Insurance Products and Financial Services Competition

Savings and guarantee return products face competition from other financial service companies.

They are taxed at the Individual Policyholder Fund rate, which is often lower than their marginal rate.

XSE stands for Excess E. An excess position due to low reserves enables the companies to provide tax-free investment income on savings products.

<p>RA premiums are tax-deductible up to a certain level.</p> Signup and view all the answers

<p>Insurance companies need to hold regulatory reserves, capital, pay for training and regulation of the sales force, and meet additional regulatory requirements.</p> Signup and view all the answers

<p>Reduced flexibility is reflected in the ability to adjust premiums and benefit withdrawals without incurring penalties.</p> Signup and view all the answers

<p>Because the majority of these costs are paid up front, but the value of the policy is only realised over time.</p> Signup and view all the answers

<p>Packaging the product with a risk product, and offering products with with-profits or smooth bonus features.</p> Signup and view all the answers

<p>The target market's income level and location (rural vs. urban) are key determinants of the distribution method.</p> Signup and view all the answers

<p>Simpler risk products are typically sold in rural areas because these areas usually have a large volume of potential customers but lower incomes.</p> Signup and view all the answers

<p>More complex products are sold through brokers and company branches, whereas simpler, lower cost products are sold through partnerships with banks or retailers.</p> Signup and view all the answers

<p>The main goal is to increase the supply of low-cost insurance, promoting financial inclusion while protecting low-income policyholders.</p> Signup and view all the answers

<p>The legislation creates opportunities for new insurers to enter the market and for existing insurers to produce lower-cost risk products due to simplified governance and capital requirements.</p> Signup and view all the answers

<p>The PA sets the financial soundness, governance, and operational requirements for micro-insurance businesses.</p> Signup and view all the answers

<p>Strong competition requires product propositions to be appealing and appropriate for the market.</p> Signup and view all the answers

<p>This lack of access creates new markets as banks and insurance companies enter previously underserved areas.</p> Signup and view all the answers

<p>They have become less popular due to a lack of transparency in the returns received.</p> Signup and view all the answers

<p>Unit trusts, fixed term deposits, and exchange traded funds are all examples of non-life savings options.</p> Signup and view all the answers

<p>It is important because operational risk assessments are included in the SCR calculation, and it is part of the risk management system required for insurers.</p> Signup and view all the answers

<p>They were unable to profitably write new business or raise enough capital.</p> Signup and view all the answers

<p>Product mis-selling and administrative errors are examples of operational risks.</p> Signup and view all the answers

<p>Poor service could lead to reducing new business, high levels of complaints, and regulatory fines.</p> Signup and view all the answers

<p>Court approval is required.</p> Signup and view all the answers

<p>The PA (Prudential Authority).</p> Signup and view all the answers

<p>The life insurer is still responsible to its customers for the service provided.</p> Signup and view all the answers

<p>Securitisation refers to the sale of future profits expected on in-force business.</p> Signup and view all the answers

<p>Actuarial Practice Note (APN) 108.</p> Signup and view all the answers

<p>It allows companies to participate in insurance business without their own license.</p> Signup and view all the answers

<p>Life insurers can raise capital by issuing debt instruments such as bonds.</p> Signup and view all the answers

<p>First party cell business.</p> Signup and view all the answers

<p>It is insurance business written directly on the cell captive insurer's license, but not ring-fenced in a cell structure.</p> Signup and view all the answers

<p>Each cell operates as an individual company, with income and expenses ring-fenced from other cells.</p> Signup and view all the answers

<p>The divisions would be ignored if the solvency position of the licensed insurance entity was ever threatened.</p> Signup and view all the answers

<p>The licensed insurance entity is ultimately responsible.</p> Signup and view all the answers

<p>Large corporates looking to self-insure and pension funds or employers are the typical owners of 1st Party Cells.</p> Signup and view all the answers

<p>Underwriting managers design, price, and administer products but cannot sell them directly.</p> Signup and view all the answers

<p>Profits are paid to the cell owner as dividend payments.</p> Signup and view all the answers

<p>The cell captive insurer provides compliance oversight and accounting and regulatory reporting services.</p> Signup and view all the answers

<p>Cell captive insurers may provide start-up assistance, pricing, underwriting, claims management, reinsurance and investment management services.</p> Signup and view all the answers

<p>Capital is provided by the cell owners' shareholding and can be supplemented by the cell captive insurer (for a fee).</p> Signup and view all the answers

<p>Cell captive insurers typically operate under an outsourced business model.</p> Signup and view all the answers

<p>The functions of cell captive insurers are governed by binder agreements, outsourcing agreements, and intermediary services agreements.</p> Signup and view all the answers

<p>There is increasing scrutiny because of concerns that remuneration structures could lead to conflicts of interest and unfair outcomes for customers.</p> Signup and view all the answers

<p>Cell captive insurers were regulated the same as other insurers, with some additional reporting requirements.</p> Signup and view all the answers

<p>The paper raised concerns about the structure of cell captive insurers, third-party cell ownership, and responsibilities related to governance, risk management, and market conduct.</p> Signup and view all the answers

<p>This standard sets out requirements for cell captive insurers to mitigate conduct-of-business risks in third-party cell arrangements.</p> Signup and view all the answers

<p>Policyholders face risks related to fair conduct of business, and conflicts of interest due to the profit-share motive.</p> Signup and view all the answers

<p>The profit share motive can create a conflict of interest, potentially leading to unfair outcomes for customers.</p> Signup and view all the answers

An approach to insurance that focuses on providing affordable and simple insurance products tailored to low-income individuals and communities.

