Chapter 6 - Product Design And Stakeholder Interest

Question 1

5 main factors relating to product design that may affect level of customer attraction:

Answer 1

1. Meeting specific needs
2. Providing cash
3. Providing peace of mind
4. Simplicity and clarity
5. Guaranteed vs. Reviewable premiums and benefits

Question 2

Needs met by CI insurance (6)

Answer 2

1. Income can be provided from lump sum via annuity
2. Benefit can be desig ed to repay mortgage or other loan when PH diagnosed with CI
3. Medical costs can be funded when illness requires surgery or treatment
4. Business partners can purchase CI insurance on lives of eath other such that the benefits will fund the buy out of the stake in partnership when CI arise
5. Change of lifestyle can be funded
6. Other needs including recuperation or rehabilitation treatment after illness, taxation planning

Question 3

Reasons to purchase PMI when the State do provide

Answer 3

• reduce waiting time
• better quality of treatment
• better accomodation
• doctor of choice
• hospital in area of choice

Question 4

Reasons to purchase PMI when the State do provide

Answer 4

• reduce waiting time
• better quality of treatment
• better accomodation
• doctor of choice
• hospital in area of choice

Question 5

Conditions that can lead to confusion in PMI products (5)

Answer 5

• underwriting and acceptance
• policy conditions (eg exclusions, limits)
• cost sharing (eg excesses)
• pre-authorisation
• hospital bands/networks

Question 6

2 main aspects of simplicity in CI insurance product

Answer 6

1. Lump sum payout which can not be withdrawn from insurer
2. Claims trigger of diagnosis or procedure is easy to explain

Question 7

Product design Features that will decrease solvency capital requirments

Answer 7

1. Design products that are capital efficient
2. Issue contracts that have unit-linked rather than convetional structures that can be designed to operate in capital efficient ways such as by having low allocation rates at the start of the contract
3. Try and reduce extent of guarantees offered, they will require larger reserves and more SC
4. Limit availability of PH options, they presence will require additional reserves/SC because of the extra contingency
5. Try and improve matching of expense outgo and expense charges. By using level commission for regular prm contracts, issuing short term or single prm contracts
6. Limit the extent of benefit uncertainty by choosing appropriate benefit terms and restrictions eg putting ceiling on the periodic benefits payable under LTCI contracts or having strict definitions of diseases covered under CI policies
7. Try and ensure best possible data used for determining assumptions inbthe pricing models and reserving basis
8. Try and avoid issuing novel and innovative products, which regulators might regard as particularly high risk

Question 8

Advantages of designing health insurance products in a unit-linked, rather than conventional form: (4)

Answer 8

1. Unit linked product tends to be less risky than convetional product as some of the risk is shared with customer (however there may be additional risks associated with guarantees offered)
2. May be more acxeptable to review premiums and benefits under a unit linked design
3. Unit linked design allows for more accurate pricing and permits a more complex benefit design
4. There may be lower capital requirements for a unit linked product depending on the design of the product and level of guarantees