General business environment

Question 1

The main distribution channels used by life insurance business

Answer 1

• Insurance intermediaries
• Tied agents
• Own salesforce
• Direct marketing

Question 2

Describe insurance intermediaries

Answer 2

• Insurance intermediaries
  – salespeople who must act independently of any life insurance company.
  – their aim is to find the contract that best meets, in terms of benefits and premiums, the needs and situation of their clients.
  – they may be remunerated via commission payments via the companies whose products they sell or they may receive a fee from their clients.

Question 3

Describe own salesforce

Answer 3

• members of an own salesforce will usually be employees of a life insurance company and hence will only sell the products of that company.
• they may be remunerated by commission/salary or mixture of both.
• it will usually be the salesperson who initiates a sale, making use of client lists or purchased leads.

Question 4

D

Describe tied agents

Answer 4

• Tied agents are salespeople who work solely on behalf of one, or sometimes several, life insurance companies: that is, they offer to their clients only the products of those companies.
  – Typically they may be the employees of a bank or other similar financial institution.
  – Where the tie is to more than one company, it will sometimes be the case that the product ranges of the companies are mutually exclusive, but more often there will be overlap.
• Tied agents are remunerated by compnaies to which they are tied.
  – the remuneration could be in the form of commission payments or by salary plus bonuses.
• It will often be the client who will initiate the sale but tied agents may actively engage in selling.

Question 5

Describe direct marketing

Answer 5

• Four main forms:
  – mailshots
  – telephone selling
  – press advertising
  – internet selling
• generally simple insurance products are sold through this channel.

Question 6

Restrictions regulators may impose on life insurance companies

Answer 6

• The types of contract life companies can offer
• the premium rates, or charges, that can be used for some types of contracts
• Rating factors used to calculate premiums e.g. gender or age
• the terms and conditions of the contracts offered
  – how paid-up policy and surrender values are calculated
• the channels through which life insurance may be sold or requirements to the procedures to be followed or information required to be given as part of selling process.
  – e.g. prohibition on use of results of genetic testing
• The amount of business that may be written
  – be setting minimum solvency capital requirements, which restrict capital available to sell new business.
• investment restrictions such:
  – the type of assets insurers can invest
  – the amount of any type of asset that can be taken into account for the purpose of demonstrating solvency.
• There may be a regulatory requirement to allow for mismatching
  – this could involve the possible setting up of an investment mismatch reserve.

Question 7

Outline the most common approaches to taxing life insruance companies

Answer 7

• tax on annual profits of the business
  – where profits means the excess of the change in the value of the assets over the change in the value of liabilities.
• 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.