1.

ABC Insurance

<Date>

Proposed changes to the ABC Funeral Insurance Business Plan

Introduction

This paper has been prepared by Alex Smith, Product Actuary at ABC Insurance and is addressed to
the SalesMachine Marketing Committee. It is intended to give the background to the proposed
changes that needs to be made to the current ABC Funeral Insurance Business Plan. Below is the
description of proposed changes, together with the comparison of Original and Proposed business
plan results. It should be noted that proposed changes would result in the decrease in the sales
number.

Description of Proposed Changes

When analyzing the business plan, we came across two major concerns in the original business plan
which are highlighted below:

1. We identified that some personal questions should be asked to customers. These questions
would be related to their employment status, income and their partners/dependents. This
will help us to ensure, whether they need that product. This would lead to reduction in the
policyholders lapsing their policies from 10% per month to 5% per month.

2. We have also come up with a recommendation that some basic medical questions should be
asked to every customer. This would help us know about their existing medical condition.
This data would be needed to determine the validity of each claim. As we need to pay the
claims within 24 hours after the claim event happens and we would not be having enough
time to inspect about their historical medical condition. This would result in reduction in
claims amounts being paid out to policyholders. As per Original Business Plan 70% of the
premiums were being used to pay claims and as per the proposed plan only 50% of the
premiums would be used to pay the claims. It would have a positive impact on profits.

Comparison of Original and Proposed Business Plan Results

Although the above suggested changes would lead to reduction in policyholders lapsing their policies
and claim amount being paid to policyholders. Overall, this would result in decrease in sales
numbers, as policyholders don’t like to be asked to many questions while purchasing a policy. If the
above proposed changes come into practice then the sales per call ratio would reduce to 8%, which
means that only 8 out of 100 sales calls would convert into actual sale, which was 10 out of every
100 calls as per the original business plan. These changes would result in increase in length of sales
call made by sales team, which means we will be needing more sales staff. And accordingly the
salary expense would increase.

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 Comparison of Year End Policies
120,000
Number of Policies at Year End

100,000

80,000

60,000

40,000

20,000

0
Year 1 Year 2 Year 3 Year 4 Year 5
Year

Original Plan Proposed Plan

In the above graph, you can see that number of policies at the end of each year are higher in the
case of proposed business plan than the original business plan. Although the calls converted into
actual sales are lower in the case of proposed plan but the rate of policyholder lapsing their policies
is also lower in case of proposed plan. And hence, number of policies at the end of each year are
higher in case of proposed plan than the original plan.

Comparison of PBT for Original and Proposed Plan

$5,000,000

$4,000,000
PBT (Profit Before Tax)

$3,000,000

$2,000,000

$1,000,000

$0
Year 1 Year 2 Year 3 Year 4 Year 5

($1,000,000)
Year

Original Plan Proposed Plan

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In the above graph we can see that Profit Before Tax (PBT) would be higher for Proposed business
plan for every year than original business plan. This is because there is a huge decrease in
policyholders claims against their policies in case of Proposed Business plan.

Conclusion

There are some proposed changes to the Original Business plan. There should be inclusion of some
personal question that needs to be asked to customers before selling the insurance policy to ensure
that they actually need that product. Also, some medical question should be added to the sales
process, to identify any pre-existing medical condition that customer is suffering from. This would
help in validating the claims whenever the claim event happens. Including these practices in the
business plan would lead to increase in overall profits.

Should you have any questions please email me directly. Alternatively we will discuss in the coming
meeting which is at the end of this week.

Signed

Alex Smith

Product Actuary

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2(i)

 I would start with the introduction like I did in question 1 above, giving a brief introduction
about how this is going to affect their remuneration.
 In the second part, I would have described changes in proposal plan to the original one
linking it to remuneration and bonus of committee members.
As the remuneration and bonus of Committee members is linked directly to Profit before tax
(PBT) corresponding to business plan.
 In third part I would have emphasized on the effect on remuneration and bonus due to
changes in Business plan and would have shown that with the help of graph as well,
provided we have enough data to calculate the remuneration. There would have been
increase in remuneration and bonuses as the lapse rates were reduced as per the proposed
plan.
 In the fourth part I would have summarized the changes in remuneration as per the
proposed changes.
 Then I would have asked for questions/concerns if there are any or have suggested that we
can discuss them at the meeting at the end of this week.

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2(ii)

Claim Ratio: Although this is a very commonly used term Actuarial students. But members of
marketing committee of SalesMachine may not be familiar with this term, so to avoid any confusion,
I have explained this term in detail.

Conversion rate (sales/lead ration): This is a very commonly used term Actuarial students/Insurance
companies. But members of marketing committee of SalesMachine may not be familiar with this
term, so to avoid any confusion, I have also explained this term in detail.

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2(iii)

Visual aids are needed to add variety, however they must add value and not just replicate the data.

The addresses are the members of Marketing Committee and they will be well educated, so they
would be able to understand table of figures. However, comparison of figures relating to profits and
number of policies at the end of each year are better shown as a graph, to have a more powerful
representation of figures.

A bar graph was chosen for both of the above, as this is most appropriate format of demonstrating
the comparison over two business plans.

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