Chapter 20: Product Design Flashcards
1
Q
Contract design factors (20)
A
N - NEEDS of customers A - ADMINISTRATION simplicity M - MARKETABILITY P - PROFITABILITY L - LEVEL & form of benefits E - EXPENSES & charges S - SENSITIVITY of profit
D - DISCONTINUANCE benefits I - INTERESTS of customers R - RISK APPETITE of parties involved E - discretionary ENEFITS/bonusees C - COMPETITION T - TIMING of contributions & premiums
F - FINANCING requirements A - ACCOUNTING implications C - CONSISTENCY with other contracts T - TERMS and CONDITIONS O - OPTIONS & guarantees R - statutory / REGULATORY solvency requirements S - extent of cross-SUBSIDIES
2
Q
Why design a new product (6)
A
- Gap in market
- Ideas from other markets
- Market awareness of new feature
- Available resources making new design possible
- Regulatory change
- Inadequacies in existing prods
3
Q
LI product can be broken down into the three components which each need to be profitable:
A
- Savings
- Protection
- Admin
4
Q
Increase marketability of a product by (6)
A
- Innovative design features
- Options and guarantess
- G’teed charges and structure on UL
- G’teed prem rates
- Understandability
- Distribution channel
5
Q
If risk is high for a new design, can (4)
A
- Offer on UL and/or reviewable form
- Reinsure large part of risk
- Incorporate ample margins in prems
- Offer as rider rather than standalone
6
Q
Onerousness of a guarantee depends on (5)
A
- Size
- Period for which it holds
- Significance of reserves
- Volume of business
- Capital avail
7
Q
Mutuality vs Cross-subsidies
A
Mutuality – sharing of risk
Cross-subsidy – sharing of non-risk elements (expenses)
8
Q
Contract Design Factors
A
SAMPLE DIRECT FACTORS
Sensitivity of profit Administration systems Marketability Profitability Level and form of benefits Early leaver benefits (discontinuance benefits)
Discretionary benefits Interests of customers (Customer needs) Risk appetite/ characteristics Expenses/ charges Competition Terms and conditions
Financing requirement Accounting standards Consistency - with other products Timing of premiums/ costs Options and guarantees (onerousness) Regulations/ taxation Subsidies (extent of cross-subsidies)
