Chapter 2 Critical Illness Insurance Flashcards
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?
(7 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)
- Product features
- description
- conditions covered
- benefits given (claim amount, etc)
- presence of surrender/maturity values
- Product forms
- rider, standalone, accelerator
- conventional, with profit, unit linked, index linked
- Group vs individual
- whether a group version of the contract exists or not
- Customer needs met
- savings, protection, accumulation
- Additional special/unique product features
- tiered benefits, children’s benefits
- 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
CI: product description
What is CI insurance also known as? (4)
Give brief overall description of the CI product (3)
CI insurance is also known as
- dread disease cover
- serious illness insurance
- crisis cash
- living assurance
Overall description
- Insurance product which provides a non-indemnifying benefit on the occurance of events specified in contract terms, typically related to:
- specified event, usually “critical illness” event
- reaching defined level of impairment
- undergoing surgical procedure
CI: product description
Presence of surrender benefit/maturity benefit (2)
Discuss the possiblity of group offerings for CI insurance polices (7)
Presence of surrender benefit/maturity benefit
- Usually no surrender benefit or maturity benefit for this type of contract
- Premiums, hence reserves, are usually too low to build up sufficient asset share to offer an adequate surrender benefit/maturity benefit
Group versions may exist
- employer offers as part of attractive remuneration package
- valuable to blue collar employees, if IP unavailable
- requires clear definition of eligibility and benefits
- likely standalone
- usually short term, annually reveiwable, premiums may be shared
- may include multiple dependants
- free cover limits may apply (above which, underwriting needed)
Describe a critical illness insurance contract in terms of the customer needs met
Customer needs met are mainly for protection, and no saving (as is evidenced by the lack of surrender value/maturity value as well)
- fund medical costs
- fund lifestyle change (e.g. medical equipment installed at home)
- recouperate after CI event
- provide income from lump sum via annuity if affected policyholder can’t work after CI event
- loan repayment
- taxation planning
- buyout partner (keyperson cover)
What is the benefit under a critical illness policy? (3)
- The benefit is typically a lump sum to be paid in installments with any outstanding amount payable on death if applicable.
- Alternatively, the lump sum may be used to buy a living annuity from date of valid claim.
- Payment of the benefit may be subject to a survival period (14-28 days)
- The benefit payable is usually specified as an amount in the contract terms, hence is non-indemnifying, and is usually independant of the insured event (certain exeptions exist, eg tiered benefits)
In what forms may a CI insurance product be provided, in relation to its addition, or not, to other products? (3)
- Stand-alone benefit
- Rider benefit
- Accelerator benefit
Discuss the following forms through which CI products may be sold in terms of its addition to other products, or not:
Standalone (3)
Rider (5)
Accelerator (3)
Stand-alone
- the sum insured is paid on diagnosis of the insured condition
- not added to any other product
- only 1 benefit/claim amount paid
Rider
- where a benefit is paid relating to diagnosis of insured condition and on death of the life insured
- essentially ‘added’ onto another product
- number of benefit payments/claims payable depends on contingent event
- if CI event first, then death later=> 2 benefit payments
- if death first (due to event not covered by CI policy), then only 1 benefit payment
Accelerator
- benefit is accelerated in terms of critical benefits on term or whole life assurance policies
- part of the sum insured is paid upon diagnosis of illness and remainder upon death of the insured
- only 1 benefit payment/claim amount paid
In summary:
- standalone benefit payment: only diagnosis
- rider benefit payment: diagnosis and death, assuming diagnosis first
- accelerator benefit payment: diagnosis or death, maybe both
What characteristics are required for a condition to be deemed as ‘critical’, and hence seen as worthwhile being provided for via a CI contract?
(5)
- Perceived as serious threat by public (lifestyle threatening)
- Percieved to occur frequently by public (or not too lowe a requency/occurence rate that public isn’t threatened)
- Clearly definable
- Sufficient data to price
- population-wide data
- Difficult to predict future medical trends
- Anti-selection can be avoided by the insurer
- e.g with moratorium period (period during which claims aren’t allowed if underwriting suspected insufficient)
CI characteristic: perceived to be serious and frequent
CI conditions must be
- perceived as serious threat by public (lifestyle threatening)
- percieved to occur frequently by public (or not too rate that no public isn’t threatened)
Briefly discuss this requirement (4)
- There are some diseases which are feared even though they have a very low incidence of occurrence.
- insurers include these in cover because there is a market to sell cover for these.
- to be include a disease if not life threatening it should at least be lifestyle threatening.
- A condition/disease shouldn’t be so rare that there is a negligible risk of occurrence, or else it offers no perceived customer value
CI: conditions covered, characteristics of CI, clearly defined conditions
CI conditions must be clearly defined.
Briefly discuss this requirement (6)
- conditions must be clearly definable so as to
- avoid ambiguity at claim
- prevent windfall claims
- avoiding ambiguity in the definitions is not easy
- this is usually due to nature of benefit structure being based on complex medical terminology.
- eg heart attack diagnosis maybe based on changes in the levels of enzymes in the blood, to show the extent of the condition
CI: conditions covered, characteristics of CI, sufficient data
CI conditions must have sufficient data available to price said condition.
Briefly discuss this requirement (2)
- Any critical illness condition that is available as a benefit should be capable of being priced both now and in the future as accurately possible.
- The requirement to predict future trends is onerous, since from date which cover is extended to a new condition it takes some time to build up data.
What broad “categories” of conditions might be covered by a CI contract?
(5)
- Core conditions (covering majority of all CI claims)
- Additional conditions
- Terminal illness conditions
- Conditions influencing children
- Total permanent disability
- Note
- split between what is ‘core’ and ‘additional’ may change from time to time
- in some markets the concept of core and additional have been superseded by use of limited number of core conditions.
- some markets have standardized/industry-wide-agreed claim definitions for many of the diseases.
What are the benefits of having core conditions for CI policies agreed industry wide?
(9 main, 5 small subpoints)
- uses experience of many insurers
- sharing of expertise, in interpreting
- current medical conditions
- future advances
- shared costs of developing/maintining policy conditions
- easier to collect comparable industry wide data
- better information to assess risks
- lower risk loadings => premiums
- easier for prospective policyholder to understand
- reduces ambiguity
- hence, easier for sales staff to explain
- hence, more sales in general
- claims settled more quickly
- fewer disputes, reduced expenses, reduced reputational threat
Briefly list core conditions typically covered by CI contracts
(7)
- These conditions make up majority of all CI claims
- Cancer
- Heart-attack
- Stroke
- Coronary artery bypass
- Also included the following of late
- kidney failure
- major organ transplant
- multiple scleroris
- The above conditions account for the makority of CI events in most industries
- These core conditions may be agreed inudstry wide
Briefly list additional conditions which may be covered by CI contracts (i.e. in addition to core conditions)
(18…lol, this is a long list)
These additional conditions are usually included on the basis of competition/product differentiation in a competitive market.
- Alzeimer’s disease
- AIDS/HIV (contracte by blood transfusion/occupation)
- aorta graft surgery
- benign brian tumour
- blindness
- coma
- deafness
- heart valve replacement/repair
- loss of limbs
- loss of speech
- mortor neuron disease
- paralysis/paraplegia
- Parkinson’s disease
- third degree burns
- chronic emphysema
- diabetes
- pre-senile dementia
- rheumatoid arthritis