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F101 - Health (June 2024) > Chapter 29 Other risk management techniques > Flashcards

Chapter 29 Other risk management techniques Flashcards

1
Q

Different levels of underwriting

A
  • Full medical underwriting
  • Medical history disregarded
  • Moratorium underwriting
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2
Q

There are two defined periods that are relevant to the moratorium approach.

A
  • The applicant can claim for any condition other than those pre-existing in a defined period before acceptance. This is effectively an exclusion of all conditions that have received treatment in a defined period prior to application to the insurer.
  • This exclusion is waived after a period of time if the policyholder receives no further treatment for the condition. It is this second defined period that gives rise to the name moratorium, and it is usually set at two or three years.
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3
Q

Risk management techniques for PMI

A
  • encourage policyholders to seek the lowest cost medical treatment that is appropriate for their condition through cost-sharing arrangements, use of approved provider networks and preventative medicine and wellness programmes.
  • limit the amounts paid to healthcare providers through treatment protocols and negotiated fees and fixed payment methods.
  • manage the utilisation of healthcare services through pre-authorisation, case management and utilisation reviews.
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4
Q

Risk management techniques for PMI can be separated into two categories

A
  • Methods aimed at policyholders
  • and methods aimed at healthcare providers
  • and care & utilisation
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5
Q

Methods aimed at policyholders

A
  • Limitations and exclusions on benefits: Limits by treatment.
  • Co-payments, levies, deductibles and medical savings: These make the policyholder liable for part of the cost related to the medical treatment.
  • Approved provider networks.
  • preventative medicine and wellness programmes.

-One aim of risk management techniques is to encourage policyholders to consider the cost implications when seeking treatment.

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6
Q

Methods aimed healthcare providers

A
  • treatment protocols : Use of prescribed treatment procedures is a way of managing the cost of claims.
  • negotiated fees and fixed payment methods: insurers may restrict choice of healthcare providers to approved networks where the insurer entered into an agreement with the healthcare provider.
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7
Q

Care and utilisation

A
  • Pre-authorisation: PMI is structured such that the insured seeks authorisation from the insurer prior to undergoing treatment.
  • Case manegement: involves monitoring the policyholder while they are receiving treatment by communicating with the healthcare provider.
  • Utilisation reviews: restrospective utilisation reviews are helpful in identifying trends in treatments, healthcare with excessive costs, fraud and billing errors.
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8
Q

regular vetting & spot checks

A
  • considering whether data captured are comprehensive.
  • this involves systematic comparison between paper records on a periodic basis against facts stored, & deviations noted.
  • policy records should be checked end-to-end all the way through data process from input to eventual use.
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9
Q

Controls on data acceptance

A
  • software for accepting data input should have in built checks that prevent erroneous items from being accepted.
  • eg gender other than M or F
  • certain errors may have exceptions that can only be overwritten by persons of a pre-specified status with organisation.
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10
Q

Staff training

A
  • staff will establish culture of the value of accuracy of data.
  • to develop ability to spot information that may be wrong.
  • feedback from staff responsible for data input should be encouraged.
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11
Q

Product design

A
  • risks can be controlled by considering the design of the product, in particular, the form of the benefits, claim definition, the inclusion of guarantees and options and the terms and condition included in the policy wording.
  • The appropriateness of the product design for the chosen target market is also important.
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12
Q

Monitor sales message

A
  • promises made over phonecall should be consistent with conditions insurance contract.
  • Literature to support the product & sale should be customer friendly.
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13
Q

beware business churning

A
  • salespeople should not be encouragin policyholders to lapse with view to taking out others (with same or different insurer) & undergoing 2nd 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 & ongoing commission.
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14
Q

Beware of overgenerous commission

A
  • commission should be commensurate with sales effort
  • commission should be commensurate with policy loadings
  • commission levels should not introduce product bias.
  • commission should not encourage over-selling.
  • commission should be matched with clawback controls on early lapse.
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15
Q

Managing the distribution process and customer relationship can be categorised into 3 broad categories.

A
  • distribution
  • treating customers fairly
  • surveys on customer service satisfaction
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16
Q

Treating customers fairly should help to:

A
  • regulators may impose requirements to ensure TCF
  • make all conditions clear, explicit and in line with customers’ expectations.
  • monitor sales processes, ensuring sales staff do not oversell products.
  • these requirements by regulator may impact sales process, claims process, etc.
  • regulator may make certain features in products mandatory.
17
Q

Survey levels of customer service satisfaction ensure

A
  • customers know what has been bought: Otherwise this might lead to loss of customers, insurer may pay claims against their will cause of regulator.
  • it meets their needs: best way to satisfy the customer is by ensuring products meet their needs.
  • they receive information as expected: eg statement of unit values, results of any products or premium reviews, contract renewal details under short-term insurances.
  • claims are paid correctly and promptly: balance between proving entitlement to a claim & clients’ expectation is important.
  • customers are happy, so they don’t leave.
18
Q

