Healthcare Products

Question 1

Why are group PMI products experience rated?

Answer 1

• Group PMI experience is likely to differ from employer to employer even if they operate in the same industry.
• Experience may differ because:
  *Employers operate in different geographical locations.
  *The nature of work leads to different PMI treatment costs.
  *Employers may have differences in attitudes to health and safety in the workplace, which can affect the number and size of claims.
• Historical claims are usually a good indicator of future experience.
• Single book-rate premium will not accurately reflect expected risk of different group policies, even if risk factors are identical.
• Experience rating should be more attractive to customers, thus improving marketability and sales volumes.
• Since the premium is based on past claims experience, this will encourage the employer to:
  *Reduce the occurrence of adverse claims experience.
  *Encourage claim cost decreases.
  *By reducing premiums via good health management practices, this should improve persistency.

Question 2

What are the main transactions under unit-linked contracts?

Answer 2

To the unit fund:
- + Allocated premium.
- + Bid-offer spread.
- Management charge.
- Morbidity charge.
- Investment charge.
- Policy fee.
To the non-unit fund:
- + Unallocated premium.
- + Bid-offer spread.
- + Management charge.
- + Morbidity charge.
- + Investment charge.
- + Policy fee.
- Expenses.
- Guaranteed benefits.

Question 3

How are high initial expenses met with unit-linked contracts?

Answer 3

0% allocation rate for a short period of time.
- Very low allocation rate for a short period of time.
- Higher fund charges throughout the policy lifetime.
- Assign special units (capital units) which have higher fund charge than normal units.

Question 4

What customer needs does PMI meet?

Answer 4

Needs met depend on the level of state intervention.
- Policyholders can get medical attention without waiting.
- Policyholders can get a better standard of accommodation, e.g., private room.
- Policyholders can get medical attention with their doctor of choice and at the hospital of their choice.
- Policyholders have protection against the inability to meet medical costs in time of need.
- Policyholders can ensure good quality treatment is provided at acceptable cost through treatment protocols, hospital networks, and negotiated fees.

Question 5

How are benefits paid for PMI policies?

Answer 5

Usually indemnity benefits, so the claim amount is unknown until treatment is complete.
- Benefits are usually paid directly to the provider, or the policyholder is reimbursed.
- To limit the claim amount, upper limits or excesses can be set.
- Cash is only provided for:
- Hospital cash plans.
- Major medical expense plans (lump sum for surgery).
- Accident, death, and disability plans (lump sum on suffering certain injuries or fixed regular payments on accidental death or disability).

Question 6

How are benefits paid for CI policies?

Answer 6

• Usually a lump sum benefit provided on diagnosis of specified critical illnesses.
• Could convert into an income stream by purchasing an annuity.
• Lump sum is more than just the cost of immediate care, so it can pay for recuperation expenses too.
• As a result, there is a mismatch between benefit and customer need, which can increase the risk of anti-selection and fraud.
• Can use a tiered benefit system to solve the mismatch issues.

Question 7

How are benefits paid for LTC policies?

Answer 7

• LTC provides lump sum benefits or indemnity benefits.
• Usually not indemnity benefits because it is difficult to predict the probability, duration, and cost of claims.
• Lump sum is chosen at the time of purchase for pre-funded LTC policies.
• Lump sum premium converted into lifetime income for immediate needs LTC policies.
• Income depends on the level of disability at the time of need.
• Benefit might increase as incapacity worsens.

Question 8

What customer needs does CI meet?

Answer 8

Policyholders can pay for the cost of medical treatments, medications, etc.
- Policyholders can pay for recuperation or rehabilitation treatment after illness.
- Policyholders are provided with income, now that they are no longer able to work after being diagnosed with CI.
- Policyholders can pay for the cost of lifestyle changes, e.g., railings added to showers at home.
- Policyholders can use the benefit to pay off home or car loans.
- Policyholders can pay for costs to replace a key person in the company.
- Policyholders can supplement income if they move to a less stressful job post-heart attack.

Question 9

What customer needs does LTC meet?

Answer 9

Covers the cost of care in the future.
- Covers the cost of medical facilities, e.g., old age home.
- Covers the cost of lifestyle changes, e.g., add railings to home.
- Covers the cost of nurses or carers.
- Supplements regular income if no longer able to work.

Question 10

How does PMI provide peace of mind?

Answer 10

No reliance on the state for medical treatment services.
- No longer worried about the ability to afford paying for medical services yourself.

Question 11

What peace of mind does CI provide?

Answer 11

Policyholders know they can relax if diagnosed with a certain critical illness.
- Since only “certain” CI, policyholders may get more comprehensive cover from PMI + income protection.

Question 12

What peace of mind does LTC provide?

Answer 12

Policyholders know they’ll have enough money to pay for care when they’re old.
- Policyholders don’t have to rely on the government.
- Policyholders know they’ll have enough money to pay for care for their parents if they cannot do it themselves.
- Policyholders know that they will be supported by the insurer in terms of choosing the correct care service to buy.

Question 13

How can PMI be made more complex?

