Product Management: Leaky Faucets - seactuary.com · Leaky faucets do not bode well They very...
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Product Management:Product Management:Leaky FaucetsLeaky Faucets
Southeastern Actuaries ConferenceSoutheastern Actuaries ConferenceSpring Meeting: 13 June 2002Spring Meeting: 13 June 2002Jeffrey C. HarperJeffrey C. HarperContingent Quantities Consulting, Inc.Contingent Quantities Consulting, Inc.
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Product Management: Leaky Faucets
Part of construction in work of actuarial sciencePipes can clog up, and faucets can leak, for a number of reasonsEmphasis today is productsGood plumbing gone badAnonymous tips
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Product Management: Leaky Faucets
Types of leaksDetecting leaksMeasuring leaks
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Product Management: Leaky Faucets
Types of leaksDetecting leaksMeasuring leaksControlling leaksAvoiding leaksRepairing leaks
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Types of leaks – chronologically
Original pricingOriginal benefitsRepricingBenefit redesignCombinations
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Types of leaks – logistically
Concentration of riskUntested product innovationsAsset/liability managementAlignment of coverage and pricing assumptionsSegmentation of experience analysisCause and effect – and misinterpretation thereofLack of qualified specialistsFocus on secondary goals
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Types of leaks: Original pricing
Initial premium rates– Assumptions too optimistic– Too little flexibility in premium rates– Loss leader
Guaranteed or not– Vanishing premium– Confusing combinations
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Types of leaks: Original benefits
Initial benefit descriptions– Inadequate definitions (now or later)– Lack of inside limits
Seemingly “minor” components– Cash value bases– Settlement options
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Types of leaks: Repricing
Price elasticity– Inconsistency in product management– Resetting dividends– Health insurance
• Guaranteed renewable• Group medical
RegulationLitigation
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Types of leaks: Benefit redesign
Carelessness to detail– Potential for attained age antiselection– Extreme high ages– Changes in tax law
Product emulation with missing puzzle pieces
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Types of leaks: Combinations
Entry to a new line (e.g., investment)– Different horizons– Different assets– Different balances among the four C’s
Rapid growth of a line (or product)– Guaranteed issue– Re-entry term
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Types of leaks – logistically
Concentration of riskUntested product innovationsAsset/liability managementAlignment of coverage and pricing assumptionsSegmentation of experience analysisCause and effect – and misinterpretation thereofLack of qualified specialistsFocus on secondary goals
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Types of leaks: Untested innovations
Disconnect among underwriting, pricing, and salesField compensationgamesmanshipLong term care /Critical illness /Advances
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Types of leaks: Asset/liability management
Run on the bank with concentration in an assetPoor product results due to non-performing assetsMismatching
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Detecting leaks
Leakage where anticipated– Lack of product innovation– Incursion by “new” competitor
Leakage where unanticipated– Overinsurance– Dividend practices / Claims procedures
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Measuring leaks
Appear where expected– Run on the bank with concentration in one
type of asset– Disconnect with assumptions
Appear where unexpected– Concentration of risk– Adverse [mortality] experience
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Controlling leaks (part 1…)
Controlling during product design– Flexibility in premium rates– Reasonable and consistent dividend practices– Consistency among underwriting, pricing, and sales
Controlling during learning period– Ranges around assumptions– Product innovation or emulation?– Consistency in product management
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Controlling leaks (…part 2…)
Controlling the uncontrollable– Product innovation or stagnation?– Concentration of assets– Concentration in types of assets– Non-performing assets– Control over distribution– Futurism in play
• Weather, economy, terrorism, etc., etc.• Sweat the details – before they cook you
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Avoiding leaks
Built-in vs. separate chargesGuaranteed vs. non-guaranteed– Premiums– Benefits– Processes
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Repairing leaks
Corrective repricingDiscontinuingsalesExiting a productor a product line
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Leaky faucets do not bode well
They very seldom repair themselvesThey make a mess of the walls and floorsThey are always in a hard-to-get at placeThe residual odor can hurt property values
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Leaky faucets do not bode well, so
Practice safe plumbing