Customer interests Content

Question 1

What are the customers’ primary needs?

Answer 1

1. Products that meet their specific needs
2. Products that are clear in purpose
3. Products that have an appropriate charging structure
4. Products that provide cash and peace of mind
5. Products that are affordable

Question 2

What are the four specific needs that health and care insurance products meet?

Answer 2

1. They can finance medical treatment bills
2. They can provide funds to finance the costs of lifestyle adjustments following a critical illness
3. They can finance the cost of care in old ages
4. They can provide a lump sum benefit which can be used to repay loans

Question 3

How does PMI meet the customer’s specific needs?

Answer 3

PMI aims to assist the policyholder in covering the cost of medical care.

PMI will be bought when the individual wants a 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 a local hospital

Given the asymmetry of information in the healthcare market, the consumer is in a difficult position to evaluate whether the recommended treatment is the most efficient, evaluate the quality of the service or assess the reasonability of the price of treatment.

Question 4

How does CI insurance meet specific needs?

Answer 4

A variety of needs are met by a CI policy:

1. Income can be provided from the lumpsum via an annuity when the individual cannot work as a result of his/her critical illness
2. The benefit can be designed to repay a mortgage or other loan when the policyholder is diagnosed with a CI
3. Medical costs can be funded.
4. Benefits will fund the buyout of the stake in partnership when a CI arises
5. A change of lifestyle can be funded to improve the claimant’s health
6. Other needs include recuperation or rehabilitation treatment after illness

Question 5

How does LTCI meet customer’s specific needs?

Answer 5

The main need met by LTCI is the provision of some financial protection against the costs of care and assistance when a person becomes unable to look after himself/herself.

Claimants’ needs at the time may entail domestic support and this may progress to live-in care. Alternatively, residential care may be sought.

There may be a need for medical care where physical and mental breakdown requires the intervention and supervision of doctors and nursing staff.

Question 6

How does microinsurance meet customers’ specific needs?

Answer 6

Microinsurance is insurance targeted towards those who are working, but with low incomes.

Microinsurance has low premiums and low benefits, for affordability.

These customers are more vulnerable to adverse events.

Microinsurance helps to avoid the need for those individuals to rely on money lenders.

Question 7

What risks are the insurer exposed to if indemnity benefits are provided?

How can the insurer reduce these risks?

Answer 7

Fraud and moral hazard

These can be reduced by:

• having co-payments in % form
• having limits
• excluding certain expensive treatments

Question 8

How does PMI provide cash?

Answer 8

PMI is normally an indemnity product although there may be a cap on the benefits paid for certain procedures.

Question 9

How does CI provide cash?

Answer 9

CI provides cash benefits.

The receipt of a lump sum as opposed to an income stream makes CI policies more attractive than income protection. This lump sum may be converted to income by purchasing an annuity.

CI policies pay out more than the cost of immediate care; the surplus is then available for recuperation or rehabilitation treatment.

The cash benefit however represents a genuine windfall to the policyholder in that the amount of money produced can far outweigh the medical costs or the longer term damage to the quality of life. This can then cause anti-selection problems. To avoid this problem, offer tiered benefits.

Question 10

How does LTCI provide cash?

Answer 10

LTCI may provide cash or indemnity benefits.

While consumers may prefer indemnity benefits, insurers have found it increasingly difficult to assess these risks and prefer to offer products with cash benefits. IN this case, the main risks to the insurer are the longevity risk and the risk of benefit inflation being greater than expected

Question 11

How does PMI provide peace of mind?

Answer 11

The main concerns are that the cost of treatment may be unaffordable and that the quality of State provision are inadequate. PMI cover would reduce the time spent waiting for treatment and so would provide peace of mind to some extent.

Question 12

How does CI provide peace of mind?

Answer 12

The main concern is being diagnosed with certain headlines or the need to undergo serious surgical procedures. CI insurance can thus provide financial peace of mind

Question 13

How does LTCI provide peace of mind?

Answer 13

The main concerns are having insufficient funds to pay for care in old age and that care available from the State (or informally) is inadequate. The concern may also be that they do not want to rely on family and friends for help.

Question 14

Comment on the simplicity and clarity of PMI

Answer 14

The concept is clear but policy conditions can complicate the product and lead to misunderstandings. In particular:

a) The underwriting and acceptance processes can be misunderstood

b) There may be limits on the benefits which can cause confusion

c) Policies will sometimes have intricate member cost-sharing arrangements, which are not always well understood by the policyholder

d) Insurer may require the patient to receive authorisation before treatment begins which may be deemed to restrict freedom and may not have been understood at the outset

e) Some policies provide cover explicitly only in certain type of medical establishments and this might not have been appreciated at purchase

Question 15

Comment on the simplicity and clarity of CI policies

Answer 15

These policies appeal to consumers as they are readily understood, provide a lump sum benefit that cannot subsequently be withdrawn and cover a risk that customers can recognise readily. However, confusion can arise due to exclusion, point-of-claim underwriting and non-standard claim definitions

Question 16

Comment on the simplicity and clarity of LTCI

Answer 16

While the concept is straightforward, there is a tendency for customers to believe that LTCI policies will cover the costs of care in old age.

Cash benefits may not meet the costs of care, and may be subject to maximum amounts or payment period, when the need may last for a lifetime.

The trigger points form LTC benefits are ADLs or cognitive impairment. These need to be explained to the applicant , to avoid the belief that payment will follow a doctor’s referral

Question 17

What is the problem with guarantees with health and care insurance?

Answer 17

Policyholders will prefer a guaranteed premium, however, high levels of uncertainty for health and care insurance means that guaranteed premium business can be expensive

Question 18

Comment on the guarantees and reviewability of premiums and benefits under PMI

Answer 18

PMI is annually renewable and short term and so premiums can be changed each year.

The indemnity nature of this product, uncertainty over future trends and the lack if control over the costs charged by the supplier of the service in some markets, make guarantees very difficult to price effectively

Question 19

Comment on the guarantees and reviewability of premiums and benefits under CI insurance

Answer 19

Serious illnesses, and how they are treated, change rapidly with medical advance. This has made it difficult for insurers to assess the risks they face. This uncertainty makes reviewable premiums more suitable, however, competitive pressures have led to guaranteed premium business being sold

Question 20

Comment on the guarantees and reviewability of premiums and benefits under LTCI

Answer 20

Immediate needs plans present no problems of premium guarantees. An income stream is bought by a single premium.

For pre-funded plans, reviewable products predominate. The degree of premium variation will depend on the past and future expected claims experience of the insurer- and on the estimated trends in the index to which the policy is linked to.