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

If you have benefited from the above, share it with a friend.

Posted by Loo Hai Monday, August 4, 2014 5:55:00 PM Categories: Case Studies Product
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Actuaries predict World Cup winners 

Actuaries are good in applying actuarial and statistical models in evaluating future financial events.  But are they good in predicting the FIFA World Cup winners?

To put their skills to test, in a competition named "Soccactuary" run by the actuarial recruitment firm TAS Search, actuaries and future actuaries were asked to predict the Winner, Runner-Up, Third Place and Fourth Place before the kickoff of the quarter-finals.

"Based on the submissions we received, we tabulated and evaluated the predictions by this group of actuaries.  In aggregate, the group of actuaries predicted that the 2014 FIFA World Cup will be won by Netherlands",  said Teh Loo Hai, the managing actuary of TAS Search.

Brazil is predicted to be the Runner-Up, with Argentina and Germany in Third and Fourth Place respectively.

Are the actuaries right?  Only time will tell.  However, as at the point of writing this article after the first 2 quarter-final matches, the actuaries have correctly predicted the winners of both matches: Brazil and Germany!

Saturday, July 5, 2014 6:51:00 PM
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STD 029-5 Appointed Actuary: Appointment and Duties 

The new standard on Appointed Actuary: Appointment and Duties is now finalised following the release of the concept paper a year ago and after a 2-month consultation period.

The following are the changes made that we observe when comparing the concept paper and the final standard:

  • The decision to remove AA from product pricing accountability remains. To mitigate the potential pricing risk, AA is now required to provide opinions on product pricing and the opinions will be tabled at the relevant committees.
  • The effective date of the Standard is 1 January 2015.  For general insurance/takaful business, the effective date of the following requirements will be postponed to 1 January 2017:
    • AA as an employee of the insurer
    • AA not allowed to be accountable for product pricing
    • AA is a resident in Malaysia
  • FSA and FCAS are no longer restricted to be only AA for life and general respectively.  We understand that the fit and proper clause will be relied upon in judging the candidate on a case-by-case basis.
  • The Standard does not apply to reinsurers and retakaful operators.  The requirements will be modified to suit the business models of reinsurers and retakaful operators, presumably through a different standard to be issued subsequently.

The following are additional information related to this matter that you may find useful:

  • A concept paper on FCR will be released
  • AA is allowed to double-up as the CRO
  • The responsibility of ensuring fair treatment of policyholders lies with the CEO and Board, no longer with the AA.  However, AA plays a significant role in advising CEO and Board on the fair treatment.
Tuesday, May 6, 2014 10:53:00 AM Categories: Appointed Actuary BNM FCR
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Solvency II are years away from implementation 

Solvency II are still years away from implementation as the current form is not workable.  European Union states and lawmakers are restarting negotiations this month to finalise the details.


Thursday, July 11, 2013 6:16:00 PM Categories: Solvency II
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Appointed Actuary: Appointment and Duties - Concept Paper 

BNM issued a concept paper on Appointed Actuary: Appointment and Duties on 7 June 2013.  The concept paper calls for comments by 2 August 2013.

The intention is to replace the existing Appointed Actuary guidelines by the requirements as set out in the concept paper.  Among the notable changes under the proposed new guidelines include:

  • The removal of the product pricing duty from the role of the appointed actuary.
  • Replace the Signing Actuary in general insurance with Appointed Actuary.
  • Appointed Actuary of general insurance company is required to prepare a Financial Condition Report.
  • 3 years post qualification experience seems to be a minimum.  BNM no longer has the right to waive this.
  • The Nominating Committee of the insurer now needs to make sure the appointed actuary meets the fit and proper requirements.
  • There is a strong preference for the appointed actuary to be the staff of the insurer, although BNM still has the right to waive this requirement.
  • The appointed actuary is not allowed to concurrently play the role of CEO, CFO, COO or CIA, and must not have any management or financial responsibility in respect of business lines or revenue-generating functions.
  • The Board must review the reports submitted by the appointed actuary at a sufficiently granular level.
  • There is a hint of the requirement of independent review of the appointed actuary's work although the concept paper short of making it compulsory.
Sunday, June 9, 2013 6:01:00 PM Categories: Appointed Actuary BNM FCR
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