CH 2 (WM) Flashcards
What are the other names for Critical illness cover ? [1]
- Serious Illness insurance
- Crisis Cash
- Living Assurance
- Dread Disease cover
State the advantages of a CI benefit being structured as an income benefit. [0.5]
The income benefit structure can help the claimant to manage their finances better and can reduce the potential for fraudulent claims.✓✓
Describe a CI contract. [5]
CI insurance is a protection product✓ for which the SA is payable if the PH suffers one of the defined conditions✓ during the term of the policy.✓
The SA is usually a LS specified in the policy, but the product may also be structured to provide an income.✓✓
The income benefit structure can help the claimant to manage their finances better and can reduce the potential for fraudulent claims.✓✓
The product is not designed to indemnify the PH.✓✓
It is a pure protection policy as it is not certain that the SA will be paid.✓✓
The insured events are much more difficult to define and validate than the event of dying.✓✓ This means that the wording of the policy is very important.✓✓
Usually, level regular premiums✓ are paid until an insured event occurs, the insured dies or the term of the policy ends✓✓✓, whichever event occurs first.✓
When is a CI benefit payable? [3.25]
Upon the happening of an event, independent of its extent✓✓, eg having a heart attack or a stroke✓✓, supported by specific medical evidence.✓
On reaching a pre-defined degree of impairment✓✓, eg losing the ability to walk unaided or losing the ability to speak.✓✓
On undergoing a surgical procedure✓✓, eg having a major organ transplant or having a heart-bypass operation.✓✓
Describe the different bases under which CI benefit can be payable? [3]
CI can be provided on the following forms on a term or a WLA policy✓:
* Stand-alone CI insurance✓, where the SA is only paid on the diagnosis of an insured condition✓, ie no payment on death ✓.
* Rider benefits✓, where the CI benefit is paid on the diagnosis of an insured condition and the death benefit is paid on death of the LA.✓✓
* Accelerated CI insurance✓, where the SA is paid on the diagnosis of an insured condition or death, whichever event occurs first.✓✓ Policies may also be structured such that part of the SA is paid on the occurrence of the specified CI and the remainder of the SA is paid on the death of the LA.✓✓
Describe the criteria for the inclusion of an illness or condition. [5]
It is a condition perceived by the public to be serious and to occur frequently.✓✓ Market research has shown that some conditions are feared by the public out of proportion to their actual incidence.✓✓ This may be due to active awareness campaigns or high profile in the press✓✓ To be included, an illness, if not life threatening, should at least be lifestyle threatening.✓✓ It should add value to the policy, i.e. not having a negligible risk of occurring.✓✓
Each condition covered can be defined clearly so that there is no ambiguity at time of claim.✓✓ This is not easy to achieve esp. where the nature of the benefit structure leads to the use of complex medical terminology.✓✓
E.g. heart attack diagonals maybe based on changes in the levels of enzymes in the blood, to show the extent of the condition.✓✓
Sufficient data should be available to price the benefit✓✓; both now and in the future.✓
The ability to avoid anti-selection is also sometimes added.✓✓
Describe how “heart attack” as a condition satisfies the ideal characteristics of a condition/illness when being considered for inclusion on a CI policy. [2.25]
Certainly, heart attacks are perceived to occur frequently.✓✓ For e.g. many individuals are aware of friends or relatives who have suffered a heart attack, and heart attacks have a high profile in medical dramas on TV.✓✓
Such attacks are seen as serious and requiring extended hospital treatment.✓✓ In many cases an operation is needed together with continuing medication and perhaps a change in lifestyle.✓✓✓
Describe the factors that insurer will consider when deciding whether or not to include a “new” illness on a CI policy. [4]
- Adding the illness might only provide a minimal increase in the cover for the client.✓✓ For example, the incidence of some conditions may be low at the ages where the benefit is available.✓✓
- In other cases, the illness may already be covered by a TPD benefit, although, perhaps at a later stage of the illness.✓✓
- Many insurers are not attempting to cover every conceivable condition. ✓✓
- Around 90% of all claims arise from the core illnesses.✓✓ And the availability of a cheaper product with less depth of coverage may increase the sales penetration across the public in general.✓✓
- Some insurers have successfully launched restricted cover policies, such as breast cancer only products for women✓✓, or high-profile illnesses such as cover for cancer and heart-related conditions.✓✓
List some of the information gathered at the proposal stage that can be used in the UW process for CI policies. [1.5]
- Age ✓
- Sex ✓
- Pre-existing medical conditions ✓
- Current state of health ✓
- Medical history of the LA ✓
- Family medical history ✓
List two specific practical examples of factors that can have an impact on the future incidence rates of an illness.[0.75]
- New vaccines ✓
- Wellness programs✓, e.g. success of campaigns to change dietary habits ✓
What can the government do to affect CI incidence rates?
