Part 6: Chapter 21, 22, 23 and 25 Mortality and morbidity, Expenses, Contract Design, Pricing and Financing Flashcards
Factors affecting the rating factors that companies use
Competitive pressure
Cost of collecting information
Complexity of the on-boarding process to new clients
Ethical considerations
Accurate responses by clients
Relevance of factors to risk profile
Regulation
Key factors which could affect mortality and morbidity rates
HEC NO DaMGS
Housing
Education
Climate and geographical location
Nutrition
Occupation
Dangerous activities
Marital status
Genetics
Some diseases
Types of selection
STATIC
Selection is the process by which lives in a population are divided into separate homogeneous groups.
There are six main forms:
- Spurious
- Time
- Adverse
- Temporary
- Initial
- Class
The steps of an expense analysis CFTIL
Class - Fixed/variable or Direct/Indirect
Function - Initial, Renewal, Termination
Components/Type - Salaries, Rent, Computing etc.
Identification of costs - Time sheets, floor space, etc.
Loading method - Once off, recurring, premium, proportion
Different types of expenses
RAPID COST
Renewal admin (M)
Asset management (M)
Profit Loading (M,S,T)
Initial Admin (S)
Design costs (S)
Commission (S)
Overheads (M)
Sales and marketing (S)
Termination admin (T)
New business expense allocations
PUMaCR
Processing
Underwriting
Marketing and Sales
Research
Commission
Reasons for carrying out an expense analysis
PALS PFC
Profitability of a product better understood
Areas of inefficiency identified
Loading of expenses done accurately
Sources of surplus found
Financial planning
Provisions set
Cash flow management (enough liquidity kept to pay expenses)
Three roles of expenses
Secure new business (S) Maintain existing business (M) Terminating business (T)
Factors of contract design
AMPLE DIRECT FACTORS
Administration systems
Marketability/ marketing cost
Profitability- profit targets / Professional and ethical considerations/ Pricing and underwriting/
Level/form of benefits
Early Leaver benefits
Discretionary/discontinuance
Interest/ needs of customers
Risk apatite /risk charactarisics/reinsurance
Expenses vs Charges
Competition/ Commission-
Ts and Cs - no loop holes in contract/ Training of staff/ exclusions, waiting periods, excess payments
Financing
Accounting implications
Consistency with other products
Timing of premiums/contributions
Options and guarantees
Regulatory and statutory requirements
Subsidies / cross-subsidies
Additional factors:
- New business
-Conflicts between these factors
Factors affecting cost of benefit
Benefits+
Expenses+
Profit margin
Tax
Investment income
Experience rating
Reinsurance cost
Commissios
Cost of capital
Contingency margin
Options + Guarantees
Provisioning bases – can be different to costing basis
Factors affecting the Price
Distribution channels used
The level of competition in the market
Approach taken to expense and profit loading (marginal costing, loss-leading)
Economies of scale
Price Sensitivity of market (Subject to maximums from regulator)
Factors to consider when assessing premium rates
Profitability
Marketability
Cross-subsidies
Lapse rates
Risk groupings / Rating of clients
Policy terms - PRE
Factors affecting the marketability ICE:
- Internal issues: Product quality, reputation etc
- Competitors’ actions
- External environments (economic situation, trends, policy changes)
Methods of financing Benefits
Unfunded:
PAYG
Funded:
Just in time funding
Smoothed PAYG
Terminal funding
Lump sum advance
Regular contributions
Factors to consider when choosing a financing method
Flexibility of the contributions
Liquidity needs of sponsor
Realism of method
Tax incentives
Stability of contributions needed
Security of the benefits
Opportunity cost of funding method - none for PAYG
Regulation
Risk allocation - sponsor vs. beneficiary
