Chapter 6 - Critical illness Flashcards
1
Q
Describe a critical illness insurance contract
A
- Product which provides a non-indemnifying lump sum on the occurrence of events specified in contract terms, typically related to:
+critical illness event
+reaching defined level of impairment
+undergoing surgical procedure - Customer needs met
+mainly protection
+fund medical costs
+fund lifestyle change (e.g. medical equipment installed at home)
+recuperate after CI event
provide income from lump sum via annuity if can’t work after CI event
+loan repayment
+taxation planning
+buyout partner (key person cover) - Usually no surrender benefit or maturity benefit
- Group version may exist
+employer offers as part of attractive remuneration package
+valuable to blue collar employees, if IP unavailable
+requires clear definition of eligibility and benefits
+likely standalone
+usually short term, annually reveiwable, premiums may be shared
+may include multiple dependants
+free cover limits may apply (above which, underwriting needed)
2
Q
What are the forms of CI products that are available
A
Form of the contract may be:
- Standalone: benefit paid on CI event defined, no death benefit
- Rider: CI benefit payable both for CI event, and death benefit payable on death
- Accelerator: benefit payable on either CI event or death, whichever occurs first.
3
Q
What characteristics are required for a condition to be deemed as ‘critical’, and hence seen as worthwhile being provided for via a CI contract?
5
A
- Perceived as serious threat by public (lifestyle threatening)
- Perceived to occur frequently by public (or not too rate that no public isn’t threatened)
- Clearly definable
avoid ambiguity at claim,
prevent windfalls claims - Sufficient data to price
population-wide data
Difficult to predict future medical trends - Anti-selection can be avoided by the insurer
e.g with moratorium period (period during which claims aren’t allowed if underwriting suspected insufficient)
4
Q
What are the benefits of having core conditions for CI policies agreed industry wide?
7
A
- Sharing of expertise, in interpreting current medical conditions and future advances
- Shared costs of developing/maintaining policy conditions
- Easier to collect comparable industry wide data
- Better information to assess risks which results in lower risk loading => lower premiums
- Easier for prospective policyholder to understand claims definition
- Reduces ambiguity
hence, easier for sales staff to explain hence, more sales in general - Claims settled more quickly
fewer disputes, reduced expenses, reduced reputation threat
5
Q
What broad “categories” of conditions might be covered by a CI contract?
A
- Core conditions (covering majority of all CI claims)
- Additional conditions
- Terminal illness conditions
- Conditions influencing children
6
Q
Discuss the conditions and benefits covered by CI contracts in relation to terminal illnesses
A
- These conditions don’t relate to a specific CI disease..
…but rather the severity of a condition and its effect on life expectancy - Essentially accelerate the death benefit, thus additional cost is minimal
- Can cease prior to end of term, e.g may not be paid 12 months prior to policy end…
…because terminal illness is seen as health state from which death would occur within 12 months, and death would thus fall outside the term of the policy. - Usually present where death benefit already part of policy…
…where there are no death benefits, terminal illness benefit could add significant cost, and various causes would need to be investigated
7
Q
Discuss the features and benefits covered by CI contracts in relation to children’s benefits
5
A
- Usually a rider benefit
…providing similar cover to insured’s children, usually until age 18 (when can cater for selves) - Claim from children doesn’t terminate policy…
..only claim from insured policyholder terminates policy (different for tiered benefit, covered later) - Exclusions may be used, related to disabilities that could be caused intentionally
pre-existing congenital effects - Cover may be limited to a certain % of insured’s cover
- Cost is actually very low, compared to perceived benefit (because of low incidence rates in healthy kids!)
8
Q
What additional variations to the product design may exist for CI contracts?
A
- Tired benefits
- Guarantees/review-ability of premiums/benefits
- New diseases/guaranteed inseparability options
9
Q
Discuss tiered-benefits in the context of CI contracts
A
- policy conditions need change, such that policy only terminates once 100% of benefit is paid
- further payments made from balance of benefit/sum assured
- levels/severity need to be clearly defined
Reasons offered
- CI more comprehensive, benefit received at disease levels which would otherwise not receive under standard CI contract
- Payments more closely match customer need,
- Multiple claims possible, better policyholder satisfaction/retention
- Differentiate competitors
10
Q
Discuss the risks to an insurance company that arise from standard non-tiered critical illness contracts
A
- Prediction of critical illness diagnosis/incident rates due to limited data
- Anti-selection, which can be reduced by waiting period/moratorium period
or medical underwriting - Medical technology enhancements may result in selective withdrawals (even when offered as rider benefit)
- Expense risk (mostly for standalone contracts)
- Investment risk (usually small due to small reserves since it’s a term contract)
11
Q
Discuss the conditions and benefits covered by CI contracts in relation to total permanent disability (TPD)
A
- Such benefits often included as TPD complements CI cover…
…despite different nature of criteria for valid claim (can be significant overlap between TPD and CI - Definitions for permanent disability may be based on
+Occupation
+Related ADL; advantages over occupation based definition
+Working activities/functional abilities - Can be added for little cost because of overlap between CI, depends on
definitions used
conditions covered by CI - Different to IP which pays on temporary or permanent disability
12
Q
Discuss the additional risks to an insurance company that arise from tiered critical illness contracts
4
A
- Contract design
difficult designing benefit levels/claim trigger levels
..legally and objectively
…to prevent weak definitions which could actually lead to more claims than anticipated - Underwriting risk
Need stringent initial underwriting, cost time/money
because bringing forward claims increases importance of pre-existing conditions
More claim forms/definitions - Claim assessment judgement, since less likely to have market consistent definitions
- Pricing risk
