R05 Product design and pricing trends: free practice questions

1. Question 1 of 5

   Since 21 December 2012, what are insurers no longer allowed to do when pricing individual policies?

   Option A: Use medical underwritingOption B: Charge different rates to males and femalesOption C: Offer guaranteed premiumsOption D: Charge smokers more than non-smokers for the same cover

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   The answer is B: Charge different rates to males and females

   From 21 December 2012, insurers cannot charge different premium rates to men and women. Smoker status and health can still be used.

   Why the other options are wrong

   A

   Medical underwriting is still allowed.

   C

   Guaranteed premiums are still offered.

   D

   Insurers can still charge smokers more than non-smokers.

2. Question 2 of 5

   Why did virtually all insurers move to smoker/non-smoker pricing once some started offering it?

   Option A: Reinsurers stopped covering non-smokers on aggregate ratesOption B: Aggregate-rate insurers attracted too many smokers, causing anti-selectionOption C: Regulators required every insurer to switch to smoker-based rates at onceOption D: Smokers asked insurers to charge them higher premiums to keep cover fair

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   The answer is B: Aggregate-rate insurers attracted too many smokers, causing anti-selection

   Smokers moved to cheaper aggregate-rate offices, which ended up with more smokers and worse mortality. To avoid this anti-selection, almost every company repriced.

   Why the other options are wrong

   A

   It wasn't a reinsurer decision; offices on aggregate rates were attracting too many smokers.

   C

   The move was driven by anti-selection in the market, not a regulatory order.

   D

   Smokers moved to cheaper aggregate rates; they didn't ask to pay more.

3. Question 3 of 5

   What is a preferred life policy?

   Option A: A policy with big discounts for applicants meeting high fitness standardsOption B: A policy that guarantees a surrender value after ten yearsOption C: A policy designed for people with serious existing health conditionsOption D: A policy that can only be sold through high street banks

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   The answer is A: A policy with big discounts for applicants meeting high fitness standards

   Preferred life underwriting sets high fitness protocols and gives big discounts to those who meet them, while others tend to pay more. The UK has moved towards healthy lifestyle discounts rather than explicit preferred underwriting.

   Why the other options are wrong

   B

   Preferred life is about pricing by fitness, not surrender values.

   C

   Preferred life is for very healthy applicants, not those with serious conditions.

   D

   It isn't limited to banks; it's an underwriting approach.

4. Question 4 of 5

   Very competitive premium rates that factor in anticipated mortality improvements have had what effect on underwriting?

   Option A: Underwriting has become more relaxed across the whole marketOption B: Every applicant now receives the very lowest premium rates availableOption C: Medical evidence is no longer required for any applicationOption D: Underwriting is stricter, with more lives rated and possibly more declines

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   The answer is D: Underwriting is stricter, with more lives rated and possibly more declines

   Thin pricing margins leave little room for error, so insurers underwrite stringently. Super-select lives pay very low premiums, while those with moderate health concerns pay more or may be declined.

   Why the other options are wrong

   A

   With thin pricing margins insurers can't afford mistakes, so underwriting has tightened, not relaxed.

   B

   Only the healthiest (super-select) lives get the lowest rates; others may pay more or be declined.

   C

   Medical evidence is still used, and tighter margins make careful underwriting more important.

5. Question 5 of 5

   What is the purpose of the BIBA signposting agreement known as the Caxton House Statement?

   Option A: To help people with disabilities or conditions find specialist helpOption B: To publish every insurer's annual claims statisticsOption C: To set maximum premium rates for life and health cover in the UKOption D: To ban the sale of reviewable premium protection policies

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   The answer is A: To help people with disabilities or conditions find specialist help

   Launched in January 2020, participants pledge to signpost consumers they cannot serve to specialists who can help. The Find Insurance service covers personal, business and group protection.

   Why the other options are wrong

   B

   It isn't about publishing claims statistics.

   C

   It doesn't set premiums; it's about signposting people to specialist help.

   D

   It doesn't ban reviewable policies.

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