Chapter 6 Product design & stakeholders interests Flashcards
Customer attraction and clarity
- 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.
Five main factors relating to product design affecting level of customer attraction.
- meeting specific needs
- providing cash
- providing peace of mind
- simplicity and clarity
- guaranteed vs reviewable premiums and benefits
Health and care insurance products are designed to meet 4 specific needs:
- Finance medical treatment bills.
- Provide funds to finance costs of lifestyle adjustments following a critcal illness.
- Health insurance can finance the cost of care in old age.
- Can provide a lump sum to repay loans.
To meet specific needs: PMI
- PMI aims to assist the policyholder to cover costs for medical care.
- Will meet needs directly where there is no State alternative (or personal wealth levels above eligibility criteria)
- 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.
To meet specific needs: Critical illness insurance
A variety of needs are met by a critical illness insurance policy:
- Income can be provided via an annuity when insured can no longer work as a result of CI.
- Benefit can be used to repay mortgage when policyholder is diagnosed of CI.
- Medical costs can be funded when the illness requires surgery or expensive treatment.
- Business partners can purchase CI policies on lives of each other such that benefits will fund buyout of stake in partnership when CI arises.
- Change of lifestyle can be funded where necessary to improve claimant’s health.
- Other needs include recuperation or rehabilitation treatment after illness, taxation planning, medical aids.
To meet specific needs: Long-term care insurance
- The main aim is to provide financial protection against the costs of care needed when someone cannot take care of themselves anymore. Usually linked to age.
- Need for domestic support eg nurse other carer visiting patient’s home periodically.
- Need fo medical care where physical breakdown requires doctor intervention and nursing staff.
- At early stages of incapacity care may be provided by friends and family.
To meet specific needs: Microsinsurance
- Microinsurance ins insurance that is targeted towards those who are working but with low incomes.
- 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.
To provide cash: PMI
- Cash vs indemnity
- PMI indemnify the insured against costs incurred from medical care received. These costs are paid directly to the provider of medical treatment.
- PMI do not however provide full indemnity. There may be limits.
- insured event is medical treatment rather than diagnosis of a condition.
- only under special circumstances will it provide cash:
- eg hospital cash plans.
- other health care cash plans are also available for specified medical events like optometry.
To provide cash: Critical Illness
- Cash vs indemnity
- CI provides cash benefits.
- Lump sum vs income stream
- provides a lump rather than stream of income.
- Financing recuperation needs
- cash benefit is often way more than cost of care.
- directly not related to needs.
- causes anti-selection
To provide cash: Long-term care
-Cash vs indemnity
-May provide cash or indemnity benefits
-Insureds favour costs of care rather than cash
benefits.
-Insurers favour cash benefits because costs are more
certain.
-Lump sum vs income stream
-Generally provides cash income.
-an immediate needs policy converts lump sum into
lifetime income.
To provide peace of mind : PMI
- Where State is not available available funds may be insufficient to cover medical treatment.
- Where State is available individual may not want to wait for State resources therefore willing to pay for PMI.
To provide peace of mind: CI
- Based on diagnosis of certain headline diseases or on occurrence of surgical procedures.
- It can thus provide peace of mind.
To provide peace of mind: Long-term care
-Individuals may be concerned about
-funds being insufficient to cover for their own long-
term care.
-their elderly relatives needing care thus funding this
via LTC.
-LTC might still not provide sufficient cover.
Simplicity & Clarity: PMI
-Simple & clear, covers medical costs when incurred. but conditions imposed may complicate matters.
Underwriting & acceptance
-underwriting & acceptance process & waiting periods
can be misunderstood.
-this process may vary by insurer
Limits/exclusions
-Limits & exclusions further complicates matters.
Cost sharing
- member cost-sharing arrangements may be very intricate.
- one or combo of coinsurance & excesses.
-Pre-authorisation
-Insurer may require authorisation from insurer before
treatment begins.
Hospital networks
-Some policies provide cover from certain hospitals
only.
Simplicity & clarity : CI
Simplicity
-CI is simple, it overcomes complexity by offering fixed
SI.
-Two aspects of simplicity
1.lump sum payout - cannot be withdrawn by insurer
2.claims trigger of diagnosis is easy to explain.
Tiered benefits may complicate matters more compared to fixed SI benefits.
