2. You are a Pricing Actuary working for Gamma Life, a large life insurance company, selling a range of products through its own sales force. Gamma is considering launching a new conventional Term Assurance product, offering policyholders the option to increase the sum assured under their policy at any point during the term of the contract. If, during the term of the contract, a policyholder decides to take the option to increase their sum assured, the premium charged would increase in line with the sum assured. For example, if the sum assured were increased by 50%, the premium charged would also increase by 50%. Policyholders taking up this option would not need to undergo further underwriting, provided the new level of cover were no more than twice the original sum assured. a) Discuss briefly four separate factors that will influence the number of policyholders likely to take up this option. A student actuary working for Gamma has made the following statement: "This is a great opportunity for both Gamma and its customers. The option to increase the level of sum assured gives policyholders extra flexibility if their circumstances change, and charges them a fair price for the extra life cover being provided. And since policyholders are underwritten at the outset, there is no extra risk for Gamma, and we will be able to offer the same price as for a standard Term Assurance with a fixed sum assured.' b) Comment on the points raised by the student