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15 Cards in this Set
- Front
- Back
Planning and Control Issues
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All this means is “How to succeed in the Insurance business”.
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PLANNING CONSISTS OF:
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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) |
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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 |
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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: |
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 |
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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) |
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Growth Factors
Factors Affecting Growth include: |
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. |
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Profit Factors
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Factors affecting Profit include:
Amount of RBC required Return on Capital desired |
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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 |
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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 |
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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. |
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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. |
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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) |
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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. |