Chapter 29 - other risk management techniques

Question 1

Risk management techniques

Answer 1

• reinsurance
• underwriting
• claims management
• data checks
• product design
• managing the distribution process and customer relationship
• managing other counterparies
• other internal processes

Question 2

Moratorium underwriting

Answer 2

• No formal underwriting is carried out at the point of acceptance but past medical history is examined at time of claim
• can claim for any condition other than those pre-existing in a defined period before acceptance
• the exclusion is waived after a period of time if the policyholder receives no further treatment for the condition
• if they have further treatment, then the moratorium exclusion period starts again
• most suited for PMI because of short-term nature and group CI

Question 3

Advantages of moratorium

Answer 3

• encourage sales

- reduce new business costs

Question 4

Disadvantages of mortatorium

Answer 4

• policyholder may be unsure of what illnesses or treatments they are insured for unless they are sufficiently medically aware to understand the connectivity of medical conditions

Question 5

Sources of medical evidence

Answer 5

• questions from the proposal form
• reports from medical doctors that the applicant has consulted
• a medical examination carried out at the request of the insurer
• specialist medical tests on the applicant

Question 6

How is evidence interpreted?

Answer 6

• needs to be interpreted in terms of the standard level of health required by the insurer
• this will be done by specialist underwriters employed by the insurer who will make use of:
• any doctors specifically employed by the insurer for this purpose
• underwriting manuals prepared internally or by the major reinsurance companies

Question 7

Options with higher risk lives

Answer 7

• higher premiums or lower benefits
• decision can be postponed (if higher risk is thought to be temporary)
• declined
• offered different type of policy (less risk intensive)
• offered to reinsurer facultatively with zero retention
• exclusions

Question 8

How can medical underwriting be used to manage risk?

Answer 8

SAFARI

• suitable special terms - identify the most suitable approach and level for special terms to be offered to substandard risks
• avoid anti-selection
• financial underwriting to reduce risk of over-insurance
• actual experience in line with what expected in the pricing basis
• adequate risk classification to ensure that all risks are rated fairly
• identify substandard risks

Question 9

Claims management

Answer 9

• make sure that claims accepted are consistent with assumptions made when product was designed and priced

Question 10

Techniques used to manage claim costs

Answer 10

• limitations and exclusions on benefits
• co-payments and levies
• medical savings account
• approved provider networks
• preventative medicine
• managed care

Question 11

PMI risk management methods aimed at policyholders

Answer 11

• limitations and exclusions on benefits
• co-payments, levies, deductibles and medical savings accounts
• approved provider networks
• preventative medicine and wellness programmes

Question 12

PMI risk management methods aimed at healthcare providers

Answer 12

• treatment protocols

- negotiated fees and fixed payment methods

Question 13

PMI risk management methods aimed at care/utilisation

Answer 13

• pre-authorisation
• case management
• utilisation review

Question 14

Advantages to insurer of pre-authorisation

Answer 14

• more control over claims process (e.g. influence choice of provider)
• ensures that treatment is aware of what is covered and so reduces likelihood of disputes
• gives the insurer early warning of impending claims. Gives better management information and improves accuracy of reserves

Question 15

Checks on policy and claims data

Answer 15

• recording accuracy
• regular vetting and spot checks
• controls on data acceptance
• compulsory fields
• staff training

Question 16

Product design features to be considered for risk management

Answer 16

• the form of the benefits e.g. cash vs indemnity
• claims definitions
• the inclusion of guarantees and options
• the appropriateness of the design for the chosen target market
• terms and conditions

Question 17

In order to protect its relationship with the client, the insurer must:

Answer 17

• monitor the sales message
• beware business churning
• analyse the quality of sales staff
• beware overgenerous commission
• monitor premium receipts
• invest in sales training

Question 18

Monitor the business message

Answer 18

• promises made should be consistent with the conditions in the insurance contract
• literature to support the product and its sale should be customer-friendly, clear and appropriate (does not over-sell)

Question 19

Beware business churning

Answer 19

• salespeople should not be encouraging policyholders to lapse policies with the view of taking out others and thus undergoing a second set of initial charges
• products should offer value when measured against new business terms
• there should be an adequate process of commission clawback
• there should be an appropriate balance between initial and ongoing commission

Question 20

Analyse the quality of sales staff

Answer 20

• the record of the sales agent should be analysed for volumes written and persistency
• complaints against each agent should be reviewed

Question 21

Beware overgenerous commission

Answer 21

• commission should be commensurate with sales effort
• commission should be commensurate with policy loading
• commission levels should not introduce product bias
• commission should not encourage over-selling

Question 22

Monitor premium receipts

Answer 22

• premiums should be received from agents/brokers in a timely manner
• policies should not be issued without evidence of premium receipt

Question 23

Invest in sales training

Answer 23

• should be adequately trained on sales processes, including the need to obtain robust information on customer’s health, care insurance needs and ability to pay
• should be adequately trained on products and acceptance procedures

Question 24

Factors affecting customer expectations

Answer 24

• literature, advice and illustrations provided at the point of sale
• literature provided before or after point of sale
• competitor’s rates, benefits, conditions and processes
• premiums paid
• moral obligations of the insurer
• benefits paid in the past

Question 25

Aspects about which customers should be treated fairly

Answer 25

• how the policy is sold
• benefits paid
• period of cover and guarantees
• reviewability of conditions
• counselling and post-claims support
• premiums to be paid
• customer service
• claims eligibility
• documentation
• complaints process
• data protection and security of financial transaction made

Question 26

Survey levels of customer satisfaction

Answer 26

• make sure customers know what has been bought
• make sure it meets their needs
• make sure they receive information as expected
• make sure claims are paid correctly and promptly
• keep customers happy so that they do not leave

Question 27

EV

Answer 27

Expected present value of future profit on existing business. Usually the value of net assets attributable to shareholders is also included in the embedded value.

