Australian School of Business

Actuarial Theory & Practice A - Week 4

Product development and pricing

Anthony Asher 2015

For the week

The Actuarial Capability
Framework
The marketing concept
Non-price innovation

Activity
Preparation:

Attendance:
Reading:

Exercises
Prepare
presentation /
portfolio
TOTAL

Details

Hours

Read lecture and consider

discussion topics

3
3

UAM 13
Chalke(1991) UAM CD
(a long paper, but very
valuable so skim parts)
From UAM 13

1
2
1

10

The Actuarial Capability Framework

7. Product development management and pricing
7.1 Develop and maintain an understanding of the environment
7.2 Create a solution to the needs that the product is trying to meet.
7.3 Implement the solution.
7.4 Manage the product portfolio.

The marketing concept

Who is our customer and what need can we meet?
Market research ask them (surveys, interviews and focus groups)
Empathy if you were a customer what would you really want
Market testing until they actually buy it is all speculation
Designing the marketing process
Product physical or service that meets the need
Price that the customer sees gives value for money
Place where the customer can access the product
Promotion persuasive information
Marketing is not persuading the unwilling to buy the product we are selling, but
applying our resources to provide a product that they really want

Non-price innovation
Despite the oft-cited experience in the UK and the apparent trend toward pricebased competition in Australia, life insurance need not be a primarily price-based
purchase. The obvious example is South Africa which sits at the opposite end of the
spectrum to the UK, with over 40% of broker business written at more than 10%
above the cheapest price quote. Structural differentials do not wholly explain the
difference in orientation: South Africa is an oligopolistic market, the regulatory
context is similar, and broker clients are likely to be affluent and financially literate (if
perhaps more risk-conscious than clients in Australia or the UK).
Nevertheless, the leading insurers in South Africa have pursued individualistic
competitive strategies manifesting in genuine differentiation around underwriting (for
example, Altrisk), around innovative product and price structures (Momentum,
Discovery) as well as around customer segment and franchise PPS, Clientele. By
contrast, the major Australian insurers have in general acted (or failed to act) in
concert, and as a result ended up focusing on the same target markets, the same
products, the same operating model, with the same cost and capital structures, and
with little or no basis for non-price differentiation.
NMG: Australia Life Insurance Insights Report 2012
http://www.nmg-group.com/en/consulting/insights/insights_reports.php