2. Health and Care Insurance Products - CI

Question 1

Critical illness insurance

Answer 1

• protection product for which the sum insured is payable if the policyholder suffers one of the defined conditions during policy term
• sum insured is usually a lump sum, maybe structured as income

benefit payable in the following ways
- reaching defined degree of impairment
- happening of an event, independent of extent (e.g. heart attack)
- undergoing surgical procedure

• usually no surrender value
• insured events more difficult to define and validate than event of dying –> wording of policy important

Question 2

CI product types

Answer 2

stand-alone - sum insured payed on diagnosis of insured condition only
accelerated - min{sum assured on diagnosis, sum assured on death}
rider benefit - paid on diagnosis of insured condition or death, whichever occurs first

Question 3

Criteria for inclusion of an illness

Answer 3

PEAS

• perceived by public to be serious and occur frequently
• each condition defined clearly - no ambiguity of claim
• ability to avoid anti-selection
• sufficient data available to price benefit

Question 4

Terminal illness

Answer 4

• common to add this category to include all life-threatening illnesses and conditions that have not been specifically mentioned in the policy
• terminal illness is a matter of medical opinion

Question 5

Other benefits

Answer 5

Children benefit
- cover provided for child of policyholder
- will not terminate policy - claim from congenital defects typically excluded
- cost of adding cover small compared to perceived value

Tiered benefits
- payments of benefits linked to severity of disease
- may be multiple claims under policy until full sum insured reached
- premiums typically do not reduce with proportionate payment
- levels of severity and proportions attached should be clearly specified in policy

Question 6

Product-specific risks - CI

Answer 6

• for stand-alone and rider benefits, the main risk is in respect of diagnosis rates
• relatively limited information available with which to assess likely rates of diagnosis
• problem made worse if different companies cover different illnesses under their CI contracts
• anti-selection, selective lapsing
• stand-alone contracts give rise to expense risk
• financial risk from lapses also arise at times when asset share negative

Question 7

Needs met - CI

Answer 7

CI PROM

• Change of lifestyle fund (for example move to less stressful, lower paid job after heart attack)
• Income provided via lump sum when individual not able to work as result of illness
• Partnership stake buyout in event they are unable to continue in partnership
• Repayment of mortgage or loan
• Other needs - recuperation/ rehabilitation after illness, taxation planning, installation of specialist equipment for insured to remain in home
• Medical costs funded when illness require surgery or other expensive treatment