Question 28

Customer lifetime value

Answer 28

attempt to quantify the profit that a customer is expected to bring to the insurer, taking into account the entire future lifetime of his needs and the extent of cross-selling possible

Question 29

Techniques for managing counterparty risk

Answer 29

• due diligence on the counterparty before selection
• diversification across different counterparties
• single counterparty exposure limits
• restrictions on the use of counterparties below a certain credit rating
• credit insurance or derivatives

Question 30

ERM and risk management process

Answer 30

• considers risks of the business as a whole
• allows concentration of risk arising from a variety of sources within an organisation to be appreciated and for diversifying effects of risk to be allowed for
• identifying risks
• measuring risks
• controlling risks
• financing risks
• monitoring risks

Question 31

Advantages of big data

Answer 31

• improve risk classification for individual risks
• improve monitoring process and hence take appropriate action
• aid prediction e.g. through GLMs

Question 32

Risks of using big data

Answer 32

• reputational damage (privacy concerns and data protection concerns)
• extra attention could be found intrusive leading to lapses
• fines for misuse of data as regulation changes
• data collected may be inaccurate, incomplete or irrelevant
• model risk
• expense of collecting and analysing data may outweigh the benefits of extra information received

Question 33

Problems with fee-for-service

Answer 33

• incentivizes volume of services and not value of services
• does not reach a price equilibrium
• difficult to get a sense of total cost of treatment for an episode of care

Question 34

Episode of care

Answer 34

single payments for a range of services related to a treatment or condition that may involve multiple providers in multiple settings

Question 35

Advantages of episode of care

Answer 35

• potential to improve co-ordination among multiple caregivers
• supports flexibility in how and where care is given
• incentive to efficiently manage an episode
• simplicity from a billing perspective
• clear accountability for care for a defined period

Question 36

Challenges of episode of care

Answer 36

• difficulties in defining boundaries of an episode
• potential to increase barrier to choice of provider for care if adoption is not widespread
• lack of incentive to reduce unnecessary episodes
• potential to avoid high-risk patients or cases

Question 37

Comprehensive care

Answer 37

• form of capitation
• involves providing a single risk-adjusted payment for the full range of healthcare services needed by a specified group of people for a fixed period of time

Question 38

Advantages of capitation

Answer 38

• improved flexibility for providers in terms of care delivery
• greater potential for innovation in delivery design
• incentive to deliver care efficiently
• improved emphasis on maximising health

Question 39

Prohibitive requirements of capitation

Answer 39

• the relative sophistication of data and information systems and analysis required by insurers
• the model’s potential to overemphasise population health at the expense of the health of individual patients
• the incentive it creates to avoid high-risk patients
• decrease in choice of providers if not widespread
• the potential for care to be withheld

Question 40

Pay for performance

Answer 40

• financial incentive for achieving defined, measurable goals related to care processes and outcomes, patient experience, resource use and other factors

Question 41

Advantages of pay for perfomance

Answer 41

• offers potential to improve quality of care delivered
• enhance efficiency of care (if measured)
• encourage collaboration and promote accountability among providers
• encourage improvement by emphasising outcomes of care

Question 42

Limitations of pay for performance

Answer 42

• many pay for performance programs use only single condition-focused measures that do not reflect the complexities of caring for patients with multiple conditions
• measures may be inconsistent with patient preferences
• programs with rigid measures could create incentives for physicians to avoid high-risk patients
• admin work associated with data collection and reporting may take time

Question 43

Pay for co-ordination

Answer 43

• involves the payment for specified care co-ordination services
• involves the structuring of incentives for the referral of patients to other service providers and co-ordinating the treatment process
• often pays for support services or work that would not otherwise be paid for under a fee-for-service model

Question 44

Benefits of pay for co-ordination

Answer 44

• potential to improve and enhance patient-physician relationship and communication between patients and providers
• increase in level of patient and family involvement in care decisions
• improved flexibility of how, where and by whom care can be provided
• reduce the delivery of inefficient and unnecessary care

Question 45

Limitations of pay for co-ordination

Answer 45

• many patients may expect care co-ordination to be provided without additional payment
• questions around the specific scope of care co-ordination services

Question 46

Pay for participation

Answer 46

• voluntary model that offers additional reimbursement to providers who agree to be peer-reviewed on the generated cost-efficiency and/or quality of their clinical decisions

Question 47

Advantages and disadvantages of pay for participation

Answer 47

Advantages:
- creates a non-punitive environment for all providers in the discipline to achieve common standards of clinical decisions to eliminate unwarranted variation in healthcare expenditure
Disadvantages
- the voluntary nature of this model precludes feedback to providers who opt out of this model

Question 48

The principles of investment

Answer 48

a) the company should select investments that are appropriate to the nature, term and currency of the liabilities
b) the investments should be selected so as to maximise the overall return on the assets, where return includes income and capital gains
c) the extent to which (a) may be departed from in order to meet (b) will depend on the extent of the company’s free assets and the company’s appetite for risk