Techniques for managing counterparty risk include:

A
  • due diligence on the counterparty before selection: ensures the counterparty meets required standards.
  • diversification across different counterparties: reduces risk of default or poor performance by any single counterparty.
  • single counterparty exposure limits: similar to point above.
  • restriction on the use of counterparties below a specified credit rating: quicker criterion than performing a due diligence exercise.
  • credit insurance or derivatives: a type of insurance that protects the insurer against risk of default, insolvency or bankruptcy of counterparty.
19
Q

Use of outsourcing

A
  • 3rd party specialists have been developed to assist the insurer in several core areas of business processes.
  • 3rd party salesperson is characterised by the insurance intermediary or broker.
  • companies have been set up that will perform specialist activities: underwriting, claims management, actuarial functions like reserving & pricing.
20
Q

Service level agreements

A
  • Once the 3rd party is chosen, a service level agreement will be put in place.
  • this will be a legal contract.
  • the SLA should have details behind the role of each party to the agreement.
  • in return for fees certain tasks will be performed to a pre-specified standard and within pre-specified times.
  • by passing certain processes to 3rd parties the insurer is reducing its risks.
  • insurer should receive regular reports from the 3rd party to ensure that they will not suffer from reputational risks and security issues.
21
Q

Other internal processes

A
  • enterprise risk management
  • experience monitoring and control
  • data analytics and predictive modelling
  • quality of staff
22
Q

What is Enterprise risk management

A
  • this is a risk management process framework that considers the risks of the business as a whole rather than considering individual risks in isolation.
  • this allows for concentration risks within an organisation to be appreciated and diversified where possible.
  • an insurer needs to be aware of, and assess the overall risk profile to which it is exposed based on aggregation of the underlying risks that it faces allowing for correlation effects.
23
Q

How can risks be controlled via ERM?

A
  • the actuary should have a regular programme of advising the directors of the nature and size of risks faced.
  • Risks should be controlled by analysing and explaining their nature, costing them as far as possible, and agreeing on management strategies for them.
  • actuary should model a range of long-term scenarios to show the impact of variations to future experience, and management strategies should be designed to protect those risks that the insurer s able to control.
  • risk management strategies shold be documented & implemented. Monitored on an ongoing basis.
  • another element of ERM is recognition that value can added to a business through educated risk-taking, with a strong risk management framework.
24
Q

Experience monitoring and control

A
  • periodic review of insurer’s experience can help the insurer to identify the appropriate risk management actions such as:
  • expense controls
  • policy retention activity
  • reviewing new business strategy
  • asset-liability management
  • capital management
25
Q

Data analytics and predictive modelling

A
  • bancassurers hold a large quantity of information about a customer who also has a bank account with them, including data on that customers spending habits.
  • the ability to analyse and use such information to understand better the underlying risks will become increasingly important in insurance, as more sophisticated analytical techniques develop to facilitate this.
  • risk classifications are likely to develop as a result , allowing more accurate rating for each individual customer. The insurer also then has greater ability to select the preferred risks.
  • monitoring the available data may also allow the insurer to drive better experience, through early identification of changes in individual insured risks or potentially through being able to interview and influence customer behaviours.
  • multi-factor predictive modelling techniques are also increasingly being adopted.
  • these techniques can combine the internally held customer data with external drivers, allowing for correlations and interactions between them.
26
Q

Quality staff

A
  • successful performance of a business is down in large measure to the quality of staff employed and their exercise of judgement.
  • thus there needs to be in place adequate systems of identification of competence levels required at various stages of business administration, of recruitment, of staff training.
  • systems need to monitor for fraudulent as well as incompetent behaviour.
  • companies may perform an occasional audit of staff competence.
27
Q

Reimbursement methods

A
  • fee-for-service reimburse on a per service basis and has been associated with escalating costs.
  • episode care fees bundle costs for a particular episode of care including different service providers.
  • capitation is a fixed fee per covered person payable to the healthcare service provider hence transferring the risk of higher utilisation requirements to the healthcare service provider.
  • pay for performance involves structuring incentives to improve treatment outcomes.
  • pay for co-ordination involved structuring incentives for managing the referral of patients to other service providers and coordinating the treatment process.
  • deal with heavier risks appropriately, eg premium loading or exclusion clause
  • analyse new business acceptances against expected.
28
Q

Deciding on if a treatment protocol should be included (has value per cost)

A
  • Accurate/valid results
  • Sensitivity of results to inputs
  • Significance of results
  • Applicability to target group

F101 - Health (June 2024) (54 decks)

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