Chapter 1: PMI

Question 1

General comments

Answer 1

Underwriting is expensive and unpopular for the product so to manage risk
Exclusions
Moratorium underwriting
Waiting periods
Main risk in health is anti-selection & claims costs

Question 2

What are the risk management tools for PMI?

Answer 2

WEEPN

Waiting periods
Excess (co-payments)
Exclusions (moratorium, pre-existing conditions)
Product design
Ncd

Question 3

How is excess (co-payments) a risk management tool?

Answer 3

o Higher excess allows for lower premium charge—competitive premiums 😊
o Reputation for excess ☹ looks bad to discourage people from seeking treatment
o Incentives PH’s to seek benefit only if event is severe
 lowers frequency of claims, but it could or could not lead to larger claims.
 Lowers fraud claims
o Range of discounts offeredimproves marketabilityappeals to range of customers
o Co-payments also incentivise PH to seek benefits for valuable treatmentslowers claim costs.

Question 4

How is a waiting period a risk management tool?

Answer 4

It discourages people who are aware of deteriorating health, and have no treatment yet, from buying policy.

Question 5

How is an exclusion a risk management tool?

Answer 5

o Controls people’s ability to claim
o Moratorium on claims related to pre-existing conditions:
 During moratorium period, insure will not pay claims arising due to condition that existed or is related to condition that existed at time policy was take n out.
 Cover will then be extended after period if no event occurs.

Question 6

How is NCD a risk management tool?

Answer 6

o Encourages PH to pay for small claimslowers frequency of claims and lowers claims admin costs
o Reputation—deemed immoral as it discourages people to claim when needing treatment
o Admin system to deal with NCD may be costly
o Could encourage renewal

Question 7

How is an product design a risk management tool?

Answer 7

In order to reduce premiums, there are policies:
● that only provide fixed cash sums for specified in-patient surgical procedures
(MME)
● with a very high excess on each claim
● that will only admit a claim if the required treatment is only available from the
State health service following a long wait (waiting list plans)
● that restrict cover to choice of treatment provider (eg to preferred hospitals)
● that restrict the availability of out-patient treatment (eg to conditions related to
in-patient treatment only).

Question 8

What are the two methods of providing dental care?

Answer 8

1. Capitation basis—where the dentist is paid an agreed fixed sum per mouth (dentist bears risk, insurer admin)
2. Indemnity basis—insurer provides indemnity cover. (insurer bares insurance risk)