Question 1

List 5 distribution channels used by H&C insurance companies

Accepted Answer

1. insurance intermediaries (insurance brokers) 2. tied agents 3. the insurer’s own salesforce 4. direct marketing (mailshots, press, telephone advertising, internet advertising and comparison websites) 5. worksite marketing

Question 2

State 2 main risks to a life insurer if a policy is sold which does not meet agreed policyholder needs.

Accepted Answer

Reputational risk Persistency risk consquent financial loss, inculding possibility of compensation

Question 3

Describe insurance intermediaries (5) How they work (3) How they are remunerated (2) Who initiates the sale (1)

Accepted Answer

Salespeople act independently of any insurer Searches for contract that best meets clients' situation/needs (premium and benefits) AKA: independant financial advisors and insurance brokers Remunerated via commission payments from companies whose products they sell, or fee from clients Sales often client-initiated, however, can also promote themselves actively to existing clients e.g. initiating periodic review of finances

Question 4

Describe tied agents How they work (3) How they are remunerated (1) Who initiates the sale (1)

Accepted Answer

Work solely on behalf of one or several insurers i.e. offer clients only products of those companies Where tie is to multiple companies, sometimes product ranges are mutual exclusive, but often overlap Typically bank or other similar financial institution Remunerated via commission payments or salary plus bonuses by companies to which they're tied Sales often client-initiated, but tied agents may actively engage in selling.

Question 5

Describe an insurer's own salesforce How they work (1) How they are remunerated (1) Who initiates the sale (1)

Accepted Answer

Usually employees of insurer and only sell products of that company Remunerated by commission or salary or mixture of both Usually the salesperson initiates the sale, making use of client lists or purchased leads (however, client may initiate any further sales)

Question 6

List and describe 4 forms of direct marketing. Who initates the sale in each case?

Accepted Answer

Internet selling useful for without profits contract (simple) either prospective policyholder or insurer could initiate sale Press advertising short application form give telephone number or address it is arguable who initiates sale Telephone selling either prospective policyholder or insurer could initiate sale Mailshots (promotional/advertising letters sent in batches) insurer initiates sale

Question 7

Describe worksite marketing

Accepted Answer

Worksite marketing is the method of selling healthcare insurance business via an insurance broker addressing a large group of employees. There are benefits to this form of marketing as the prospect of engaging a large number of reasonably homogeneous employees may enable the insurer to reduce the risk premiums. There may also be expense savings, especially if the employer permits the premiums to be deducted from the payroll. (However, the average premium size may be small and other administration costs need to be met as usual, which limits the potential for expense savings.) The complexity of the products sold in this way depends on the level of sophistication of the staff. Usually only simple products are sold to those who haven't already made provision. This form of distribution in unlikely to be undertaken for LTCI products (due to complexity), but is already used for distribution of health cash plan and simple PMI.

Question 8

State 3 features of health insurance contracts that will be affected by the distribution channel used (3)

Accepted Answer

Demographic profile Contract design Contract pricing

Question 9

How might choice of distribution channel used affect the demographic profile of contracts sold? (5) Comment specifically on the target market reached for: Independant intermediaries Tied agents Direct marketing

Accepted Answer

Different distribution channels will attract/appeal to diffferent demographic profiles differing by financial sophistication and income which will... ...reflect in the experience of lives buying contracts in terms of morbidity experience persistency experience Target market will impact experience, affecting mortality, sickness, and withdrawal experience independent intermediaries more sophisticated customers, wealthier on average than public, will tend to seek out advice to managing more complex financial affiars tied agents variety of people differeing incomes/financial sophistications, certain minimum level implied by having bank account (seeing as tied agents are often banks which sell insurance) direct marketing e.g. downmarket tabloid newspaper less financially sophisticated, relatively low income levels

Question 10

State how the choice of distribution channel can affect contract design (3)

Accepted Answer

The higher the level of clients' financial sophistication, the greater possible complexity which can be used on contract design Different products will be suited to different methods of sale eg products sold via direct marketing may be less complicated than products sold face to face The contract design may create/lead to different versions of the same product for an insurer using multiple/different distribution channels; the verson of the contract sold may vary by channel

Question 11

List three ways in which the distribution channel might influence the types of contract that may be sold and three possible differences in the characteristics of the customers each channel might attract.

