Chapter 11 - The General Business Environment

Question 1

What are the various distribution channels

Answer 1

1. Insurance intermediaries - select products for their client from all or most of those available on the market
2. Tied agents - who offer the products of one life insurance company or a small number of life insurance companies
3. Own sales force - usually employed by a particular company to sell its products direct to the public
4. Direct marketing via press advertising, over the telephone, internet or mailshots

Question 2

What are the key risks to the insurance company when a policy is sold which does not meet the needs of a policyholder

Answer 2

1. Persistency risk and consequent financial losses
2. Reputational risk

Question 3

What form does direct marketing take

Answer 3

• Mailshots
• Telephone
• Press advertising
• internet selling

Question 4

Why business from intermediaries is likely to be subject to most underwriting

Answer 4

Intermediaries are representing the interests of their clients, not a particular insurance company.

The company needs to be aware of the possibility that an intermediary might encourage anti-selection

They also are likely to have customers of high net worth, with consequent need for higher insurance cover

Question 5

Why is having competitive rates or charges not the be-all and end-all for every product, even when selling through intermediaries

Answer 5

• products may be differentiated through innovative features or attractive options
• more complex products may be difficult to compare across companies
• some savings contracts may compete as much on past investment performance as on premium rates or charges
• some products may compete on the level of customer service or admin support