business (minimum reserving and SCR)
T: Terms and conditions (e.g how paid up policies and surrender values are to be calculated)

Question 3

How do expense affect life insurers?

Answer 3

Expenses affect profitability if the loadings are insufficient to meet the actual expenses.

Risks arise when a company cannot contains costs of the level at which they rise (expense inflation)

Question 4

How does the economic environment affect life insurers?

Answer 4

Economies with volatile investment markets tend to have more expensive insurance products and possibly less take up. (Higher capital requirements from uncertainty of investment return).

Higher risk markets= high return requirement for added risk

Question 5

How does the legal environment affect life insurers.

Answer 5

PRE can have legal force through court rulings

General contract law can outlaw certain policy conditions

Question 6

What are the side effects of regulation?

Answer 6

1. Restricting innovation
2. Reducing the benefits that could otherwise be given to policyholders