Chapter 6 Product design & stakeholders interests (1) - Customer interests Flashcards
Product design and stakeholder interests - 1 - Customer interests
What are the key themes considered in this chapter?
- The need to consider the customer in the product design process
- Want to design products which are attractive and clear
- We then go into the different factors to consider which feed into this
Customer attraction and clarity: intro
What are the ‘overview’ points to be considered regarding the benefits that should be offered by health insurance products? (4)
What important factors should be considered regarding the transfer of risk which can be achived by healthcare insurance products? (2)
Customers are important stakeholders in the design of healthcare insurance products.
Benefits offered should be attractive in given target market by
- meeting customer needs
- being clear in purpose
- having appropriate charging structure
- charging appropriate premium
Regarding the transfer of risk
- a product may be attractive if offers an opportunity to get rid of a risk that is currently a worry at a reasonable price.
- the product may be unattractive if it meets this need but is hard to understand.
Customer attraction and clarity: main factors
What are the main factors relating to product design that affect the level of customer attraction? (5)
- Meeting specific needs
- Form of benefit providing indemnity vs cash (lump sum or income)
- Providing peace of mind
- Simplicity and clarity
- Guaranteed vs reviewable premiums and benefits
Meet specific needs: general
Health and care insurance products are generally designed to meet 4 specific needs (4)
- Finance medical treatment bills
- Provide funds to finance costs of lifestyle adjustments following a critcal illness.
- Finance cost of care in old age.
- Repay loans and major final outgoings eg via lump sum
The above specific needs can be considered in relation to each of the core health insurance products (PMI, CI, LTCI)
Meet specific needs: PMI
Briefly describe the key aim of PMI, and how this relates to State alternatives (4)
Discuss the use of PMI where there is no State alternative for provision of care services(3)
Discuss the use of PMI where there are State alternatives for provision of care services (4)
PMI aims to cover costs of medical care, especially where
- there is no State alternative, or
- insured is ineligible for State alternative (due to wealth), or
- State provision is inadequate
If there’s no State alternative (either doesn’t exist, or excluded due to wealth), PMI will
- meet needs directly where there is no State alternative (usually indemnity)
- primary care may be provided as indemnity/funded through MSA (medical savings account)
Where the State exists PMI will bought by individuals wanting higher level of care such as
- medical attention without waiting
- medical attention in higher standard of accommodation
- medical attention with doctor of choice
- medical attention in local hospital
Meet specific needs: CI insurance
List the various needs which may be met by (standard) CI insurance products (9)
A variety of needs are met by a critical illness insurance policy:
- Income can be provided via an annuity when insured is no longer work as a result of CI.
- Benefit can be used to repay mortgage when policyholder is diagnosed with CI.
- Fund medical costs when the illness requires surgery or expensive treatment.
- Key person cover: business partners can purchase CI policies on lives of each other and use benefits to fund their buyout of stake in partnership when they experience a CI.
- Used for funding change of lifestyle necessary to improve claimant’s health following CI
- Other needs include
- recuperation or rehabilitation treatment after illness
- taxation planning
- medical aids (equipment)
Meet specific needs: CI insurance
List the various needs which may be met by tiered benefit CI insurance products (3)
CI insurance products providing tiered benefits can also meet the following needs:
- Provide a closer fit to medical distress/financial needs
- May be more comprehensive/fair, as policyholders will more likely be able to claim at a level of CI distress that would otherwise not be ‘claimable’ under a standard CI contract
- Attractivness depends on price difference to standard CI policy
Meet specific needs: LTCI
Discuss the specifi needs which LTCI products aim to meet (6)
- The main aim is to provide financial protection when unable to look after oneself in old age.
- LTCI helps finance provision in old age, especially amidst uncertainty about level and comfort of State care.
- LTCI helps in the event that the insured requires domestic support (nurse), live-in care or residential care (retirement community)
- Insured may also be medical care whre a physical or mental breakdown requires doctor intervention and nursing staff.
- Insured may want to avoid dependence on family and friends.
