Stakeholders & Environment Flashcards
What are the different product design factors?
Product design factors include external influences (distributors, customers, regulators), processes (risk pricing, underwriting, profitability, systems), and the product itself (cost of guarantees, consistency, cross-subsidies).
External Factors: Distributors
Distributors such as the tech marketing team can conduct market research, understand customer needs, and incorporate sales and marketing insights into the product design process. Actuaries may also participate in sales training and explain commission structures.
External Factors: Customer Acceptability
Products must have clear terms, justifiable premiums, innovative features, and be competitive and marketable. Policies should be understandable to policyholders, depending on the distribution channel.
External Factors: Regulatory Requirements
New contracts need approval before launch. Premiums may require filing to prevent excessive charges.
Process Factors: Systems
There is a new train system which is consistently 20 minutes early and charges you if you are not too. This drains profits of wealthy train takers and ask their employers to factor in expense into their salary. Instead their PAs just reorganize their diary for new train schedule. To do so need to communicate with train developers who eventually develop own system to tell PAs.
Systems must accommodate existing capabilities, consider time and cost for changes, ensure adequate profitability, incorporate system change expenses in pricing, record all processes, reorganize for new products, allow time for development/testing, and communicate with developers. IT should capture policyholder details, align with claims, combine data for profitability monitoring, add external data, and support modeling and projection.
Process Factors: Underwriting
Medical underwriting influences premium levels and should align with competitors. Underwriting impacts claims handling and customer expectations. Different products (e.g., CI, LTC, PMI) require varying underwriting approaches.
Process Factors: Profitability
Profitability depends on policy sales and profit margins. Premiums must be competitive yet sufficient to cover expenses and claims, with a surplus to reward shareholders.
Process Factors: Risk Pricing
Premiums should reflect the policyholder’s risk, limit anti-selection, and include potential changes at renewal. Benefit changes could involve product redesigns, and selective lapsing may occur.
Process Factors: Capital Required
Product design should minimize capital requirements. Guarantees may require additional reserves and capital charges.
Product Factors: Cost of Guarantees
Guarantees reduce capital efficiency due to reserve requirements. Considerations include customer need, accurate pricing, adequate reserves, capital charges, reinsurance costs, and clear marketing/policy literature.
Product Factors: Consistency
Products should maintain consistency in benefits and charges to minimize system development costs. Additional costs may arise from training, new premium structures, literature, and marketing.
Product Factors: Cross-Subsidization
Expense contributions may spread across products to penetrate specific markets. Ensure all policyholders benefit fairly, avoiding complex, risk-specific premium structures.
Conflict Between Design Factors
There may be inherent conflicts between various design factors such as risk management, profitability, and regulatory compliance.
Main Types of Insurers
Proprietary insurers (owned by shareholders), mutual insurers (owned by policyholders), and trade-related employer groups (owned by members of the same industry).
Main Goal of Insurer
To make profits while maintaining control over the risk management process.
