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IAI Actuarial Core Principles · Business Management · Business and consumer needs, the industry value chain and competitive forces

A health insurer in Pune considers selling directly through its app, bypassing brokers who currently bring 60% of sales. Brokers hint they may stop recommending the insurer if it does so. Which course of action best reflects sound strategic and professional judgement for the actuary advising on it?

The actuary should model the loss of broker volume, direct acquisition costs and channel conflict, and clearly communicate assumptions and uncertainty. Direct is not always cheaper, and adjusting assumptions to suit management would breach integrity, while ignoring unquantifiable risks gives misleading advice.

  1. AModel the likely loss of broker volume, direct-channel acquisition cost and conflict risk, and disclose the uncertainty and assumptions to managementCorrect
  2. BRecommend immediate full direct sales because direct channels are always cheaper
  3. CAdvise that no change be considered because brokers cannot be replaced under any circumstances
  4. DAdjust the assumptions so that the direct option shows the result senior management prefers
  5. Leave the channel risk out of the analysis because it cannot be quantified exactly

Explanation

A balanced analysis quantifies volume loss, channel conflict and new acquisition costs and communicates the limits of the assumptions, consistent with the Actuaries' Code on integrity and communication. Direct is not always cheaper, and tailoring assumptions to preferences breaches professional duties.

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