Product Design

Question 1

Situations in which to consider product design factors

Answer 1

1) Designing a completely new product
2) Assessing the continuing validity of an existing product
3) Assessing the appropriateness of any proposed modification of existing products

Question 2

Dual pricing

Answer 2

Dual pricing is the practice of setting different prices in different markets for the same product or service. In the life insurance context, this means pricing the same product differently for different distribution channels

Question 3

If a company is faced with large parameter risk it will….

Answer 3

1) Reinsure a large part of the risk
2) Incorporate substantial margins in the premium rates
3) Offer the contract in unit-linked or reviewable form
4) Offer the contract as a rider benefit rather than a stand-alone policy

Question 4

The onerousness of any guarantee is a function of….

Answer 4

1) How likely an adverse change in some variable might be
2) How big that change might be
3) The financial impact of this change in variable

Question 5

Total profit

Answer 5

Sum across all products the product of per-policy contribution and number of policies in force, less the overheads

Question 6

Product design factors to consider

Answer 6

Factors relating to the environment and market:
MMMC
- Marketability
- Meeting customers’ needs
- Meeting regulatory requirements
- Competitiveness

Factors relating to the company’s position:
PROFS
- Profitability
- Risk characteristics
- Onerousness of any guarantees
- Financing requirements
- Sensitivity of profit

Factors relating to existing products:
ACE
- Administration systems
- Compatibility with existing products
- Extent of cross-subsidies