6. Product design and stakeholder interests - (1) Flashcards
Introduction
- customers interested in exchanging risk of uncertain cost for known cost of insurance premium
Customer primary interests with product
- meets needs
- clear in purpose
- have appropriate charging structure
- affordable charging structure
Four specific needs met by health and care insurance products
- can finance medical bills
- can provide funds to finance costs of lifestyle adjustments following a CI
- can finance the cost of care in old age - LTCI
- can provide lump sum benefits which can be used to repay loans
Meeting specific needs - PMI
- aims to assist policyholder in covering the cost of medical care
- designed to complement or augment the care offered by the state
- bought when individual wants higher level of care than that offered by the state: medical attention without waiting, medical attention in higher standard of accomodation, medical attention with doctor of choice
Misunderstandings about PMI
- PMI will pay for all medical care and not just care related to health events listed in the policy
- PMI is a long-term policy with guaranteed premiums like LI
Meeting specific needs - CI
Needs met by CI insurance policy
- income can be provided when the individual cannot work as result of their CI
- can be used to repay loan/ mortgage
- medical costs can be funded when the CI requires treatment or surgery
- fund the buyout of partnership stake
- change of lifestyle can be funded to improve claimant health
- other needs: recuperation or rehab treatment after illness, taxation planning and medical aids
Needs met by tiered CI benefits
- closer fit to medical distress and financial needs
- may be deemed more comprehensive and fair
On the other hand:
- tiered benefit product more complex than standard CI, making it harder to compare
- higher potential for claim dispute
Meeting specific needs - LTCI
- main need met: financial protection against the costs of care and assistance when a person becomes unable to look after themselves
care needs met in old age include
- domestic support
- live-in care
- residential care
- medical care
Needs met by LTCI product
- financing of care at home, housing costs, care costs, any aids required when person unable to look after themselves
- financing care in specialised facilities, e.g. care centres
- may offer idemnity against cost of LTC
- provide other support - e.g. choosing service provider
- provide respite for informal carers by providing temporary nursing care at one’s home
- facilitate costs of care in informal settings - e.g. change in home such as stair-lifts
- could provide care for elderly family member living abroad
Providing cash
cash vs indemnity
- idemnity benefits expose the insurer to fraud and moral hazard risk
(advantage: insurer may be able to obtain cheaper rates from healthcare providers due to volume of business given to providers)
- cash gives the policyholder choice: the level of benefit, the use of benefit
CI
- lump sum benefit not related to actual loss incurred by insured and can be used for any purpose
- benefits can be more than the cost of immediate care - surplus can be used for recuperation/ rehabilitation
- benefit sometimes genuine windfall to policyholder (may cause anti-selection)
Factors affecting customer satisfaction
- meeting specific needs
- providing cash
- providing peace of mind
- simplicity and clarity
- guaranteed vs reviewable premium and benefits
Providing peace of mind
individuals will wish to minimise the risk a breakdown in healthcare will disrupt their financial wellbeing
- psychological effect of knowing you are protected from financial consequence of ill-health fulfills a policyholder need
PMI
- main concern are that costs of treatment are unaffordable, quality of State provision is inadequate
CI
- main concern is being diagnosed with certain headline disease, the need to undergo serious surgical procedure
LTCI
- main concern are having insufficent funds to pay for care in old age and that the care available from State or informally is inadequate
- concern may come from family member/ friend
Simplicity and clarity - PMI
Factors that may give rise to misunderstandings
- underwriting and acceptance processes can be misunderstood
- policy conditions: may be limits on benefits, may be exclusions (pre-existing, non-acute conditions), certain treatment excluded (cosmetic surgery, infertility, frail care, experimental treatment)
- cost-sharing: may be complicated arrangements for sharing risk between insured and insurer (co-insurance, excesses)
- requirement for to pre-authorise claims
- where treatment may be provided may be restricted
PMI exclusions
- pre-existing conditions
- cosmetic surgery
- infertility
- experimental or unregistered treatment
- wilful and material violation of law
- wilful participation in war, terrorist activities
- treatment covered by medical savings account
PMI exclusions
- pre-existing conditions
- cosmetic surgery
- infertility
- experimental or unregistered treatment
- wilful and material violation of law
- wilful participation in war, terrorist activities
- treatment covered by medical savings account
Simplicity and clarity - CI
- simple lump sum payout, claim trigger easy to explain
does not cover all health risks
- result of serious illness
- psychiatric or similar illnesses
- subject to exclusions and point-of-claim underwriting
- definition differences between insurers in the same market can complicate claims acceptance
what are serious illness, how treated, changes rapidly with medical advance
- made it difficult for insurers to assess risks they face
- uncertainty makes reviewable premiums more suitable, however, competitive pressures led guaranteed premium business being sold
