Chapter 3 - South African specific products

Question 1

What are non-underwritten insurance products?

Answer 1

These are insurance products that don’t require medical checks. To manage risk, they may have waiting periods or exclusions. They’re usually for low-income customers and offer higher payouts than funeral cover.

Question 2

What are the key risks in pricing and underwriting insurance products? (6)

Risk products

Answer 2

• Pricing Risk: Ensuring events are correctly priced.
• Definition & Underwriting Risk: Medical advances may cause a mismatch between policy definitions and actual disease incidence.
• Anti-Selection Risk: Higher for simplified underwriting; unhealthy policyholders are more likely to opt for future cover.
• Non-Disclosure Risk: Customers may provide false or incomplete information, leading to declined claims and reputational damage.
• Selective Withdrawal Risk: Healthier policyholders may cancel, leaving a riskier pool.
• Reputational Risk: Misunderstood terms (e.g., premium reviews) can cause dissatisfaction.

Question 3

How can insurers mitigate risks in pricing and underwriting? (7)

Risk products

Answer 3

• Underwriting: Adjust based on cover level, benefit complexity, age, and distribution channel.
• Waiting Periods & Exclusions: Limit early claims.
• Premium Reviews: Rates can be adjusted after a set period.
• Age Limits: Apply restrictions on benefits based on age.
• Clear Disclosure: Ensure policy terms are well explained to avoid reputational risk.
• Reinsurance: Share risk with other insurers.
• Retention Incentives: Offer benefits like cash-back to reduce policy cancellations.

Question 4

What are the key characteristics of an illness suitable for a critical illness product? (4)

Answer 4

• Public Perception: The illness is seen as serious and common.
• Clear Definition: No ambiguity in diagnosis at claim stage.
• Sufficient Data: Enough information to price the benefit accurately.
• Anti-Selection Control: Measures exist to prevent unfair risk selection.

Question 5

What is SCIDEP and what does it cover?

Answer 5

SCIDEP (Standardised Critical Illness Definitions Project) is an ASISA initiative that standardizes definitions for critical illness coverage. It includes four major diseases:

• Cancer
• Heart Attack
• Coronary Artery Bypass Graft (CABG)
• Stroke

Each is classified into four severity levels. Insurers must disclose their compliance with SCIDEP.

Question 6

How does permanent disability cover relate to critical illness cover, and what are the main claims criteria?

Answer 6

Permanent disability cover complements critical illness cover but uses different payment criteria. The cost depends on the disability definition, which falls into three types:

• Occupation-Based: Assesses ability to perform one’s job.
• ADLs & ADWs: Evaluates ability to carry out daily and work-related activities.
• Impairment-Based: Focuses on functional and physical impairments.