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Instructions
Overview
Objective: To experience the financial impact of strategic decision making in a life insurance company.
This will involve pricing products and setting budgets so as to be competitive with other companies while still being profitable. How your company accomplishes this will depend on the strategy you select and the implementation decisions you make.
Description of Competitive Environment
Your company sells individual life insurance to middle income buyers, who will purchase products from any distribution system. Important marketing parameters that affect how much insurance your company sells include:
- Price (premium per thousand of face amount): The lower the better.
- Commissions or Similar Acquisition Expenses: Both first year and years 2 through 20. Commissions are viewed in total dollars paid, not just commission rates. Commission dollars paid in early years are more important than those in later years.
- Management Overrides or Similar Acquisition Expenses: First year and renewal. Companies with field management structures are more productive if sales managers are well compensated. Override dollars, not just percentages, are what matter.
- Marketing Budget: Buyers respond favorably to high levels of product promotion and/or the results of sales training. The distribution effort tends to be more productive if provided with high levels of support as reflected in the cumulative amount you spend on marketing over the next three years.
- Risk-Based Capital: While RBC ratios cannot legally be used in new business marketing, the rating agencies use them as a proxy for financial strength. Their threshold for a superior rating is two times the NAIC's company action level. All other things being equal, a company with a superior rating will sell 10% more business than with a lower rating.
- Other: Factors in addition to premiums, commissions, and the marketing budget can affect the sales of term insurance and interest-sensitive products. These factors will be explained later in the game.
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