- LTCI policies are often cash terms i.e. not indemnity. This is due to uncertainty in costs
Meet specific needs: microinsurance
What do we mean by microinsurance? (1)
Discuss the use of health insurance contracts to meet specific customer needs in the context of microinsurance (3)
Background on microinsurance
- Microinsurance is insurance that is targeted towards those who are working but with low incomes.
Needs met by microinsurance
- It should be designed to meet needs with greater emphasis on covering basic components and affordability.
- Limited benefits for low premiums.
- Microinsurance is particularly important for the developing world.
Briefly touch on the form of benefit which may be possible for health insurance contracts (4)
Discuss why it is important to consider whether health insurance products provide cash (or not) (3)
Health insurance products might either provide benefits in the form of
- cash, or indemnity (which may be subject to limits)
- furthermore, if cash benefits are provided, the benefit may either be a lump sum, or a stream of income/payments
Importance of cash:
- Cash gives choice! Cash can be used to
- meet personal needsl, or
- converted to income
What is the usual form of benefits for CI insurance and LTCI? (2)
What is the main downside to providing cash to the insured (from the insured’s POV) (1), and how might the insurer aim to help with this? (4)
Usual form of beenfits for CI and LTCI?
- CI is often lump sum, LTCI is often income
Pros/cons of cash
- Policyholder may be less skilled in exercising discretion with cash, especially medically
- To help with the above problem, some insurers’ products may also provide
- counselling, support or cover recuperation costs
- insurer may also be able to acquire better bargains due to their size/experience
Form of benefit, indemnity vs cash (lump sum/income): PMI
Discuss whether PMI products provide cash (vs indemnity) (4)
Briefly discuss instances in which PMI products provide cash (4)
PMI: cash vs indemnity
- For PMI, the insured event is normally medical treatment rather than diagnosis of a condition.
- PMI will usually indemnify the insured against costs incurred from medical care received.
- These costs are paid directly to the provider of medical treatment.
- However, PMI may not provide full indemnity ie there may be limits, copayment requirements
Only under special circumstances will PMI (or related products) provide cash:
- Hospital cash plans when in hospital
- Health cash plans for dentistry or optometry (not indemnity)
- Major medical expense plans for lump sum on surgery
- Accident, death and disability plans for lump sum on specified injury
Form of benefit, indemnity vs cash (lump sum/income): CI insurance
Briefly touch on whether CI provide cash or indemnity, and if cash, whether a lump sum is provided, or income (4)
What implications arise due to the nature of the benefit typically given by CI insurance products? (5)
CI: cash vs indemnity; lump sum vs income
- CI provides cash benefits.
- CI provides a lump rather than stream of income.
- Lump sum may be used to purchase income
Implications of benefit form for CI
- Cash benefit payable (under standard CI) is often not directly related to the need (may be for tiered benefits)
- this may lead to windfall claims, where cash benefit is often way more than cost of care (attractive to customer)
- may also lead to anti-selection
Form of benefit, indemnity vs cash (lump sum/income): LTCI
Briefly touch on whether LTCI products typically provide cash or indemnity (3)
What implications arise due to the nature of the benefit typically given by CI insurance products? (5)
LTCI: cash vs indemnity
- May provide cash or indemnity benefits, but rarely indemnity
- Insureds favour costs of care (indemnity) rather than cash benefits, because they may be so uncertain/high
- Insurers favour cash benefits because costs are more certain.
LTCI: lump sum vs income stream
- Generally provides cash income
- An immediate needs policy converts lump sum into lifetime income.
Peace of mind: general overview
In what way can health insurance prodcuts provide peace of mind? (2)
Explain the kind of risk do insured individuals hope to minimise, and how this is viewed from the insurer’s POV (3)
Health insurance products can achieve peace of mind if they
- provide healthcare support for rather unknown territory which can cause concern due to unpredictability, or
- provide financial security, esp for those with dependents
Individuals seek to minimize risk that breakdown in healthcare disrupts financial well-being
- treatment costs are uncertain in incidence/size, and psychological wellbeing is a policyholder need
- however, insurer may be unwilling to fully indemnity
