Contract Design

Question 1

In designing or reviewing any contract, the following factors need to be considered

Answer 1

• customer needs and interests
• the characteristics of other stakeholders involved in contract design
• risk appetite of the parties involved
• the regulatory environment
• profitability
• the market for the product
• competitive pressures
• the level and form of the benefits
• options or guarantees
• discretionary benefits
• benefits offered on discontinuance
• contact terms and conditions
• capital requirements
• method of financing the benefits - when the money will be set aside to pay benefits
• premium/contribution pattern - premium/cont flexibility
• charges vs expenses
• extent of cross subsidies
• consistency with other contracts
• administration systems
• accounting implications

Question 2

Regulation requirements TCF

Answer 2

1. Culture and governance - customers should feel confident they are dealing with organizations which have TCF as their central pillar to their corporate culture
2. Product design - products and services marketed and sold should be designed to meet the needs of identified customer groups and are targeted accordingly
3. Clear communication- customers are given clear, timely information that keeps them appropriately informed before, during and after point of sale
4. Suitable advice - where advice is given, there is confidence that the advice is suitable and takes account of customer circumstances
5. Performance and standards - products must perform as firms have lead customers to expect, and service is at an acceptable standard to what they have led to expect
6. Claims, complaints and changes - customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint

CP
CS
PC