Chapter 1 - 4: Health ins prods - Important overview Flashcards
State 3 basic aspects insurers need to consider when selling insurance products to customers (3)
Others (6)
- Customer needs
- Risks to insurer
- Capital requirements
There are various other factors too e.g.
- nature of market
- competitiveness
- requirements from providers of capital
- regulation/legislation
- distirbution channels
- existing business model, etc
These will be touched on later in the course
Comment on the considerations an insurer will make when deciding on which products to sell in terms of:
- customer needs (2)
- risks to the insurer (3)
- capital requirements (5)
- Customer needs
-
Protection
- protect customers (or their dependants)
- from consequences of unwelcom events
-
Savings
- investments, build funds for specific reason
- retirement
- repay loan
- investments, building up funds for discretionary reasons
- uses as sees fit when need arises
- Risks to insurer
- investments, build funds for specific reason
- Micro risks: higher deaths than expected=> losses
- Macro risks: insurer insolvency
- Risks varying by contract
-
Protection
- Capital requirements
- Capital recoupment
- Contract design: prefer contracts which recoup faster
- Supervisory regs
- New business strain
- Init costs + reserve + cap reqmnts> premium income
- Capital recoupment
What kind of customer needs might exist for customers at different age groups?
16 - 25 (4,4)
25 - 35 (5,4)
35 - 65 (4,4)
65+ (4,3)
-
16 -25 of age
- likely situation
- higher education/fist job, partner or not, probably no home, probably no dependants
- needs
- support from parents, saving towards family needs, like to spend money if possible (lol, what money?)
- likely situation
-
25 - 35 of age
- likely situation
- maybe partners/children, large debts, moderate income, high expenditure, often not much wealth
- needs
- loans, risk protection, maybe saving, some retirement saving
- likely situation
-
35 - 65 of age
- likely situation
- children become independant, debts reduce, income may increase, redundancy periods may occur
- needs
- retirement savings, risk protection, wealth transfer, disposable income investment
- likely situation
-
65+ of age
- likely situation
- employment into retirement, few debts, much lower income, more accumulated wealth
- needs
- risk protection, disposable income investment
- wealth transfer
- likely situation
Briefly list the product cycle that insurance companies (typically) work according to (8)
- Product design
- Pricing
- Administration
- Marketing sales
- Claims management
- Experience monitoring
- Valuation
Product Cycle:
What does product design need to consider? (4)
- The needs of customers
- Roles of stakeholders
- Cover provided and premiums
- Risks involved in providing health insurance
- Distribution channels used
Product cycle:
Pricing considerations to be considered (2)
- Experience may vary widely by provider.
- Stricter claims underwriting should be reflected with lower premiums.
Product cycle:
Administration (2)
- Maintaining policy data
- Whether systems cope with design complexity
Product cycle:
Marketing and sales (2)
- This product may be seen as a genuine need by customers.
- However, the product may still need to be marketed to maintain a competitive position in the market.
Product cycle:
Claims management and underwriting (7)
- Factors such as
- underwriting
- at inception
- claims stage - complication for recurring claims/benefit pmts
- waiting periods and
- claims management..
- underwriting
- …have a fundamental implications for the
- how easy it is to sell the product
- claims experience and subsequently premium rates.
Product cycle:
Experience monitoring and valuation (7)
- Premiums are usually reviewed annually
- It’s important that
- the info used for this is up to date as it influences
- sales, prod design, claims mngmnt, assumptions (pricing/valuations)
- data: adequately gathered, stored and sufficient to facilitate analysis
- the info used for this is up to date as it influences
- National or industry statistics on treatment costs covered by PMI products will not be applicable to the customers of individual insurance provider. Hence monitoring is important part of premium rating.
- Valuation are a regulatory requirement to determing/and influence
- policyholder liabilities, capital requirements, impact of/on reserves
Briefly describe group products in a life insurance context
Definition (1)
Situations arising in (5)
Characteristics (6)
- Single policy, covering number of individuals
- Arises where
- employer pays whole premium on behalf of emplyees
- employer pays part/whole premium, but member must pay for coverage on children/spouse
- employer merely facilitates
- groups linked to a club
- Characteristics
- often short term
- regularly renewable
- premiumd depends on
- number of individuals
- characteristics of individuals
- claims experience (experience rating)
Subject F102 covers various life/health insurance products.
When describing these products, there are key broad characteristics which should be known well. What are these characteristics?
