Chapter 9 - The general business environment

Question 1

Selling characteristics of PMI

Answer 1

• If all medical expenses are the responsibility of the individual, then medical expense insurance is certainly closer to a need.
• If the state promises free healthcare to all, PMi must be sold rather than bought

Question 2

Selling characteristics LTCI

Answer 2

LTCI depends on the government’s attitude to LTC provision

Question 3

How does the state provide incentives to buy LTCI

Answer 3

• The level of state provision may be so meagre that people desire to take out more provision
• The state may require a person to use up most of his savings before they will provide care. This encourages people to rather take out LTCI in order to preserve wealth

Question 4

Types of regulatory restrictions on healthcare insurers

Answer 4

PAST BRAT

• PREMIUM rate/structure
• ABILITY to underwrite
• SALES channels/procedures
• TYPE of contract
• BUSINESS volumes via reserving requirements
• RATING factors in pricing
• ASSET types and amount of any particular asset to demonstrate solvency
• TERMS & conditions in contract

Question 5

Main aim of Regulation

Answer 5

GRIP

• Give confidence in the financial system
• Reduce financial crime
• Inefficiencies in market corrected
• Protect consumers of financial products

Question 6

How are insurance businesses taxed?

Answer 6

• Tax on the annual profits of the business, where profits broadly mean the excess of the change in the value of the assets over the change in the value of liabilities
• Tax payable on investment income/gains less some or all of the operating expenses of the company

Question 7

The effect of the taxation regime on contract design

Answer 7

• Product design will have to be structured around the tax regime & capitalise on any opportunities, but there may be restrictions on product

Question 8

What areas would professional guidance cover

Answer 8

• Policy conditions
• The adequacy of premium rates for new business
• The value of the liabilities
• Interpretation of legislation where legislation is not overly prescriptive

Question 9

What does political stability indicate

Answer 9

• National economic wellbeing
• Stability of the rules governing the insurance industry
• Stability of the future economic value of insurance policies

Question 10

How does tax on different types of healthcare insurance business affect the overall attractiveness of a product

Answer 10

It is a combination of:

• The taxation treatment of premiums paid, in particular whether the premiums are deductible from the individual’s taxable income in full, in part or not at all
• The taxation of the insurer’s funds during the life of the contract
• The taxation treatment of the eventual policy benefits

Question 11

Why would an insurance contract be taken out

Answer 11

• Legal requirement to do so
• Person wants the contract sufficiently to outweigh the cost and inconvenience of taking it out
• The person is persuaded that he or she wants the contract sufficiently to outweigh the cost and inconvenience of taking it out

Question 12

Why H&C products are considered to be sold and not bought

Answer 12

C SAD USD

• COST constraints – health insurance could be expensive
• SERIOUS illness and incapacity may be taboo subjects
• The general need for ADVICE before making long-term financial commitments, which makes the whole process very time consuming
• Products are DIFFICULT to understand, which puts people off
• The public are UNAWARE of need, either through ignorance or from a belief that the event won’t happen to them
• The STATE may provide a comprehensive set of benefits already, an additional cover will have to be sold (not bought)
• A DIFFICULT marketplace – the presence of many providers makes it hard for individuals to know which products and companies would be best to meet their specific needs

Question 13

How regulation preventing underwriting PMI products will affect contract design of PMI products

Answer 13

• The insurer will need to introduce another measure to counter anti-selection
• The insurer may introduce an exclusion for pre-existing conditions, or a waiting period before pre-existing conditions will be covered
• The insurer may also introduce limitations on benefit amounts for specific conditions or treatments in the first year of the policy