Chapter 6 - H&C Critical illness

Question 1

What is the benefit payable under a CI

Answer 1

• A lump sum when the policyholder suffers one of the defined conditions

Question 2

When is a benefit payable under CI

Answer 2

• Upon the happening of a critical illness event
• On reaching a defined degree of impairment
• On undergoing a surgical procedure

Question 3

What is the difference between rider and accelerated CI

Answer 3

Rider
- The sum assured amount relating to the critical illness is paid on the diagnosis of the critical illness and the sum assured amount relating to the death benefit is paid on the death of the life insured

Accelerated critical illness
- The sum assured is paid on CI or death, Whichever occurs first. It may be structured in a way that part is paid on the occurrence of CI and the rest on death

Question 4

What needs can be met by CI

Answer 4

BAMBI R

• The BENEFIT can be designed to repay any loan when the policyholder is diagnosed with a critical illness
• A CHANGE of lifestyle can be funded where necessary to improve the claimant’s health
• MEDICAL costs can be funded when the illness requires surgery or other expensive treatment
• BUSINESS partners can purchase CI policies on the lives of each other such that the benefits will fund the buyout of the stake in the partnership when critical illness arises
• INCOME can be provided from the lump sum via an annuity when the individual cannot work as a result of his/her critical illness
• Other needs include RECUPERATION or rehabilitation treatment after illness, taxation planning, medical aids

Question 5

What are the 2 main aspects to the simplicity of the product of CI

Answer 5

• The lump sum payout
• The claims trigger of diagnosis or procedure is easy to explain

Question 6

Which 2 major health care risks are not covered by CI insurance

Answer 6

• The results of a serious accidents, unless this results in permanent disablement
• Psychiatric and similar illnesses (eg stress), unless these result in permanent disablement

Question 7

Characteristics of conditions insured under critical illness products

Answer 7

• Condition perceived by the public to be serious and to occur frequently
• Each condition can be defined clearly so that there is no ambiguity at the time of claim
• sufficient data are available to price the benefit

Question 8

What are the advantages of agreeing to industry-wide wording for CI definitions

Answer 8

U MESS

• makes it easier for policyholders to UNDERSTAND
• the results will be MORE sales in general
• it will draw upon the EXPERIENCE of lots of insurers & is more likely to be free of ambiguity
• SHARING of current and future expertise in the interpretation of current medical & future advances, and so the costs of developing and maintaining policy conditions will be shared
• STANDARDISED claim conditions are likely to be easier for prospective policyholders to understand

Question 9

Tiered benefits

Answer 9

The payment of the sum insured is linked to the severity of the disease.

Thus a proportion is paid out, a proportion that depends on the progress or extent of the illness at the time that the claim is made.

Premiums do not typically reduce with any proportionate payment.

Question 9

What are the major conditions covered under CI

Answer 9

• cancer
• coronary artery by-pass surgery
• heart attack
• kidney failure
• major organ transplant
• multiple sclerosis
• stroke

Question 10

Main reasons for offering tiered benefits

Answer 10

CAMP C

• The CI insurance product becomes more COMPREHENSIVE; a benefit is offered at levels of disease progression that would not have triggered payment under a more standard CI insurance contract
• AS a variant on the standard product, it permits the insurer to differentiate itself from its competitors
• MULTIPLE claims are possible, which enhances policyholder satisfaction and retention
• The PAYMENTS, part or whole, more closely match the financial need, reducing the incentive for anti-selection and for “exaggeration” of symptoms at the claim stage
• It makes COMPARISONS more difficult ( and the insurer’s product potentially more profitable)

Question 11

There are 3 main types of disability

Answer 11

• Occupation based
• related to activities of daily living
• definitions using working activities or functional abilities

Question 12

What is the main risk to the insurer for both stand alone and rider benefits

Answer 12

The rates of diagnosis of the critical illnesses specified in the contract

Question 13

What is the effect on medical advances on future CI rates

Answer 13

• They are likely going to prolong life. This may cause more claims to be paid out than before
• Medical advances also improve screening for diseases. Earlier identification of illness will result in earlier claims being paid, increasing their cost to the insurer, and in some cases make claims occur before the end of the policy term
• Individual’s susceptibility to specific diseases may be identified more readily and the disease itself may be prevented or its onset delayed, thereby improving the claims experience

Question 14

How tiered benefits complicate CI products

Answer 14

DUMP O

• There will be problems in DESIGNING the benefit levels and the claim triggers at each level
• UNDERWRITING at both stages will be an additional consideration, especially initial underwriting
  -– Since claims may appear sooner, there is more emphasis on any pre-existing conditions
• Claims MANAGER is faced with much more claim forms and significant policyholder pressure to ‘upgrade’ to a higher level of benefit
• The benefit will also have to be PRICED, which is also likely to cause significant problems
• There may be many OVERLAPS between related illnesses that will make pricing more complicated and the picture for the policyholder more confusing

The product continues to evolve, making past data less relevant for future use