(6 broad groups, with subpoints)
(Note, although this is covered in F102, it may be a useful framework with which to consider the products in F101)
- Customer needs met
- savings, protection, accumulation
- Product features
- benefits given (claim amount, etc)
- Product forms
- conventional, with profit, unit linked, index linked
- Risks to insurer
- Investment, expenses, mortality, morbidity, persistency, selective lapses, anti-selection, moral hazard
- Overall risks
- financial: business, liquidity, credit, market
- non-financial: operational, external
- Aggregation/accumulation of risk
- Capital requirements
- initial expenses and new business strain
- asset share and withdrawal risk compared to asset share
- Group vs individual
- whether a group version of the contract exists or not
What key features apply to health insurance products? (7)
- Clear relationship between health risk and age
- Underwriting plays an extremely important roles (initial and claims)
- Claim events are not as clear cut as with other categories of life contingent cover
- Waiting periods are prevalent (or “moratorium underwriting”)
- Products are typically without profits or unit linked
- By and large protection products thus surrenders are not important
- Group versions of products have significant market share – why is this?
Health insurance contracts can be split into short term contracts and long term contracts.
What are the key characteristics of short term contracts? (5)
Give examples of key short term health insruance contracts
Key features of short term health insurance contracts
- Indemnity based (usually)
- 1 year renewable contracts
- Unknown and volatile claim amounts
- ultiple claims
- Delays in reporting and settling claims (except PMI)
Examples of key short term health insurance contracts
- Private medical insurance (PMI)
- Major medical expenses (MME) cover
- Hospital cash plans
Health insurance contracts can be split into short term contracts and long term contracts.
What are the key characteristics of long term contracts? (2)
Give examples of key long term health insruance contracts
Key features of short term health insurance contracts
- Single claim amount
- Claim amount may be known
Examples of key short term health insurance contracts
- Crirtical ilness (CI) cover
- Long term care insurance (LTCI)
Give a very brief description of the following health insurance contracts, which form the key products covered in this subject:
PMI (Private medical insurance) (5)
CI (Critical ilness cover) (2)
LTCI (Long term care insurance) (1)
Private Medical Insurance (PMI):
- indemnity for cost of private medical treatment.
- also hospital cash plans that pay fixed amount per day in hospital.
- short term; usually 1 year renewable
- other short term products include: major medical expenses and health cash plans.
- in SA, indemnity cover can only be provided by medical schemes (mutual funds) and fixed sum is provided by insurers for PMI
Critical Illness (CI):
- pure protection that pays out on one of insured conditions.
- long term
Long-term Care Insurance (LTCI):
- pays continuing personal/nursing/domestic care for elderly
The following flashcard comapers the significant differences between PMI, CI, and LTCI in tabular format, by considering
- whether cash or indemnity benefits are provided
- whether the product supports a single claim or multiple claims
- whether benefits are provided in either a lump sum or stream of pmts
Can you recall the table?
Indemnity vs. Cash
- PMI: cash (SA health insure.); indemnity (SA med schemes)
- Critical Illness: cash
- Long Term Care: cash or indemnity
Multiple claims vs.Single claims
- PMI: Multiple claims permitted
- CI: usually single claims; maybe tiered/accelerated death ben)
- LTCI: Single claims (expected not to recover)
Annuity benefits vs. Lump sum benefits
- PMI: Lump Sum
- CI: Lump Sum
- LTCI: Can be either or mix
Personal accident cover: risk and rating factor
What is a risk factors? (1)
What is a rating factor? (2)
Difference between a risk factor and rating factor
- Risk factors are factors that are known or suspected to affect claims cost
- A rating factor is used to determine premium; rating factors are proxies to risk factors
Define ‘new business strain’ in words (4)
Ne business strain in words:
- Premium paid at start of contract,
- less initial expenses including commission payments,
- isn’t enough to cover required solvency capital
- that company needs to set up at that point.
Define ‘new business strain’ as a formula
New business strain as a formula:
NBS = V0+ + E0+ - P0+
Where:
V0+ = sup reserv + solv cap at time 0+
E0+ = expenses + commission inccured time 0+
P0+ = premium paid time 0+
Define anti-selection (2)
- People being more likely to purchase insurance when they beleive their risk is higher than insurer has allowed for in premiums/pricing.
- Also arises with options/guarantees: those most likely to gain will most likely exercise.
List and discuss 5 factors that influence the capital requirements of a life insurance product
Accronym: FISCR
Five Issues Surrounding Capital Requirements
-
Frequency of premium pmts
- more upfront = less capital intensive
-
Initial expenses
- higher initial expenses increase capital requirement if premium doesn’t increase
-
Solvency capital requirements
- need assets to cover supervisory and required solvency capital
-
Contract design
- whether contract design allows reserves/solvency margin to remain low
- lower initial reseves = lower initial capital requirement
- slower increase in reserves over contract term, faster invested capital is release
-
Reserving basis (level of prudence)
- reserving basis stronger, requires more capital than would be required under pricing basis
Describe briefly the factors an insurer should consider when choosing the range of products to sell (4)
- Offer range of attractive products, maximising profits
- In long run, profits will be maximised when utility of products to consumers is also maximised
- Insurer should take on profitable risks within its available capital, to maximise economies of scale
- Insurer shoud diversify/control overall risks wherever possible, using appropriate volume and mix of suitably designed contracts.
