Common mistakes in product design that you should avoid 

No. 2 is easily overlooked!

You may think that some of the mistakes listed below are so obvious that you will never make them. But these examples are real life cases! Think of the last time when you were under pressure from management / marketing / distribution and you compromised on "small matters" then you will know what I mean:

  1. One rate for all.  In the name of simplicity, you charge one rate for all regardless of age, gender, occupational class, smoking status, standard/sub-standard etc. Examples: PA product in Korea.
  2. Guaranteed issue.  Hassle-free, no underwriting needed. You think you can mitigate your risk by applying waiting period, proxy underwriting (e.g. if someone recently purchased a house, he must be healthy).  Wait until you see the MIRAS Campaign in UK.
  3. Guaranteed rate.  Before you guarantee your rates for a long term, how confident are you that the underlying risk will not deteriorate over time?  How about awareness campaign or advancement in diagnostic techniques that may increase the incidence rates?  Examples: long-term guaranteed cancer products in Korea, guaranteed CI products, guaranteed annuity products.
  4. Guaranteed return.  Need I say more?  I am sure you have heard of negative spread and lack of assets with long enough duration for ALM.
  5. Guaranteed increase option.  Option to increase benefits either on regular basis or on certain events.  The risk is underestimating the anti-selection hence underestimating the cost of the option.
  6. Benefit trigger set by external party.  This is a common feature for opt-out schemes.  Example: disability scheme in the Netherlands.
  7. Weak claims definition.  Example: cancer products in many countries, PA product in Korea (higher claims amount on holidays).
  8. Extremely generous benefits.  Extremely generous benefits may invite anti-selection or prolong benefit period.  Example: disability income products.


  1. Developing successful protection products - The past, today and making the future more reliable by Dr Dirk Nieder, Gen Re, Joint Regional Seminar 2014
  2. Workshop discussions, Joint Regional Seminar 2014

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Posted by Loo Hai Monday, August 4, 2014 5:55:00 PM Categories: Case Studies Product
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