Chapter 6 - Critical Illness

Question 1

Needs met by CI policy: (6)

Answer 1

1. Income can be provided as a lump sum via annuity
2. Repay mortgage/loan
3. Funding medical cost associated with CI
4. Business partners can take out keyman cover
5. Can fund a change in lifestyle eg moving to less stressful job
6. Cover cost of recuperation after illness

Question 2

2 main aspects of simplicity of a CI contract:

Answer 2

1. Lump sum payout, which can not be withdrawn by insurer
2. Claims trigger of diagnosis/procedure easy to explain

Question 3

3 characteristics of an illness/condition that makes it appropriate to be covered un CI product:

Answer 3

1. It’s a condition perceived by the public to be serious and occur frequently.
2. The condition covered can be defined clearly so that there is no ambiguity at time of claim
3. Sufficient data available to price the benefit
4. Ability to avoid anti selection

Question 4

Advantages to insurers and reinsurers to use standardised wording for conditions under CI products: (6)

Answer 4

1. More likely to be free of ambiguity
2. Less claims disputes as less possibility of claimants producing case law from other insurers to support disputed claim
3. Policies likely to be easier for PH to understand and sale staff to explain
4. Industry wide info and education may make definitions better understood
5. Can result in more sales
6. Easier to collect compatible industry wide data

Question 5

4 Core conditions in the South African market:

Answer 5

Heart attack
Cancer
Stroke
Coronary artery bypass graft

Question 6

Reasons for offering tiered benefits under CI products: (5)

Answer 6

1. Policy becomes more comprehensive. Benefits are offered at levels which might not have triggered payment
2. Payments may more closely match medical distress or financial need. Reducing incentive for anti selection and exaggeration of symptoms at claim stage
3. Multiple claims are possible, which enhances PH satisfaction
4. Permits insurer to differentiate itself from competitors
5. Makes comparisons more difficult (can potentially make priduct more profitable)

Question 7

3 main type of disability definition:

Answer 7

1. Occupation based
2. Related to activities of daily living
3. Definitions using working activities or functional abilities

Question 8

Areas of difficulty in offering tiered benefits: (3)

Answer 8

1. Problems in designing the benefit levels
2. Problems in pricing the benefit
3. Problems in underwriting (incl claims underwriting)