Accepted Answer

Impact of distribution channel on the contract sold 1. complexity of product 2. competitiveness of the premium rates that can be charged 3. size of contract Impact of distribution channel on the characteristics of the customer 1. level of financial sophistication 2. claim experience 3. lapse experience

Question 12

Describe the role of distirbution channel marketing strategies on the level of underwriting used (1), consider intermediaries (3) and direct marketing (2) How does this distribution channel marketing strategy and level of underwriting then feed into pricing assumptions? (2) How might persistency rates/withdrawal rates be factor in terms of contract pricing? (7)

Accepted Answer

In terms of distribution channels, the level of underwriting depends on to marketing strategy intermediaries/brokers usually underwrite the most intermediaries represent client's best interests, may thus encourage anti-selection customers likely high net worth =\> higher insurance cover =\> need for higher underwriting direct marketing underwrites the least as usually benefit is quite low and underwriting would be a barrier to sales) Link between underwrting and demographic assumptions: based on the marketing strategy, the level of underwriting will then be reflected in the demographic assumptions used for pricing Withdrawal/persistency also likely to be affected by financial sophistication and who initiated the sale consider customers having buyer's guilt and lapsing: sophisticated customers less likely to lapse due to buyers' remorse because they would've done more research before purchase better able to afford policies lower likelihood of mis-selling

Question 13

Effect of different distribution channels: contract pricing, impact of worksite marketing and impact on other assumptions Describe how the use of worksite marketing might affect contract pricing (3) Give examples of other assumptions in contract pricing which may be affected by choice of distribution channel (2)

Accepted Answer

Impact of worksite marketing on contract pricing For worksite marketing, engaging a large group of similar policyholders enables lower premiums through lower risk premium due to credibility. May also be expense savings if employer allows payroll deduction of premiums, however.... ...counterbalanced by administration costs on low premium size Effect on other assumptions morbidity assumptions expense assumptions

Question 14

Effect of different distribution channels: contract pricing, impact of the need for competitive terms Need for competitive pricing of contracts (5) Other aspects impacting competitive terms (5)

Accepted Answer

Effect of need for competitive terms wrt price of contract Competitive of premium rates is broadly highest at brokers and lowest at direct marketing For different distribution channels intermediaries recommend most competitive option with lowest rates other things being equal, commission may be distinguishing factor, if market unregulated, offer more of this tied agents products should be reasonably competitive, or this could damage its name however there's no direct comparison (as they are tied to a particular company's prods) own salesforce not usually in competitive position as direct selling e.g salesperson correctly recommends 15 yr-term assurance, but client may not shop around for better/best deal worksite marketing enables premiums to be reduced because of homogeinity of risks and large pool of risks direct marketing depends on target market for financially sophisticated (e. financial paper) terms will need to be compeitive, less so for less financially unsophisticated Competitive terms don't only relate to price, other factors/examples: innovative feature attractive options complex prods difficult to compare unit-linked products also compete on investment performance competition on customer service/admin support

Question 15

Group risks/insurance: large groups, intermediary responsibilities Describe the roles that may be fulfilled by intermediaries who sell group risks for larger groups (4)

Accepted Answer

The role of the intermediary responsible for most communication data gathering may also be the conduit/responsible for money receipts, and money payments

Chapter 8 Distribution channels Flashcards

Discuss the operating environments in which health & care insurance products are traded.

Brainscape's Knowledge GenomeTM

Chapter 8 Distribution channels Flashcards

Discuss the operating environments in which health & care insurance products are traded.

Brainscape's Knowledge Genome^TM