3. South African specific products Flashcards
Provide a list of risk products
Death: WoL and TA
Lump sum disability
CI
PHI
Key person cover
Credit life products
What factors do contracts depend on?
Sophistication of policyholder
Access to financial advice
What are the key characteristics that distinguish contracts?
Term
Disability vs critical illness
Standalone vs accelerator
Premium frequency
Premium paying patterns
Cover level
Future cover option
Underwriting level: simplified uw vs full
What are potential risks a company might face?
Correct pricing
UW risk
Advances in medical science
Economic cycle changes
Anti-selection
No uw»_space; extra mortality due to aids?
Reputational risks
What strategies can be used to manage risk?
UW
Waiting periods
Premiums guaranteed for limited time
Age limits on benefits
Clear disclosure at sale
Reinsurance
Retention incentives, e.g. cash back benefits
Lump sum can be regular income if suffer from one of defined conditions. True or False
True
Name 4 major critical illnesses
Heart attack
Cancer
Stroke
CABG
Critical illness is an indemnity product. True or False
False. Critical illness is not an indemnity product.
Can you explain how a critical illness is considered be a hybrid and payable product
Upon happening of event, independent of extent
On reaching defined degree of impairment
On undergoing surgical procedure
What characteristics make an illness eligible for coverage under the insurance product?
Condition perceived by public to be serious and occur frequently
Each condition covered can be clearly defined so no ambiguity at claim stage
Sufficient data to price benefit
Ability to avoid anti-selection
What are the challenges associated with a critical illness product?
Complex definitions- need clear and precise definitions esp for complex medical terms and partial payouts for minor conditions
Accurately pricing benefits challenging because of variability in condition-specific rates and predicting future trends
Anti-selection and non-disclosure
Discuss 3 market practices and regulatory standards for the critical illness product
SCIDEP (Standardised Critical Illness Definitions Project) aims to standardise definition for 4 major conditions to protect customers from complex terms and lack of transparency
Policy variability- defs and requirements can differ between insurers- complicating consumer understanding and expectations
Standalone policies may have survival period requirements to manage payout risks when death occurs shortly after CI event
List consumer needs for financial support
Medical expenses
Income replacement
Loan repayments
Business buyouts
Lifestyle changes
Installing home medical equipment
*Flexibility to use funds as need- might also be windfall effect that could exceed immediate medical costs
List risks for insurers
Risks above +
Market conduct risk»_space; reputational risk and regulatory scrutiny
Transparency and communication: ambiguous and vague clauses and premium review practices»_space; poor customer outcomes and regulatory issues
Permanent disability complements CI. True or False.
True
What does permanent disability cost of cover depend on?
Cost of cover depends on disability definition
Explain how permanent disability is occupation based?
*Established by inability to carry out occupation
Own occ
All occ for which suited, given education, training or experience
Any occ
*Flexibility in underwriting
Various definitions»_space; broader coverage and manage risk appropriately
If don’t qualify under own occ, might be eligible under other definitions»_space; more inclusive offerings.
*NB to monitor claims and experience and …
… adjust pricing to prevent losses from more lenient interpretations of defns
*High-risk occs or jobs requiring specific skills may be suited to more restrictive defns e.g. any occ- to manage costs and minimise frequent claims due to minor disabilities
What is the purpose of ADL and ADW’s?
Alt to occ-based defn esp for self-employed, not in employment or retired
Focus is on inability to perform everyday tasks than performing specific occ
List SCIDEP ADL’s
Feeding
Dressing
Washing
Toileting
Mobility
Transfer
Briefly describe the criteria for a claim
If insured can’t perform a # of ADLs unaided
Insurer may customise ADL list- combining ADLs or using diff pre- and post- retirement defns
List the advantages of ADL and ADW
Broadly applicable
Simple
Objectivity
Provide examples of physical impairments
Loss of limbs or extremities
Loss of senses (e.g. vision, hearing)
Severe burns
Permanent confinement to bed/wheelchair
Facial disfigurement
Amputation
Provide examples of functional impairments
Broader than physical impairments
Addresses impairments affecting ability to perform range of daily functions
Often includes conditions listed under ADLs
List key features of functional and physical impairments
Permanent
Severity-based payments
Non-occupation based
What is meant by the statement “impairments must be permanent”?
Must be permanent: client has reached maximal medical improvement
What is income protection also known as?
PHI
Briefly describe the purpose of income protection
Aims to replace portion of income lost due to inability to work caused by illness or an accident
Pays regular income during period of incapacity
Customer need- meet financial obligations that would typically be covered by salary or self-employment income
List the key features of income protection
Insured event triggering benefits is inability to work
Can be temporary or permanent
Claim criteria less strict than for LS disability
Occ-based and ADL disability defs are used
List common exclusions for income protection
Unemployment
Early retirement
Alcohol and drug abuse
Self-inflicted injuries
Suicide attempts
War
Criminal activities
Non-compliance with medical advice
Benefits not payable if living outside SA for extended period
Briefly the policy structure for income protection
Long term, allowing mult claims without terminating policy
Premium waivers during claim available
May be written for fixed term or till specified age usually NRA
WP included- from 7 days to 2 years…
… some policies pay retrospectively from first day of illness
What are the benefits of income protection?
Level or escalating, at fixed rate or in line with inflation
May be rehabilitation or proportional benefits for those RTW part-time or to less demanding role
*Limits applied for incentive to RTW
First 2 years: usually don’t exceed 100% of pre-claim income
After 2 years: generally don’t exceed 75% of pre-claim income
Limits are aggregated aka apply across all policies
Income must be clearly defined
What are the risks associated with income protection?
Morbidity: higher than expected i_x or lower than expected t_x
Administration
Moral hazard- not reporting recover
What is the purpose of key person insurance?
Purpose is to protect against financial loss due to death, disability or severe illness of key employee
Employer pays premiums and gets benefits
What are potential reasons for obtaining key person insurance coverage?
Loss of key person can impact profitability due to difficulty in replacing skills
Covers costs such as hiring replacements, training new employees, adjusting business model
Settle loan accounts / buy out shareholding of deceased to prevent uninterested heirs from becoming owners
What are the risks associated with key person insurance?
Mortality
Morbidity
Early termination if employee leaves company
Briefly describe the purpose credit life products and what it entails
Purpose is to protect lender from risk of borrower defaulting on loan from q_x or i_x
Usually mandated by loaners
Popular in micro-loan industry
Cover outstanding loan amt over repayment periods
Premiums single / recurring with ters from 3 months to 5 years
NCA prohibits adding single premiums to initial loan amount for repayment
List the credit life products 2017 regulations
Set maximum charges
Define minimum benefits
Specify exclusion
What are the benefits of credit life products?
Settle outstanding debt if q_x or permanent i_x or
Pay 12 months of instalments for temp disability/job loss unless unemployed at start of contract
What are the risks associated with credit life products?
Medical data limited at start- pre-existing conditions usually excluded
Anti-selection risk small though since tied to loan and small SA
Early repayment risk if loan repaid early and premiums level over term»_space; mismatch with decreasing SA
Premiums grouped into broad age bands»_space; cross-subsidy risk
Might behigh profit share arrangements with finance providers to retain business»_space; impact profitability
Reputation:
Low historical claim ratios
Secondary purchase»_space; market conduct risk > ph not understand or use policy
