Chapter 7: Product design (2) Flashcards
Discuss factors to consider when assessing product design/ pricing (1)
meeting customer needs
marketability:
marketing literature, attractive benefits/ innovative features offered, flexibility of premiums and benefits, options & guarantees, important to also consider target market and distribution channel
policy wording:
clear with benefits, amounts and variability of premiums, in line with TCF, claim definitions - no exposure to unintended risks
competition:
on premium, product features, commission
distribution channel/ distributor:
sales incentive
financing requirement:
new business strain, solvency capital requirements minimized
risk:
consider risk appetite and exposure to anti-selection/ selective withdrawals/ lapse and re-entry. May be a need for reinsurance
Discuss factors to consider when assessing product design/ pricing (2)
onerousness of any guarantees:
capital available to absorb higher initial new business strain and meet SCR, are there adequate margins in pricing
profitability:
premiums/ charges sufficient (prudent assumptions) to cover benefits, expenses and profit margin (may be higher for new market). Often conflicts with competitiveness
sensitivity of profit:
important to consider factors that drive sensitivity
May consider to minimize options & guarantees, variable premiums/ charges, matching premiums/ charges and expenses
extent of cross-subsidies
admin systems
claims verification (claims underwriting) processes
regulatory requirements
tax
Listproduct-specificcontrol procedures for CI
effective underwritingandclaims controltoprotect against anti-selection and non-disclosure
imposing a survival period on stand-alone policiesto avoid “death” claims
holding adequate IBNR reserves
careful policy wording, especially for tiered benefit contracts compromise being able to include both legally and medically objective definitions while being understandable to the policyholder
large margins and/orreinsurance when data is scarce for offering tiered benefits
