Chapter 2: External environment

Question 1

Legislation

Answer 1

Law that has been formally declared by a parliament or congress or another governing body.

Question 2

Regulation

Answer 2

Secondary legislation that is used to implement the primary peice of legislatioon appropriately to take account of particular circumstances or factors

Question 3

Explain the following types of state benefits:
* Complimentary
* Supplementary
* Subsititutive
* Level of provision

Answer 3

• Complimentary - Added to improve, quality decreases when one is removed. Medical Aid and GAP cover
• Supplementary - Something extra to the cover (rider benefits), if removed, nothing changes about the main cover
• Substitutive - Serves the same purpose as another benefit to the consumer (public vs private healthcare)
• Level of provision - Adding money to state benfits to get better care

Question 4

Different ways that benefits can be taxed

Answer 4

• No tax
• Tax excess of a certain amount
• All benefits taxed as income

Question 5

Coporate Governance

Answer 5

The high level framework within which a company’s managerial decisions are made

Question 6

Aim of coporate Governance

Answer 6

A company should be managed efficiently to meet the requirements of its stakeholders

Question 7

Two types of coporate structures

Answer 7

• Mutuals
• Proprietary

Question 8

List the external factors affecting the ACC

Answer 8

• Legislation and regulation
• State benefits
• Tax
• Accounting standards
• Risk management requirements, capital adequacy and solvency
• Corporate Governance
• Private companies
• Competitive advantage and commercial considerations
• Changing cultural and social trends
• Demographic changes
• Climate change and other enviromental issues
• Lifestyle considerations
• International practice
• Technological changes

Question 9

Examples of the following external factor:
* Legislation and regulation
* State benefits
* Tax
* Accounting standards
* Risk management requirements, capital adequacy and solvency
* Corporate Governance
* Private companies
* Competitive advantage and commercial considerations
* Changing cultural and social trends
* Demographic changes
* Climate change and other enviromental issues
* Lifestyle considerations
* International practice
* Technological changes

Answer 9

• Raise employer’s awareness of the need to top up state benefits
• Raise individuals’ awareness of the need to top up state benefits
• Reduce levels of savings if benefits are means tested
• May require compulsory contributions
• Can introduce moral hazard - reliance on state

Question 10

Effect of the following external factor:
* Legislation and regulation
* State benefits
* Tax
* Accounting standards
* Risk management requirements, capital adequacy and solvency
* Corporate Governance
* Private companies
* Competitive advantage and commercial considerations
* Changing cultural and social trends
* Demographic changes
* Climate change and other enviromental issues
* Lifestyle considerations
* International practice
* Technological changes

Answer 10

• Affects form of benefit within product
• Product innovations may be designed to avoid tax
• Directs savings towards the most tax effective forms

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Question 11

Effect of the following external factor:
* Legislation and regulation
* State benefits
* Tax
* Accounting standards
* Risk management requirements, capital adequacy and solvency
* Corporate Governance
* Private companies
* Competitive advantage and commercial considerations
* Changing cultural and social trends
* Demographic changes

Answer 11

• Form part of banking and insurance regulation
• May impose a minimum level of risk governance, including risk management roles within a firm, as well as minimum capital requirements
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