Disability Income Insurance: Product Development

Question 1

Factors that stimulate product development for DI (4)

Answer 1

1. Responding to competition - b/c marketplace is product sensitive, insurer must be quick to react
2. Consumer demands - as consumer becomes more aware of the need for long-term disability, the product has evolved to meet their needs.
3. Claims experience - must be monitored on an ongoing basis. When pricing assumptions prove inaccurate, must be responsive.
4. Governmental influences - ex. SS disability program benefits

Question 2

Areas that participate in the product development process (5)

Answer 2

1. Sales and marketing - these individuals are closest to the consumer and the competition, so they are a good source of product ideas and competitive information
2. Other home office disciplines
   a. Actuarial - must determine how the product is to be priced and what safeguards may be necessary to develop competitive rates
   b. Underwriting - must determine whether new underwriting approaches are necessary
   c. Claims - must determine what new risk and factors it will face in administering claims
3. Data processing and systems - must be involved early since new products may require substantial modification to existing systems. Timely identification of potential issues may reduce projected cost.
4. Legal - some product ideas may present special legislative and regulatory problems, and the attorney may be able to offer alternative approaches or solutions that avoid problems in state approval
5. Investments - the significant impact of investment returns increase the importance of this function

Question 3

Innovation vs. reaction for individual disability income products (4)

Answer 3

Product ideas are either innovative or reactive to current market conditions.

1. Developing the ideal individual disability income product
   - Defined as product that replaces 100% of disability income until retirement. This is not a feasible goal.
   - Attempting to provide the ideal product has led to innovation in designing products
2. Risks of product development
   - Carrier with large block and sufficient experience are able to assume the risk
   - Product development requires adequate eval of risks (new products are introduced to stable markets)
3. Listening to consumer - responsive to new market opportunities
4. Responding to economic change

Question 4

Determining the markets (3)

Answer 4

1. Determine where its markets are. Challenge in doing this is that frequently the pressure for product and UW changes come from the minority of the sales force.
2. Analysis of a company’s life insurance market is the most logical and reliable source of information for determining where its disability market will be. The sales distribution force can utilize info from these clients.
3. Carriers then determine the type of product to develop. This requires understanding the market and the competition.

Question 5

Motivation for disability income product development (2)

Answer 5

1. Determining or enhancing a product solely to accommodate the sales forces w/o being fully committed to the product results in greater product risk
2. Product development needs to be innovative, creative, and responsive to market demand.