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F101 > Chapter 7 - Product design and stakeholders needs (2) Other stakeholders > Flashcards

Chapter 7 - Product design and stakeholders needs (2) Other stakeholders Flashcards

1
Q

What are the insurers primary interests

A

To remain profitable and maintain control of the risk-management process

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2
Q

What needs to be taken into account in product design and pricing?

A

CAN SUPRA

  • COMPANY culture in product style and price
  • ACCEPTABILITY of customer
  • NEEDS of distributiors
  • SYSTEMS and other internal constraints
  • UNDERWRITING methodology
  • PRICE competitiveness
  • REGULATORY requirements
  • ADEQUATE profitability
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3
Q

Customer acceptability, and how the product appears attractive

A
  • The insurer has to design the health insurance product to meet customers’ needs and/or provide some element of customer gain
  • To appear attractive, the product must be clear in:
    – The benefits provided in terms of the claims triggers and cash values
    – the amounts and variability of premiums

Special features will only be a good thing if the customer being targeted understands and appreciates them

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4
Q

Regulatory requirements

A
  • Must be met regarding the way in which products may be designed
  • Premiums may need to be filed with the regulators to prevent excessive charging
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5
Q

Needs of distributors

A
  • Must involve sales and marketing team early in the design to give insight into customer needs in appropriate segments of the population and a view of what competition is doing in those fields
  • The actuary may also be involved in sales training, explaining the main features of the new product, the needs that they address and the important messages to impart in the sales process.
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6
Q

Adequate profitability

A
  • The profitability of a product will be a function of the amount sold and the profit margin per policy.
  • The product must still be priced at a level that will attract customers
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7
Q

Company culture in product style and price

A
  • The company may wish to ensure that the charging structure and benefits structure of a new policy is at least similar to any existing business
    – There are benefits in terms of saving time and cost with such things as training admin and sales staff, printing marketing literature
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8
Q

Systems and other internal constraints

A
  • The actuary must be aware of what existing systems can accommodate and what can be changed, at what cost and in what timescale

The key considerations are:
CLIENT C

  • COMPUTER systems must record all processes of insurance
  • any LAUNCH or redevelopment will require a reappraisal of priorities
  • they must provide INFORMATION to enable profitability to be assessed
  • the EXPENSES relating to the systems changes must be included in the product costing
  • NEW products may require system’s reorganisation
  • TIME must be allowed for development
  • CONTINUING dialogue with a key systems decision maker will be important in the process
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9
Q

Limitations of admin systems

A
  • It may limit either the benefits to be provided or the charging structure to be adopted
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10
Q

Why is data capture crucial for the management of a business, and how must the IT systems behave

A
  • Is crucial in the management of the business:
    – administration wise
    – monitoring of own company experience
    – the use of these data to re-price the products on a more relevant basis

The information technology must:
- Capture individual policies at inception
- Align these to claims information
- Combine the policy and claims data to monitor profitability
- Group by risk characteristics
- Be able to add external data as appropriate
- Be abe to model and project, including other aspects of company cashflow

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11
Q

Medical underwriting

A
  • Medical underwriting may be the most important part of designing and pricing a product
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12
Q

Importance of underwriting

A
  • It is more important for long-term policies with guaranteed premiums, benefits or terms, since in these cases, the insurer has no opportunity to revise any of the T&Cs of the policy
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13
Q

Claims underwriting

A
  • It’s important that these are consistent with the underwriting criteria used to accept policyholders and important also that they are consistent with the data underpinning the pricing calculation
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14
Q

Reinsurance effect on product design

A
  • It may affect the policy limits that should be included
  • An inexperienced insurer may rely heavily on a reinsurer for local and/or product knowledge to help with contract construction, clauses, regulators, and pricing implications of each of these considerations
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15
Q

Financing requirements effects on product design as well as having guarantees

A
  • Benefits and charges are to be designed to minimise financing requirements
  • Guarantees may have a big influence on the level of reserves that have to be established at the outset and hence the financing requirment
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16
Q

Cross-subsidies effects on product design

A
  • It may be necessary to spread expense contributions and other considerations across product lines especially if a product is sold at a price that does not satisfy the required profit criteria
  • The actuary must ensure that the rights of different classes of policyholders to security of benefits are not diminished by cross-subsidies
17
Q

Problems with offering guarantees

A
  • possibly suffer a cost that you did not fully expect
  • probably having to reserve for this possibility from outset - thereby increasing capital strain of the product
18
Q

