Chapter 9 - the general business environment

Question 1

Selling characteristics: PMI

Answer 1

• If medical expenses are the individual’s responsibility, then closer to a need
• if state offers free healthcare at point of delivery to all, then PMI must be sold rather than bought

Question 2

Selling characteristics: LTCI

Answer 2

Depends on the perceived attitude of the government to the provision of care and individual’s priorities on long-term funding for this purpose

Question 3

Selling characteristics: CI

Answer 3

• doesn’t match a specific financial need, instead it provides a lump sum. This sum can be used to meet financial need or to compensate the insurer. As a result, it is sometimes bought rather than sold

Question 4

Common types of regulatory restrictions

Answer 4

1. a restriction on the type of contract that an insurance company can offer
2. restrictions on the premium rates or charges that can be used for some types of contracts
3. restrictions on rating factors that can be used to calculate premiums
4. requirements relating to the terms and conditions of the contracts offered, for example with regard to how surrender values are calculated\
5. restrictions on the channels through which the insurance may sold or requirements as to the procedures to be followed or the information required to be given as part of the selling process
6. restrictions on the ability to underwrite
7. an indirect constraint on the amount of business that may be written
8. restrictions on the types of asset or amount of any particular assets in which the insurance company may invest for demonstrating solvency

Question 5

Approaches to taxation

Answer 5

1. Profits approach: a tax on the annual profits of the business (increase in free assets)
2. Investment income approach: tax payable on investment income/gains less some or all of the operating expenses of the company

in addition, there may be a tax on premium income

Question 6

What does the overall attractiveness of a particular healthcare insurance product compared with other products depend on? (tax)

Answer 6

1. the taxation treatment of premiums paid, in particular whether premiums are deductible from the individual’s taxable income in full, in part, or not at all
2. the taxation of the insurer’s funds during the life of the contract
3. the taxation of the eventual policy benefits

Question 7

Professional guidance may cover areas such as the matters to consider regarding:

Answer 7

• policy conditions
• the adequacy of premium rates for new business
• the value of the liabilities

Question 8

Inflation: fixed-level benefits

Answer 8

• the policyholder should be encouraged to review the level of cover frequently and reapply if cover becomes insufficient to meet the purpose for which it was originally taken out

Question 9

Impact of business cycle on products

Answer 9

• in times of business optimism, positive hump in demand for employer sponsored insurances
• individuals are happier to renew/upgrade and initiate covers in buoyant times

Question 10

Impact of employment security on products

Answer 10

• confidence in salaried remuneration promotes likelihood of insurance purchase
• employees covered under employer-sponsored scheme are more likely to claim under some products if they aren’t confident in longevity of empliyment

Question 11

Impact of political stability on products

Answer 11

• political stability can indicate national economic wellbeing
• some political parties are better disposed towards insurance
• political stability may also mean stability of rules governing insurance
• political stability may indicate to policyholders stability of the future economic value of their policies