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Practical Aspects of Reviewable Rates Beware Evil

Practical Aspects of Reviewable Rates Beware Evil. Shafique Bhunnoo 2003 Healthcare Conference 5th October 2003. Need to consider all parties Product Structure Communication Pricing strategy Dependence on Reinsurance Reviews in Practice. Practicalities.

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Practical Aspects of Reviewable Rates Beware Evil

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  1. Practical Aspects of Reviewable RatesBeware Evil Shafique Bhunnoo2003 Healthcare Conference5th October 2003

  2. Need to consider all parties Product Structure Communication Pricing strategy Dependence on Reinsurance Reviews in Practice Practicalities Look at all the Costs, Consider all the Risks

  3. Customers Distributors Insurance Companies Owners AND Employees Reinsurers FSA ABI Consumer Groups Media The Usual Suspects Many Points of View to Consider

  4. Review Triggers Time trigger Experience trigger Anticipated change in experience Reviewable or renewable? Guaranteed insurability Terms and conditions may change Product Structure - What is reviewable?

  5. Which elements are reviewable? Mortality/morbidity Lapses Economic assumptions Expenses Changes in taxation Reinsurance costs Prospective view or experience-based only? Are we only playing catch-up? Not about subsidising past losses? Product Structure

  6. Endless possibilities for variety: “Catch-up” reviewability mortality/morbidity only all elements something in-between “Keep-up”reviewability Deferred reviewability Capped reviewability Renewable products potential to change terms and conditions Product Structure Choices, Choices

  7. Initial communication Legal wordings Literature Press releases On-going communication How much detail? Will they believe/trust the communication? Communication Costly?

  8. Competition - Level and presence (!) of guaranteed rates Where do you pitch your reviewable rates? Low High Will rates be equally sticky up and down? Who will be the first to move rates? Churning and selective lapsing Managing policyholder expectations Pricing Strategy Do you feel lucky?

  9. Link price to Reinsurance? Review of Reinsurance - does it follow underlying product? Mis-alignment of interests, financial versus reputational risk Specification of review process in treaty Resolution of disputes and recapture process Pricing Strategy - Reinsurance Extra Layer of Complexity

  10. Changes to cope with Changes in premium, commission and reinsurance rates Staying in touch with policyholders Monitoring experience Future reviews On-going communication with all parties Backroom Operations Costly ?

  11. FSA Ruling on Lloyds TSB High income bond “The case suggested that common practices such as: Pointing out risks in literature but not attempting to quantify them Categorising products into a few broad ‘attitude to risk’ groups, and Using a check box -approach to assess suitability Are UNLIKELY to provide adequate protection against accusations of mis-selling.” Watson Wyatt e-alert for Appointed Actuaries: FSA ruling on Lloyd s TSB's high-income bond - 1st October 2003 Mis-Selling Risk - Taste of Future?

  12. Endless possibilities for complexity Disputes with reinsurers Potential mis-selling Higher compliance costs Higher costs and admin complexity Communication and literature Dis-illusioned consumers Some Risks

  13. Let’s Discuss

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