What are the considerations when offering guarantees

A

SCAM COP

  • Ensure that:
  • the SALES process explains clearly any guarantees and their implications for premiums and benefits
  • there is a CUSTOMER need
  • ADEQUATE reserves are in place when the business is written
  • MARKETING and other policy literature are clear in its description of the guarantees
  • CHARGE the cost of capital to the product, if possible
  • OBTAIN sound reinsurance, building this cost into the product if necessary
  • PRICE as accurately as possible, projecting a range of potential outcomes
19
Q

Premium or benefit change on renewal or review

A
  • On the basis of analysis of past experience to that expected, products can be redesigned, e.g amendments to the CI covered, change in premium level
20
Q

Insurer as stakeholder : CI insurance ( when will it be paid )

A
  • If it satisfies one of the listed conditions, and if the insured survives a period of time from the date of diagnosis (especially if it is a stand-alone product)
21
Q

How tiered benefits complicate CI products

A

DUMP O

  • There will be problems in DESIGNING the benefit levels and the claim triggers at each level
  • UNDERWRITING at both stages will be an additional consideration, especially initial underwriting
    – Since claims may appear sooner, there is more emphasis on any pre-existing conditions
  • Claims MANAGER is faced with much more claim forms and significant policyholder pressure to ‘upgrade’ to a higher level of benefit
  • The benefit will also have to be PRICED, which is also likely to cause significant problems
  • There may be many OVERLAPS between related illnesses that will make pricing more complicated and the picture for the policyholder more confusing

The product continues to evolve, making past data less relevant for future use

22
Q

Insurer as a stakeholder: LTCI

A
  • The insurer should allow prudently for possible extra claims outgo, if the regulators insist that benefits are enhanced beyond those intended by the insurer. Usually results from disputed claims, where the regulator rules in favour of the policyholder
23
Q

Insurer as a stakeholder: PMI

A
  • The Insurer has a great deal of pricing control in that these are short-term contracts and generally they can be re-priced annually
  • The insurer does not have complete control over benefit payouts since these indemnify the charges of a third party
  • The insurer may put in place a requirement of pre-authorisation where the policyholder is required to get both his treatment protocol and place of treatment approved before care begins
24
Q

What causes medical costs inflation

A

I GLAM

  • Increases in salaries of medical staff and cost of equipment
  • a GREATER propensity for policyholders to claim following a perceived deterioration in State-provided healthcare
  • LACK of sufficient supply of hospital beds or professional medical practitioners forcing up prices
  • AGEING population
  • the MOVE to newer and more expensive treatments or drugs for certain conditions
25
Q

What are the regulator’s priorities in terms of product design

A
  • That insurers remain solvent
  • That consumers are considered in all decisions and that any disadvantages to consumers ito sales, administration and claim payment are minimised, if not totally eradicated
26
Q

Methods to reduce risk inherent in launching a product (new on market):

A
  • REVIEWABLE premium
  • REINSURE a large part of the risk
  • MARGINS in the premium rates
  • Offer the contract as a RIDER benefit
    --
  • Offer the contract with a REVIEWABLE premium
  • REINSURE a large part of the risk
  • Incorporate large MARGINS in the premium rates
  • Offer the contract as a RIDER benefit on a term insurance policy, so that the CI claims are effectively accelerated death claims
27
Q

How would companies have reduced risk when CI first appeared in the market

A
  • Reviewable premium
  • Reinsure a large part of the risk
  • Incorporate large margins in the premium rates
  • Offer the contract as an addition (rider) on a term insurance policy, so that the critical illness claims are effectively accelerated death claims
28
Q

Offering guarantees can result in two problems

A
  • Possibly having to suffer a cost that you did not fully expect
  • Probably having to reserve for this possibility from the outset, thereby increasing the capital strain of the product
29
Q

What must insurers be wary of when analysis indicates that benefits must be reduced or premiums increased

A
  • The insurer must be wary of resultant selective lapsing( the better risks choosing to leave), which will exacerbate the problem that the changes were trying to solve
30
Q

What will the rate of medical inflation be a function of

A
  • A greater propensity for policyholders to CLAIM following a perceived deterioration in state-provided healthcare
  • LACK of sufficient supply of hospital beds
  • AGEING population
  • NEW and more expensive treatments or drugs
  • Increase in SALARIES of medical staff and cost of equipment

F101 (32 decks)

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