C16 Product Design

Question 1

List 12 factors to be considered when assessing a product design.

Answer 1

Product design factors
1. Financing requirement
2. Onerousness of guarantees
3. Risk characteristics
4. Competitiveness
5. Extent of cross-subsidies
6. Distribution channel

7. Consistency with other products
8. Regulation
9. Admin systems
10. Marketability
11. Profitability
12. Sensitivity of profit
    Remember FORCED CRAMPS.

Question 2

State the key considerations, when designing a product, with regard to profitability.

Answer 2

Profitability

Need to ensure that premiums and/or charges cover benefits and expenses
(including fixed overheads and development costs), and provide profit margin.
This will depend on the volume of sales achieved, as well as the per-policy premium / charging rates.

Question 3

List four areas of product design that may be important in enhancing the marketability of a product.

Answer 3

Marketability

Marketability requires the product to be attractive to the customer and sales channel. This can be enhanced by having:
 innovative design features, eg acceptance criteria, investment choices
 options and benefit guarantees
 attractive charging structures under unit-linked contracts
 guarantees with regard to premium rates or unit-linked charges

Question 4

The product design factors are not necessarily independent and so a
compromise will usually need to be struck.

Give examples of factors that may conflict

Answer 4

Conflicts between product design factors

Financing requirement
Onerousness of guarantees
Risk characteristics
Profitability
Sensitivity of profits

versus

Competitiveness
Extent of cross-subsidies
Marketability