Group Ins. - Planning And Control Issues

Front 1

Planning and Control Issues

Back 1

All this means is “How to succeed in the Insurance business”.

Front 2

PLANNING CONSISTS OF:

Back 2

 Assessing the environment
 Assessing current strengths and weaknesses
 Assessing competition
 Determining how to capitalize on strengths and eliminate weaknesses
 Determining Long Term goals and strategies (mission statements)
 Breaking Long Term goals into short-term Annual Plans (interim goals)

Front 3

Steps In Planning

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Choose a Mission Statement
Choose Objectives (see GI 41, “Possible Company Objectives”)
Choose a Competitive Strategy
Choose an Annual Plan
Choose a Product Manager

Front 4

3 possible strategies for gaining a competitive advantage are:

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 Low Prices
Ways of Operating with Low Cost:
 Use a lower cost distribution system than the competition
 have better technology than the competition
 have better claim cost containment (Utilization Mgmt, Case Mgmt, discounted reimbursement of providers)
 relocate to an area with cheaper labor costs
 improve productivity

 Differentiation
Gaining a competitive advantage through:
 A unique (or higher quality) product
 Continuous development of new product improvements
 Superior service
 wider distribution of products and services than the competition

 Niche Marketing
 Requires a specialized product and specialized knowledge about the customer base


Moral: To compete successfully, a company needs:
 Efficiency
 Modernity (up-to-date products and services)
 Quality.

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Choose an Annual Plan
Annual plans are a road map for coming year. They should include:

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 Profit objectives (for each product line)
 New business objectives (for each product line)
 Expected Lapses (for each product line)
 Growth objectives (for each product line)
Growth is usually measured in terms of increase in premium income.
 specific projects aimed towards achieving the long term objectives
 specific projects required by regulations

Front 6

The Product Manager’s role includes:

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 Monitoring growth and profit
 Planning the product range – adding, changing, deleting products
 Monitoring the market – competitors and buyers
 Developing promotional and training materials
 Developing annual plans (as described above)

Front 7

Growth Factors
Factors Affecting Growth include:

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 New Business – which depends on:
 price lowness
 quality
 distribution system effectiveness
 promotion/advertising activities

 Persistency of existing customers – which depends on:
 policyholders’ perception of customer service and price
 cost/bother to policyholder of changing carriers

 Renewal Premium Rate Increases or Decreases – which depend on:
 adequacy of initial rates (when policy was issued)
 inflation in claims costs
 other trend factors
 company’s skill at controlling expenses

Note that, since premium is the standard measure of growth (see GI 41), the growth factors are factors which determine how much premium is coming in.

Front 8

Profit Factors

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Factors affecting Profit include:
 Amount of RBC required
 Return on Capital desired

Front 9

CONTROL CONSISTS OF:

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 Picking a measurement system
 Tracking Actual vs. Expected results
 Determining cause of deviations
 Implementation of any required changes

Front 10

Steps In Control

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Track Actual vs. Expected Results
Exercise Claims Control
Exercise Expense Control
Exercise Investment Income Control
Exercise Mix of Business Control

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Track Actual vs. Expected Results

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 new business
 lapses
 reasons for deviations of Actual from Expected
 all of the above statistics should be separated by line of business
 Two sets of books are kept: one statutory, one internal

Front 12

Exercise Claims Control

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 Verify eligibility of claimants
 avoiding paying for unauthorized procedures
 Process claims efficiently
 Promote wellness and early diagnosis
 provide Rehabilitation (for disabled people, to limit future claim costs)
 enforce plan provisions
 make Plan changes (raising deductibles and coinsurance)
 prevent overinsurance (by making use of offsets / coordination with Medicare, etc.)
It's important to prevent overinsurance because if a person has too much insurance, he is more likely to submit a lot of claims.

Front 13

Exercise Expense Control

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 Expenses Include (among others):
 Salaries
 commissions
 overhead
 So, control of expenses is largely a matter of controlling the number of Ins Cpy employees.
Suggestions:
 Relocate to low wage area
 or use Technology to reduce the number of EE’s needed
 Expenses must be allocated to the different business units.

Front 14

Exercise Investment Income Control

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 review the cpy’s investment objectives
 analyze the current market
 more important for LI than HI (which has fewer invested assets)

Front 15

Exercise Mix of Business Control

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 Find a more attractive market, i.e. a population with better:
 risk characteristics
 products they need
 geographic area

To find the best target market:
 assess profit/growth potential in major markets
 notice external factors (economy? competitivity in that area?)
 determine the shifts in business and products the Ins Cpy would need in order to achieve success in those markets
 evaluate Ins Cpy’s strengths/weaknesses in being able to make these changes.

Done.