32. Glossary/ Definitions/ Concepts

Question 1

Treatment protocol

Answer 1

Set of guidelines stipulating the optimal sequence of diagnostic testing and treatment for specific conditions

Question 2

Burning-Cost Premium

Answer 2

The true past risk premium of an actual portfolio of claims
= actual claims incurred per policy / total ETR
= average claim amount * claims incidence rate

Question 3

Moratorium underwriting

Answer 3

• Instead of undertaking medical underwriting at the time of application, the insurer
  states that it will not cover any medical
  conditions that existed during a pre-specified period prior to the policy commencing.
• It will later cover these conditions if no treatment, symptoms or advice takes place on those conditions for a period of, typically, two consecutive years after taking out the policy.

Question 4

Product-specific risks - PMI

Answer 4

• insurer may have limited control over benefit payments
• claim frequency bound up in process of referral
• risk of anti-selection if underwriting and risk rating are not used, moral hazard and selective withdrawals
• risk of loss of business
• single large claim or single incidence giving rise to accumulation of claims (where no policy limits apply)

Question 5

Product-specific risks - CI

Answer 5

• for stand-alone and rider benefits, the main risk is in respect of diagnosis rates
• relatively limited information available
• very new to many markets

Unexpected changes in future rates of diagnosis
- medical advances likely to prolong life
(delaying time of death may cause more claims to be paid than before)
- earlier diagnosis (earlier claims paid, increasing costs to insurer)
- conversely, individual susceptibility to specific diseases may be identified more readily and disease itself may be prevented

• capital requirements normally low

Question 6

Product-specific risks - LTCI

Answer 6

• main risk relates to transition probabilities in the underlying multiple-state model
• most important: claim inception probabilities, transition probabilities between states
• significant anti-selection risk and risk from selective withdrawals
• significant reserves may be built up in advance of a claim starting (investment risk)
• reserves large despite fact this is a pure protection policy
• high claim inception rates will lead to significant reserves, especially as potential cost of benefits once claims have commenced can be very high
• policy pays directly to care provider risk: upfront payment and care provider becomes bankrupt
• policy indemnifies cost of care: costs higher than expected, perhaps due to higher than expected care cost inflation
• could be significant reputational risk/ market risk as the policyholder may expect benefits to be enough to cover eventual costs of care
• capital requirements could be extensive