Chapter23-Contract design Flashcards

1
Q

Framework

A

1 Factors to consider when designing a contract (AMPLE DIRECT FACTORS)
2 Parties involved in contract design (ALPACAS)
3 Factors influencing the needs of the provider and of the providers customers
4 Catering for different risk appetites
5 Regulatory environment influence*
6 Meaning of profitability in contract design**
7 Features increasing marketability
8 Types of options
9 Types of guarantees
10 Principle when setting discontinuance terms
11 Definition of discontinuance terms
12 Deciding on contract on which to offer discontinuance terms
13 Factors to consider when determining discontinuance terms
14 Policyholders’ expectations on discontinuance
15 Factors to consider when an individual leaves a benefit scheme
16 Define new business strain
17 Ways to reduce new business strain
18 Methods of financing benefits
19 Administrative considerations in relation to contract design
20 Items covered by expense charges of an insurance company (COST RAID)
21 Cross-subsidies
22 Conflicts between contract design factors
* Aims and outcomes of treating customers fairly (TCF)
** Variables that might impinge on profitability (CEWIN)

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2
Q

Factors to consider when designing a contract

A

Administration systems

Marketability

Profitability

Level and form of benefits

Early leaver benefits

Discretionary benefits

Interests and needs of customers

Risk appetite of the parties involved

Expenses vs charges

Competition

Terms and conditions of contract

Financing (capital requirements)

Accounting implications

Consistency with other products

Timing of contributions or premiums

Options and guarantees

Regulatory requirements

Subsidies (cross-)

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3
Q

Factors to consider when determining discontinuance terms (7)

A

Fairness, hence the starting point is the ‘asset share’ of the contract (a current value determined retrospectively from the accumulation of net cashflows).

Other factors include:

policyholder expectations

new business disclosure and any subsequent communications, eg illustrations of discontinuance terms

competition

regulation / legislation affecting discontinuance terms

administration expenses of determining and implementing the terms

ease of calculation and frequency of change of terms.

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