Marketing for Actuaries (LIMRA) - Chapter VI

Marketing for Actuaries (LIMRA) - Chapter VI - MARKETING AND PRICING

Life Insurance

Persistency
- Short-term Persistency
  - generally measured using lapse rates based on face/# pols/prem
    - # pols = # decisions to lapse
    - prem - better measure on fin impact
  - most common def of s/t lapse - policy that fails to pay 1st prem of 2nd policy yr (aka 13th mo) for reasons ofther than lapse/conversion
  - early lapse rate stressed b/c
    - fin impact on eraly terminations greater than later terminations
    - early lapse primary indication of if business being sold efficiently
    - early lapses most susceptilbe to chagne by direct co effort
- Long-term Persistency
  - loss of older business significantly affects profits, div scales and current pricing
- Establishing Persistency Objectives
  - consider effect of req'd effort on dist channels and on co fin results
  - agents must allot their time between pursuing NB adn servicing old business
    - keeping in mind potential monetary payback
    - if measures to imporve persistency reduce expenses, but production inhibited to point where cost/unit actually increases, no fin gain has resulted
- Factors Affecting Persistency
  - Income and mode of prem payment are major factors related to persistency
  - MDB close to same as annual b/c of automatic nature
  - buyer-related: higher than average persistency among
    - older
    - professional adn executives
    - already own ins w/ same co
    - insuring lives of juveniles/students
    - initiating sale themselves
  - Product Related: higher than average persistency
    - perm vs term
    - higher prem and/or acct value (cv plans)
    - w/o policy loans
    - u/w on med basis
    - sold w/ insurability option
    - larger PRD policies
    - business vs personal policy
    - issued as applied for
    - sold w/ wvr in home service mkt
  - Producer Related
    - persistency incr as agent's YOS incr
    - new agent terminators sell business w/ poor persistency
    - positively related to agent's product knowledge
    - persistency obnuses have intended effect
    - orphans - good business lost b/c lack of contact
      - poor agents selling poor business
  - Sales Process Related - higher lapses when
    - partial or no cash w/ app
    - needs selling not employed
    - agent stresses savings and thrift
    - policies not deliverd personally to insured
    - post-sale service not employed
  - Related to Outside Environment
    - persistency poorer during high unemployment and high int rates
    - persistency improves when personal savings adn eff buying incomes high
    - growing competition from competitive inv media incr replacements
    - better persistency in mid-Atlantic and Norther part of US
Replacements
- reasons why PO may consider replacing existing coverage
  - reduced prems
  - volume discount
  - flexibility
  - interest rates
  - insurer's financial health
- factors to consider when determining if replacement in PO best interest
  - FY acq expenses
  - Increased prems
  - Values in existing pols
  - suicide adn contestable provisoins
  - new-money plans vs Trad plans
  - tax consequences

Annuities

most same info as life
Persistency
- measured using surrender rates based on contracts or CV
- SC relatively effective @ preventing surrender activity when in effect
- surr rates increase when charges expire (aka shock lapses) & tend to remain higher
- dist channel has major impact on annuity persistency
- SPDA shock lapse rates lowest->highest career agents/banks/ind agents/stock brokers
Replacements
- reasons to replace annuity contract
  - change of investment risk tolerance
  - cost
  - product perforamnce
  - product features

Managing Persistency

loyalty perspective - whole copmany perspective
- potential for quantum leap gains in persistency
tweaking - relatively small improvements can have large financial gains
- financial incentives - sales reps and/or customer a persistency bonus
- compensation for persistency - reducing FY and increase RY comm
- continuous educatoin - educate PO about purchased products
  - reduces risk of "escalator effect" - switch products to participate in recent performance of stocks/bonds w/o consideration to their risk tolerance or LT goals

Managing Replacements

strategies to combat replacements
- aggresive pro-active measures by formal conservation unit
- computerized detection system to indentify internal replacements
- inform sales reps when policy about to lapse
- guidelines to sales reps to id potential replacement situations
- educational materials and sample letters for sales reps to use
- provide service to former sales reps who service policies
- compensate sales reps for high retention thru persistency bonuses, incentives, recognition programs
- do nothing - may be OK for some blocks, but may send wrong signal to field
- increase face for existing policy. costs s/b offset by improved profits
- decrease premium for existing policies. costs s/b offset by improved profits
- set up loan repayment program or exchange program for special cases
- keep product protfolio attractive and flexible
  - selling good product reduces chance of replacement
- provide quality customer service

Copyright © 2004 Steve Welander.
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