09 - Product and benefit design Flashcards
Describe the key steps in the benefit design process.
Identify the needs of the product sponsor or owner.
Identify individual needs.
Identify risks.
Perform cost modelling.
Consider the practicalities such as complexity, communication, regulations and taxation, administration, distribution, and multi-employer arrangements.
Consider ethics and soft issues like equity and social expectations.
Consider transitional arrangements.
Finalise and review.
What are the main elements of the product cycle that relate to benefit design?
- Design
- Pricing
- Administration and systems
- Marketing and sales
- Underwriting
- Claims assessment and management
- Experience monitoring
- Valuations
Explain the difference between cost analysis, cost-effectiveness analysis (CEA), and cost-utility analysis (CUA).
Cost analysis assesses the costs of a benefit system. It is the simplest method of economic evaluation of a benefit system.
CEA assesses the costs relative to non-monetary benefits. It is useful for comparing benefit systems but requires a consistent measure of effectiveness.
CUA assesses cost relative to changes in quality of life and mortality, often measured in Quality-Adjusted Life Years (QALYs). It is used in healthcare.
What is Willingness to Pay (WTP) and how is it determined?
WTP measures the value an individual places on a benefit system. It also balances the costs with the improvements in quality of life and reduction in risk exposure.
It can be determined through:
Direct methods: questionnaires or interviews to obtain an individual’s WTP for a specific service.
Indirect methods: determining an individual’s WTP by observing behavior.
Describe the importance of eligibility rules in benefit design.
Eligibility rules are used to control costs and manage cross-subsidies.
They set out who can join a risk pool.
Eligibility criteria can be related to age, service period, type of work, or hours worked.
Arguments exist both for and against broad or narrow eligibility criteria.
What is automatic acceptance and evidence of health (EoH) in group arrangements?
EoH means that membership of a group benefit arrangement implies guaranteed acceptance at least for a basic level of cover. It is granted automatically without needing evidence of health and is also known as the non-selective limit.
The specification of actively at work clauses and setting the EoH limit are interrelated elements of design.
Setting the level of the EoH limit involves careful consideration of the costs and benefits.
Explain the concept of benefit levels and integration.
The overall level of benefits is an important design feature, and most benefit arrangements have upper limits.
It can be difficult to structure benefits so that they integrate with other products.
State benefits may be earnings-linked through means-testing
What are the different forms of benefits that can be offered?
Benefits can be in the form of cash or in-kind, such as healthcare, housing, or education.
Benefits may be paid as reimbursement, directly to a provider, or as a lump sum.
The decision to pay as a lump sum or in installments is a critical decision.
Define covered earnings and explain their significance.
Covered earnings are used to define the salary for contributions and benefits in social insurance arrangements.
Covered earnings can start from zero or some higher amount, and are usually capped.
Some schemes have different covered earnings for contributions and benefits.
How can expenses be met in benefit arrangements?
Expenses can be met by:
Loading the contribution or premium.
Charging a percentage of assets under management.
Using a fixed charge per policy or life.
Loading a percentage on the sum insured or benefit amount.
What is the importance of disclosure in benefit arrangements?
Charges should be itemised and recorded separately for disclosure.
Most jurisdictions have regulations prescribing how charges should be disclosed to policyholders and members.
Disclosure is important for understanding the true cost of the benefit.
Discuss claim types and exclusions in benefit arrangements.
Claim types and exclusions vary across different benefit systems.
Common exclusions include: blanket exclusions, waiting periods, exclusions for claims from extreme sports, exclusions when state-provided care is considered comprehensive, and pre-existing condition clauses.
What are common choices and options available to policyholders and members?
Policyholders may choose their policy terms at the proposal stage (e.g., for CI or immediate-needs LTCI).
Changes to short-term products, like PMI, may be allowed annually or when the term ends.
Retirement fund members may have choices regarding commutation options, investment options, contribution rates, and risk-benefit options.
How can penalties and rewards be used in benefit arrangements?
Penalties and rewards can be used to encourage or discourage certain behaviors.
Retirement funds may encourage longer service, and health products may incentivize healthy lifestyles.
Examples include vesting scales, no claims discounts, and adjustments to the accrual rate.
Explain the concept of guarantees in benefit arrangements.
Guarantees depend on the structure of the benefit arrangement.
They are more common in health and care products than in retirement funds.
A defined benefit (DB) fund can provide an underpin or guarantee that the benefit is not less than the accumulated value of the contributions.
