Chapter 7 - Healthcare Products

Question 1

Overview & Key features

Answer 1

In South Africa, insurance legislation states that medical expense cover that is on an indemnity basis is only permitted to be provided by medical schemes which are mutual funds.

Long-term and short-term insurers are permitted to offer certain healthcare products but on a stated sum basis. This distinction is governed by the demarcation of health insurance business between medical schemes and insurance.

Cover is provided by the :
- State
- Insurance companies
- Subsidised healthcare through donor organisations
- Mutual Organisations ( eg. medical schemes in SA )
Can be short and long term:

Short term features:
- Yearly contract with renewal
- multiple claims
- claims unknown in timing and amount and can be volatile
- delays in reporting and settlement

Long term features:
- long term ( > 20 yrs )
- cover usually ceases on claim event
- benefit known with certainty
- mainly for protection against illness or death

Operates on concepts of mutuality ( pool risks with risks rated individually ) and solidarity ( pool risks with no risk rating but flat premiums )

Question 2

Main product types

Answer 2

1. Private Medical Insurance
   - to indemnify against cost of medical expenses or access to healthcare benefits
2. Critical Illness Cover
   - provide sum assured on diagnosis of critical illness
3. Long term care
   - provide custodial care ( nursing / funds ) where policyholder has diminished capacity
4. Other products
   - usually offer cash amount on occurrence of healthcare event
   - Hospital Cover
   - Personal Accident Cover

Question 3

Reserves & Investment

Answer 3

Main reserve type is IBNR commonly calculated using run off triangles

Investment strategy depends on products sold. Liabilities mostly denominated in local currency so assets will follow but imports of drugs and medical equipment give rise to exposure to foreign currencies

Question 4

Key Risks faced

Answer 4

• Mortality and Morbidity risk
• Claims Frequency & Severity Risks
• Withdrawal
• Sales volumes too high or low
• Underwriting risk
• Expenses risk
• Investment risks
• Credit risk
• Operational risk