Flashcards in Chapter 9 The general business environment Deck (22):
The factors to consider in the General environment
-Propensity to buy
-The regulatory regime
-The tax regime
-Economic influences & other influences
Propensity to buy vs need to sell
-What makes a policy sell?
-it might be a legal requirement
-the contract outweighs the cost
-person is persuaded they want the contract
-insurers make raise brand awareness
-insurer should go to client and:
-find a receptive client
-finding out about clients healthcare insurance needs
-advising the client about possible products to meet any needs
-helping client to buy product they may now wish to buy.
Selling characteristics of different products.
-If all medical expenses are the responsibility of the individual then PMI products will be bought.
-However if the State provides care then the PMI products will be sold rather than bought.
Selling characteristics of Long-term care insurance
-LTCI depends on the perceived attitude of governments to provision of care.
-There are elements of legal compulsion in some countries.
Selling characteristics of Critical illness insurance
-CI insurance is not linked to match specific financial need.
-The sum can be used to meet any financial needs(if any).
-It is sometimes sold rather than being sold.
Future developments in Healthcare insurance
-There is growing awareness that the State cannot continue to provide wellfare benefits at the same level, given comittments to low taxation & aging population.
-This awareness increases attraction of health and care insurance products.
-Increasing sales regulation & disclosure reduce insurer's ability to create needs through sales process.
The aim of regulation
-Governments may expose impose restrictions on the way which insurance companies operate.
-The aim is to protect the policyholder.
-The type of contract an insurer can offer.
-restrictions on the premium rates or charges.
-restrictions on the rating factors allowed to be used for premium rates.
-requirements relating to terms and conditions of the contracts offered.
-Restrictions on channels through which insurance may be sold.
-restrictions on ability to underwrite eg using genetic test results.
-An indirect constraint on the amount of business that may written. eg minimum level of reserves.
-restrictions on the type of assets or amount of any particular asset.
Regulation on different institutions
-insurance companies are likely to have a monopoly of providing protection benefits not provide savings benefits.
-other organisations may be allowed to offer arrangements can be regarded as competing with health and care insurance products.
Effect of regulatory regime on contract design
-companies will want to make use of the best available regulatory opportunities available to them.
-contract design will have to take into consideration of regulatory constraints imposed.
The tax regime: Approaches to taxation
-Insurers may be taxed in a number of different ways:
1. a tax on annual profits of business where profits means excess change in assets over change in liabilities.
2. tax payable on investment income
3. tax on premium income
The tax regime: The profits approach
-profit could be stated as:
1. (A1 - A0) - (V1 - V0) profit
2. (A1 - V1) - (A0 - V0) increase in free assets over the year.
The tax regime: The investment income approach
-The taxable amount may include some or all of the capital gains realised, as well as investment income.
-expenses should be allowed for on returns.
The tax regime: Tax on different types of insurance business
-different types of insurance business may be taxed differently.
-this means it can be cheaper for the consumer if certain forms of benefits can be offered as one type of business rather than another.
-tax concessions available to policyholders may make sales of certain types of contracts easier.
Effect of taxation regime on contract design
-the ability to maximise favourable taxation may force constraints on product design.
-eg tax authorities may be keen that pure savings business should not be dressed up to look like healthcare protection insurance in order to secure favourable tax treatment.
-they may specify minimum level of cover necessary to secure tax concessions.
-actuarial associations will often issue professional guidance to actuaries.
-provide a framework of point they need to consider in carrying out their responsibilities.
-The guidance may typically cover areas such as:
-adequacy of premium rates for new business
-value of liabilities
-professional guidance may provide interpretation of government regulations.
-this occurs where gov does not want to be overly prescriptive.
-gov may look to actuarial profession to set limits on what would be acceptable.
Economic influences: Inflation
-Fixed level benefits
-even if a contract offers fixed benefits the policyholder should be encouraged to increase level of cover and reapply frequently.
Benefits increasing at a fixed escalation rate
-where cover escalates at a fixed rate policyholder should be encouraged to increase benefits and reapply.
Benefits increasing with national inflation index
-some benefits may increase in line with CPI however the policyholder should still consider increasing care and reapplying.
-there is still a danger because costs of medical care may sometimes increases at greater rate than CPI.
Benefits not fixed but indemnify actual healthcare costs
-where a contract indemnifies the actual cost of healthcare the insurer bears the risk of covering inflation.
-one-year contracts premiums are reviewable annually and can be readjusted.
-on longer-terms business premiums may not be reviewable, insurer will need to keep level of prospective reserves consistent with both current & future expected cost levels.
-actuary will need to reflect rising expenses in the amounts set aside as reserves for future policy outgo.
-during business optimism, there is a +ve jump in demand for employer sponsored insurance, to attract best employees retain best staff.
-individual generally upgrade cover on existing policies in bouyant times.
-in times of business downturn employers may be under pressure to cut costs.
-for individuals, confidence in continuity of remuneration promotes likelihood of insurance purchase.
-for employees covered under employer sponsored schemes they may claim more when there is lack of confidence in longevity of one's employment or cover.
- The returns available are an important aspect for insurance companies.