Chapter 5, 6, 7 and 8 Life, Health and General insurance Flashcards
Role of state as benefit provider
DEERP
Direct provision of benefits Education Encourage/compel private benefit provision Regulate benefit providers Provide financial instruments
Reasons for employer benefits
MMEC FLAP
Management of employees Multi-employer schemes also exist Economies of scale-benefits negotiation Compulsion by state Flexible benefits Loyalty Attract and retain good staff Paternalism
Reason for individual benefit providers
CPS
Compulsion
Personal preference
Savings plan
Considerations in general insurance
PUN TRIP
Premiums - OP and Risk premium formula Underwriting - Underwriting list New business strain - VolVolTRL Tail of business Rating factors - Ideas! Investment strategy - Lists Provisions - different types of provisions
profit/loss equation. Useful for determining why a specific type of product is not being profitable
Profit/Loss = Premium + Investment income - Claims - Expenses - reinsurance premium ceded + reinsurance claims ceded
Reasons for poor sales of insurance products:
DisCEM GAP
Distributors Competitors Expensive/inexpensive Marketing Guarantees/Options Attractiveness of benefits Product popularity
Key risks for a life insurer
MEINE COMoL
Mortality risk Expense risk Investment risk New business volumes too high or too low Early withdrawal risk
Credit risk (failure by reinsurer or broker) Morbidity risk (income protection) Operational risk (Fraud, systems failure, regulatory changes) Longevity risk (pensions)
Factors to consider for health care products
MOISt / MIP
Mandatory minimum requirements for health cover
Other types of cover have a predefined benefit on a contingent event
“Indemnity” only done by medical schemes
Stated benefits provides a benefit on a health event regardless of the actual loss - done by insurers (For example think of hospital plans where they pay you a certain amount per day in the hospital)
Considerations when comparing health insurance with medical aids WHUE
Waiting periods
Medical History
Underwriting
Exclusions
Aspects distinguishing healthcare from other benefits providers:
PIRI
Public need:
- Access to medical care is a human right
- The demand for private health care provision may exist but cannot be afforded
Information asymmetry over-supply and demand
- Difficult access to info about the actual cost of healthcare for consumer
- This leads to:
- Unnecessary benefits in cover
- Uninformed decisions made by consumers
Rapidly increasing medical costs
- Meeting the needs and expectations of policyholders while retaining profitability/solvency
Importance of health care:
- The change in the need for health care with age
- Underestimation of the future costs of healthcare by consumers - underinsured
Risks in General insurance
CAROLINE C
- claims
- accumulation/catastrophe
- renewal
- operational risk
- lapse
- investment risk
- new business
- expenses
• credit risk (reinsurer or broker failure)
Factors determining the riskiness of the class of business: VolVolTRL
• tail length
• likely claim amount and frequency
• volatility in the claims experience
• possibility of claims accumulation
• volumes of contracts sold and hence data
available
• reinsurance availableFactors an insurer should consider when taking on new business SLARPHACAN:
Factors to keep in mind when discussing new insurance products
CARCEEN
Similar risks insured – data, expertise, admin systems
Level of cover offered – exclusion, excess
Appetite of insurer (risk)
Reinsurance available
Profitability of business
History of claims in similar business
Ability to write new business – Financial Position
Competitiveness in business
Aim of company – does this business fit in?
New Business Strain
Cost to target market Availability of market data Risk such as anti selection and moral hazard Competition products that are similar Economic condition correlation Exclusions Needs of customers
Determining pricing of an insurance product
Determine value of each of the components
P=Claims+Expenses+Commission- investment income+ Reinsurance(ART)
Then do both sensitivity testing as well as long term projection to assess the suitability of the price.
Keep this in mind when modelling the pricing.
Considerations when comparing insurance policies.
popular with discussing statements
- State the definitions of the two products
- Term of the insurance products (general vs life)
- Idemity or not. If not what is benefit?
- Risk events covered (perils)
- Decline criteria
- Premium levels
- Guarantees
