Pricing And Financing Flashcards
Why the insurer might charge a different price than theoretical price
Higher price:
market is not competitive
greater profit margins
not confident in the pricing model
economies of scale
Lower price:
improve company image
gain market share
try to increase total profits
product may be loss-leader
believe pricing model is too conservative
Regulation place maxima/minima
define ‘ funded on a pay-as-you-go’ basis
arrangement under which benefits are paid out of revenue
and no funding is made for future liabilities
How might demographic affect state pension
Falling birth rates - less younger workers
previous ‘baby booms’ - increased in size of retirement population
people living longer
more early retirement
people starting work later
factors that are financially significant in setting premiums and how to obtain their estimates
frequency and severity of claims:
statistical methods can be used to fit distribution to past data
need to be adjusted for changes in policy cover/inclusions/exclusions/claims limits/underwriting/target markets
industry/reinsurer data would be useful
investment return:
depend on types of assets and mix of assets
interest rates and yields for cash and bonds
dividend yields and growth rates for equities
past data as well
considerations given to change in investment environment
may need to be netted down for tax and expenses
expenses:
looking at results from a recent company expense analysis for this product
company’s expense data for similar contract/industry data/reinsurer’s data
any past data need to be modified
commission:
rates should be in line with the market then assume these actual levels in the pricing basis
inflation (claims and claim expenses):
needed from the middle of the investigation period up to the middle of the period during which claims are expected to be paid
industry inflation inddices may exist and need to be extrapolated forward
consult with underwriters and reinsurers
