Chapter 6 - Product design and stakeholder interests (1) Customer interests Flashcards
What are the main product design factors that may affect the level of customer attraction and clarity arising from a particular product
PSG PM
- PROVIDING peace of mind
- SIMPLICITY and clarity
- GUARANTEED vs reviewable premiums and benefits
- PROVIDING cash
- MEETING specific needs
What needs do health and care insurance satisfy?
- It can finance medical bills
- Can provide funds to finance the costs of lifestyle changes following a critical illness
- Can finance the cost of care in old age
- Can provide a lump sum benefit which can be used to repay loans
What are the main needs of PMI
It depends on the level of State-funded healthcare and the level of State health insurance.
If state-funded care does not exists, then PMI will usually provide for all forms of healthcare needs on an indemnity base.
PMI is also bought when a individual wants a higher level of care, such as medical attention:
- Without waiting
- In higher standard of accommodation
- With doctor of choice
- In a local hospital
What are the needs met by Critical insurance products
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- 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
What are the main needs of Long-term care insurance
- It is to provide provision of some financial protection against the costs of care and assistance when a person becomes unable to look after himself.
- LTCI is usually bought to avoid dependence on the loyalty of unpaid care in this way
What are the main needs met by microinsurance
- It is insurance that is targeted towards those who are working, but with low incomes. ( Those that have fewer savings to support themselves in times of need)
- It is characterised by limited benefits and very low premiums
- Microinsurance is not a product type in itself, it is the fact that it is aimed at those on low incomes that make it microinsurance
What is the main needs met by cash
It provides the policyholder with a choice. It can be directly applied to meet personal needs, without being earmarked for particular purposes.
What is meant by financing recuperation needs
It is when products are designed more than just to meet financial outgo when disabled or receiving treatment. Extra benefits such as personal support, advice and counselling are provided.
What is the difference in payment methods between CI and Income protection
CI is a lump sump, whereas income protection is an income stream
What is the Income stream of LTCI
Cash or indemnity benefits
In terms of indemnity, the insurer will generally take a longevity risk and may additionally promise to increase benefit levels in line with a suitable objective index of costs - but this is far short from indemnification
How does insurance fulfil policyholders interests
The psychological effect of knowing that you are protected from the financial consequences of ill-health definitely fulfils a policyholder’s needs. Especially if they have dependents to be taken care of.
What is Coinsurance?
It is where the policyholder pays a percentage of every claim cost
What is an excess/deductible?
It is the amount that the policyholder has to incur before the insurer will pay anything on a claim
What is pre-authorisation
It is when the patient needs authorisation from the insurer before the treatment begins, both to ensure that the medical facility is appropriate under the policy and that the procedure is covered.
This inturn reduces the number of disputes.
For pre-funded LTCI, why does insurers prefer Cash benefits rather than Care benefits
- LTCI will not happen for a considerable time, so it makes the estimation of the probability of happening and the claim size when they do happen very difficult
- The type of illnesses that are prevalent in the future and how these illnesses are treated will influence the probability of needing long-term care
- A cash benefit only requires the insurer to estimate the probability of a claim, not also the claim size
- Premiums for care policies would be very high compared to premiums for cash policies, and so will be more difficult to sell
- Policies with care benefits will require larger reserves
What uncertainties of the long-term care risk make it ‘too uncertain a liability’
The uncertainties surround the:
- Probability of a claim
- The duration of the claim
- The cost of a claim
What does the probability of a LTCI claim depend on
- Type of accidents and illnesses that result in need for care in future (rather than now)
- New methods of treatment and advances in care technology
What does the duration of a LTCI claim depend on
Duration of claims may also be affected by advances in medical treatment, for example they may prolong the insured’s life when they need care
What does the cost of a LTCI claim depend on
- The costs of care (e.g. salaries of care workers)
- How care is provided (more high-tech care may be more expensive)
- Changes in supply and demand for care services
Major health risks not covered by CI insurance
- Result of serious accidents (e.g. injuries following a car accident) unless these result in permanent disablement
- Psychiatric and similar illnesses, unless these result in permanent disablement
What are the trigger points for LTC benefits defined in terms of
Activities of daily living
cognitive impairment
The simplicity and clarity of PMI
The concept is clear, but policy conditions can complicate the product and lead to misunderstanding by Policyholders, in particular:
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- The UNDERWRITING and acceptance process
- PRE-authorisation may be required
- There may be LIMITS on the benefits
- Complicated ARRANGMENTS for risk sharing between policyholder and insurer
- Certain TREATMENTS may be excluded
- There may be EXCLUSIONS
- RESTRICTION to network hospitals
What risks are the insurer exposed to if indemnity benefits are provided
- How can the insurer reduce this risk
- Exposed to fraud and moral hazard, where PH claims for more benefits than necessary
- Co-payments
- Setting annual limits for a certain condition or in total for the PMI cover
- excluding treatment where there is a greater propensity for consumers to demand or healthcare providers to supply more expensive treatment
Why would the insurer prefer to provide cash benefits on a pre-funded LTCI than care benefits
- Since the events will not happen for a long period of time, it makes the estimation of it hapenning and the claim size when they do happen very difficult
- A cash benefit only requires the insurer to estimate the probability of a claim
- Premiums for care policies would also be very high compared to cash policies and therefore they will be more difficult to sell
- Care benefits will require larger reserves
What is the principle of indemnity
Indemnity is ‘protection against loss’. So the insurance company will do whatever is necessary to return the insured to the state they were in immediately prior to the event happening
Which 2 healthcare risks are not covered by CI
- The result of serious accidents, unless these leads to permanent disablement
- Psychiatric and similar illnesses, unless these result in permanent disablement