The insurance industry is highly competitive, forcing companies to develop attractive and unique product offerings to gain customer interest.

Legal guidelines specifically for micro-insurance companies, aimed at simplifying their operations and reducing regulatory burdens.

The ability of individuals and households to access and utilize financial services like insurance, savings, and credit.

Products like life insurance, designed for specific needs of low-income households, often simpler to understand and more affordable.

The process of reaching potential customers with insurance products, including channels like partnerships with banks, retailers, and brokers.

Focusing on a specific group of potential customers with similar needs, income levels, and preferences for insurance products.

The study and analysis of a target market to understand its characteristics, needs, and potential for insurance products.

Insurance companies face competition from other financial institutions for savings and investment products, like unit trusts and capital guarantee products.

Insurance products offer tax benefits, including lower tax rates on investments, tax-free income, and tax-deductible retirement savings.

Insurance companies need to cover extra costs due to regulations, reserves, and sales force requirements.

Life insurance savings products are less flexible than alternatives, with restrictions on premium adjustments and benefit withdrawals.

Insurance companies may package savings products with risk products or offer products with bonuses to make them more appealing.

Financial institutions compete for customers by providing various products, targeting specific groups, and utilizing effective marketing strategies.

The internet has increased access and information about financial products, empowering customers to make more informed decisions.

Financial institutions aim to reach customers and distributors effectively through targeted marketing and communication channels.

A process where mutual life insurance companies transition to being publicly traded companies.

A type of insurance company where various companies can 'rent' out space to conduct insurance business without needing their own license.

The cell owner (renting space in the cell captive) is also the policyholder of the insurance.

The cell owner (renting space in the cell captive) isn't the policyholder. Different companies are involved.

Insurance business written directly by the cell captive insurer and not separated by cells.

A reinsurance arrangement where the cell owner transfers some underwriting risk to the promoter cell.

Each cell operates independently, with income and outgo ring-fenced from other cells.

Cell owners typically provide capital for their own cell business.

Products that offer policyholders returns with lower volatility than the equity market, often with profits from various business lines.

Non-life saving options that invest in a range of assets, with each unit representing a portion of the underlying portfolio.

Fixed term deposits offer a guaranteed interest rate for a specific period.

A distinct unit within a cell captive insurer, allowing an entity to self-insure its own risks and potentially receive profits.

These accounts offer variable returns based on prevailing market rates, primarily on short-term debt securities.

Funds that track the performance of a specific index or commodity, offering investors exposure to a wide range of assets.

An entity that owns and operates a cell within a cell captive insurer, typically a large corporation, pension fund, or intermediary.

Cell owners who directly self-insure their risks, such as large corporations seeking risk management solutions.

Investment products that guarantee a specific minimum return, typically linked to a market index, providing downside protection.

Cell owners who are intermediaries, such as underwriting managers or brokers, who design and sell products but don't sell directly to customers.

Risks related to internal processes, people, and systems within a life insurance company.

The process of converting future profits from in-force policies into securities that can be sold to investors.

The cell captive insurer has ultimate responsibility to ensure the solvency of all cells, even if individual cells face financial difficulties.

The cell owner receives financial benefits from the insurance business placed within the cell, typically in the form of dividend payments.

The cell captive insurer provides various services to cell owners, including compliance oversight, accounting, regulatory reporting, and potentially specialized services like pricing or claims management.

Cell captive insurers usually outsource most of their business operations to cell owners, intermediaries, and administrators. These parties are governed by specific agreements.

The regulatory scrutiny of cell captive insurance has increased. This focus is on ensuring fair payments and avoiding conflicts of interest for outsourced partners.

Cell captive insurers are governed by the same regulations as regular insurance companies. There are additional reporting requirements for cell captives.

Proposed changes to cell captive regulation in 2013 included restrictions on ownership, governance, risk management, market conduct, reporting, and demonstrating financial soundness.

The Insurance Act implemented some of the proposed changes, while the rest were addressed through the Financial Sector Conduct Authority's (FSCA) Retail Distribution Review and Conduct Standard 2 of 2022.

FSCA Conduct Standard 2 of 2022 aims to reduce business conduct risks related to third-party cell captive arrangements.

Policyholders in cell captive arrangements generally face the same risks as in traditional insurance. However, there are concerns about fairness and conflicts of interest.

The Financial Sector Conduct Authority (FSCA) published Conduct Standard 2 of 2022 to address the risks associated with fair business conduct and conflicts of interest in cell captive arrangements.