Design of an Insurance Product

An insurance product has to be simple to understand. The impetus for insurers to design a product is the expected profits. Profitability is directly related to the volume of sales.

The following guidelines can be noted while designing an insurance product:

• To whom the product is intended. The target population can be for the urban or the rural, for white collar or blue collar jobholders, for individuals of all ages and so on. 
• Who can buy the product depends on the limitations provided in the policy about a minimum and maximum age, Gender, Income and Insurable Interest, preexisting health conditions and also citizenship of a country and so on.
• How comprehensive are the features contained in the insurance policy
• The benefit structure or the indemnity provided by the policy should be easily identifiable. This will make it easier for consumers to purchase the product. 
• The commission structure also should be simple. This is necessary in order to get forth more sales.
•  Whether the distributors need special training to sell the insurance to clients.
• Whether distributors can explain the relative advantage of the insurance product as compared to other products in the market.
• The definitions provided in an insurance product should be unambiguous and easy to understand.
• The number of riders, endorsements and bonus payments should be restricted to a few as too many of these features can cause more confusion. 
• Who are entitled to receive benefits and indemnity.
• What are the remedies in case there is a problem of litigation.
• Due regard and attention is given to the concerns of stakeholders. The policyholders expect sufficient protection for themselves and their dependents, Distributors expect timely receipt of commissions,the Insurers Association would be interested to control 'sales illustrations', 'poaching' and other bad practices.The consumer forum  protects the beneficiaries and towards this end, product design should be framed in order to avoid and minimize litigation.
• Filing requirements and the solvency requirements of the insurance regulators should be adhered to.

Generally speaking, the product design should be made so that the language used in description of terms should be simple to understand , fine print is avoided so that the insurance contract and sales literature can be easily read and understood by consumers. Moreover, restrictive clauses and conditions should be avoided. Complex design also should be avoided. This is because too many endorsements, riders and too many conditions in granting a benefit will be confusing for the clients. Clauses and endorsements should be numbered. The possibility of providing liquidity of the contract through the secondary insurance market can be considered. These are the various aspects to be considered while designing an insurance product.