September 2025 Q3 Part v

[George Philip]

Question:
Country A has a highly developed insurance market. The majority of insurance policies sold in Country A are sold online either directly from insurers’ own websites or via aggregator websites. Country B has a less developed insurance market, with all insurance policies sold in person via insurance agents.

(v) Discuss how different distribution channels will impact the pricing of policies that Company Z can sell in Country A and Country B.

Answer:

The online sales and sales via insurance agent will have different commission and expense rates, which need to be factored into the market price of a policy. [1]

The online sales will have quicker and cheaper access to any third-party information about the risk, e.g. credit rating or flood scoring, that can be automated via APIs.
For insurance agent, acquiring this information would be more time consuming and potentially costly (with fee per search).

The assessment of the risk will be more objective via website, as it will only rely on the answers provided by the prospective policyholder. Insurance agent can overlay
their judgement in the assessment of the risk, which could be a positive or negative to the insurer.

It will be easier and quicker to change the pricing level and structure of the online sales, achieved by updating the pricing model, without the need to contact all insurance agents. This would allow quicker reaction to any market changes.

Online sales would also allow for A/B testing and pricing elasticity assessment, providing better understanding of market to the pricing team.

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I wanted some clarification on how to answer the above question.

The question asks to discuss the different distribution channels and how it would impact the pricing of policies but in the answer provided, ALL points describe the difference in impact of pricing between internet sales and insurance agents.

I find this quite puzzling as the question clearly states to discuss the different channels and its impact on pricing but the answer just compares the two distribution channels mentioned in the question.

Is this how all questions are to be answered? Stick to just the information in the question and not to venture out? I thought one of the main things to provide in the latter exams is breadth of knowledge?

Would really appreciate some advice as I am quite puzzled. Thanks

 

[Ian Senator]

Hi George

As you say, the question asks you to 'discuss how different distribution channels will impact the pricing', not as you say 'discuss different distribution channels and how it would impact the pricing' - there's a subtle difference! So I think it's reasonable to expect you only to discuss the channels that are used in the countries in the question. Perhaps it would have been clearer if the exam question had said 'the' after 'discuss how'.

You're right, stick to the question, but breadth of knowledge is also often expected. It's a question of balance, and there's no definitive answer as to how much you should 'venture out' I'm afraid. So stick to the time allocation (number of marks times two), get the important stuff down, and if still time left, look to add value eg by giving examples, alternatives etc. You can't lose marks for anything not on the schedule, so it's worth putting extras down if in doubt.

Ian