In the solution, I understand that business objectives might influence the price charged to be different from the modelled price. I however do not get why premiums for products that are not part of the current business strategy may be set deliberately high to price the company out of the market but still to retain a presence. My question is how can presence be maintained if premiums are too high? Won't this make the company have very low business volumes which might have an impact on profitability and particularly so when there is competition in the market as policyholders look for a better deal elsewhere?
Here's an example. A company has been selling a wide range of business for a while, so the products are all established. It has decided to focus more on becoming a savings specialist, so is only really concerned about selling savings products and wants to focus its resources into those areas. However, there are some (external) financial advisers that it wants to keep selling savings business through, but who will only deal with companies that are able to offer a full range of products. So the company decides to still have a term assurance product available in order to maintain the distributor relationships, but because it doesn't want to sell much of that business (as it is retaining only a skeleton staff to service that product) it prices it high.