What are the advantages to insurers and reinsurers of having standardised definitions for the most common conditions? [4.5]
An agreed definition will draw upon the experience of lots of insurers and is more likely to free of ambiguity.✓✓ Less possibility of claimants producing case law from other insurers to support disputed claims.✓✓
There will be sharing of current and future expertise in the interpretation of current medical conditions and future advances✓✓, and so the cost of developing and maintaining policy conditions will be shared, resulting in reduced costs for each insurer.✓✓
With standardised claim condition, policies are likely to be easier for prospective PHs to understand✓, sales staff to explain✓ and for comparisons to be made between products from different insurers.✓
Industry-wide information and education may make the definitions better understood.✓✓ The result will be more sales in general, leading to increased business for all insurers, and bigger increases for those who offer better customer services, etc.✓✓✓
With standardised definitions it will be easier to collect compatible industry-wide data.✓✓ This will mean better information on which insurers can assess risks.✓ This increased information may result in lower risk loadings and lower premiums✓✓, thus further increasing the potential size of the market.✓ Reinsurers will enjoy similar benefits, as their fortunes are likely to follow those of the insurers.✓✓
List the major CI conditions. [1]
- Cancer ✓
- CABG ✓
- Stroke ✓
- Heart Attack ✓
Describe the possible impact on CI claim costs of early screening programs to detect diseases at an early stage, e.g. certain types of cancer. [3.25]
- CI has a fixed SA and it is only the incidence rates that will affect claim costs.✓✓
- Effective screening is likely to detect more incidents, but with a greater proportion of these being at an earlier stage of the disease than in the past.✓✓
- In general this will tend to increase claim incidence rates and so increase costs.✓✓ However, some of the incidents detected at an early stage may not qualify as claims✓✓, eg cancers that have not invaded adjacent tissues.✓
- As a secondary effect, screening may lead to the development of effective treatments that considerably reduce the adverse effect of the insured condition✓✓,
- and result in more windfall claims✓, i.e. claims where the SA is paid, but the insured suffers little or no financial or other loss.✓✓
List the non-major conditions that are often included on a CI policy. [3.5]
Alzheimer’s disease; AIDS/HIV contracted accidentally by blood transfusion or during operation; heart valve replacement/repair; respiratory failure; chronic liver failure; KF; MS; motor neuron disease; paralysis/paraplegia; Parkinson’s disease; blindness; deafness; loss of speech or limbs; coma; 3rd degree burns.
3 extras
What PH needs are met by a CI policy? [4]
- Income can be provided from the LS via the purchase of an annuity✓✓ when the individual cannot work as a result of his/her CI.✓
- Medical costs can be funded when the CI requires surgery or other expensive treatment.✓✓
- The benefit can be designed to repay a mortgage or other loan.✓✓
- Business partners can purchase CI policies on the lives of each other such that the benefits will fund the buyout of the stake in the partnership.✓✓ Also known as “Key Person cover”.✓
- It can meet needs such as recuperation after illness, taxation planning and medical aids, for eg the installation of specialist equipment in the home to enable the claimant to remain in his/her house. [1.25]
- A change in lifestyle can be funded where it is necessary to improve the claimant’s health, for eg moving to a less stressful (and lower-paying) job following a heart attack. [1]
- The LS cash benefit gives the PH choice. It can be directly applied to meet personal needs, without being earmarked for a specific purpose.✓✓
- It can represent a windfall to the PH, for eg paying for overseas holiday.✓✓