Answer 13

All the managed care intervention concepts can be difficult to understand.
- Pre-authorisation might be misunderstood.
- Treatment protocols might mean some care is not covered due to cost-benefit analysis.
- Provider networks might be misunderstood from the outset.
- Cost-sharing arrangements might be difficult to understand.
- Policyholders might think it is an indemnity product, but it also has limits.
- The medical underwriting process might be misunderstood.
- Exclusions might vary between products in the market.

Question 14

What might customers not understand about CI products?

Answer 14

The concept of tiered benefits might be difficult to explain and lead to claims disputes.
- Some illnesses will not qualify policyholders for a claim, e.g., injury due to an accident or CI not on the list.
- Lump sum payout should be easy to explain.
- Claims trigger on diagnosis should be easy to explain.

Question 15

What might customers not understand about LTC products?

Answer 15

That this is not an indemnity product.
- Benefits may be payable for a limited period of time.
- Benefits may be subject to a maximum amount.
- There might be different benefit levels depending on the severity of incapacity.
- Triggers of benefits (Activities of Daily Living, or cognitive impairment) need to be explained to the customer.

Question 16

What are the advantages and disadvantages of tiered benefits?

Answer 16

Advantages:
- Fairer to policyholders.
- Customer needs better matched to benefit paid at the time.
- Policy no longer lapses after a claim is made.
- Cheaper premium because usually 100% of the benefit is not paid.
- Reduced anti-selection risk to insurer.
- Seen as more comprehensive to policyholders (wouldn’t have paid for less severe conditions before).
- can be seen as product differentiator
Disadvantages:
- Difficult to define additional stages that trigger benefits.
- Definitions might be weak and lead to more claims.
- Difficult to compare products within the market as no consistency in approach.
- Need four times as much data for severity levels
- need to train staff and build systems

Question 17

What are some of the alternatives to PMI cover?

Answer 17

• Dental and optometry benefits
• Health cash plans
• Major medical expenses
• Travel insurance health cover
• Waiting list plans

Question 18

What are health cash plans?

Answer 18

• There is a defined benefit (NOT INDEMNITY) that may be limited to 50% of the medical bill.
• Defined benefit and defined premium products
• For super low premiums, subscriber and family can get a range of different payouts.
• Payouts depend on certain health events including hospitalisation, gap cover, dental and optical, hearing aids etc.
• Schedules of benefits are bought in “units”, you and pick and choose your benefit and pay an associated contribution.
• Premiums are low so difficult to recoup initial expenses, best way is to:
  
  • PH loyalty - persistency is important to ensure initial expenses can be recovered over a period of years.
  • Cost efficient claims admission
  • Volumes in force - more policies, the more the initial expenses can be spread across them

Question 19

Health cash plans: What are hospital cash plans?

Answer 19

Prev said he only has a hospital cash plan. So he’s only covered for fixed Rand amount. But the cover extends over his whole life. There’s waiting period for accident claims, but he didn’t tear his meniscus due to running fault. And even though he wasn’t really underwritten he’s still risk rated for premiums.
- Entitled to a fixed rand amount per day spent in hospital.
- Benefits are paid from first/second day spent in hospital, if they are expected to be hospitalised for at least two days.
- Not renewed annually, but extends over lifetime of insured (death/max age)
- Benefits/conditions that may apply:
- escalating benefits that increase with premium.
- individual risk rating (no indemnity and fixed daily amount)
- limited underwriting
- waiting period except for accident related claims
- pre-existing condition exclusions.

Question 20

Dental plans

Answer 20

• Insurer works closely with dentists to insure patient does not have pre-existing conditions or needs imminent treatment.
• There are two principle methods
  
  • Capitation basis: insurer and dentist agree on a sum for each insured mouth per annum
    
    • Patient pays regular fee to insurer who deducts an amount for expenses
    • Insurer passes the rest to dentist who administers the treatemnt
    • Risk of cost of treatment being more than expected lies with dentist
    • Insurer deals with all admin and might cover cost of accident and emergency treatment
  • Indemnity basis: insurer covers actual cost of treatment.
    
    • Insurer bears all the experience risk
    • Often limits and coinsurance will apply.

Question 21

Optometry plans

Answer 21

• • Provide cover for spectacles, optical treatments and eye-tests
  • Waiting periods and pre-existing condition exclusons apply

Question 22

Health cash plans: What is medical gap cover?

Answer 22

• Covers difference between cost of medical treatment and amount covered by PMI
• Focuses on in-hospital medical and surgical treatment and out-patient treatment for chemotherapy, radiotherapy and renal dialysis
• Benefits limited to annual amount per life event.

Question 23

What are waiting list plans?

Answer 23

• For a reduced premium, provide medical insurance benefits only when public health services cannot provide treatment within a specified period (often 6 weeks).
• Insurance will not reimburse if state health provider found.
• Product appropriate where quality of state healthcare is good but there are long waiting periods.

Question 24

What are health insurance travel insurance?

Answer 24

• Covers emergency medical expenses when insured is not in their home country.
• Receive medical care until well enough to travel.
• Medical evacuation and repatriation also covered.
• Insurer usually had medical assistance provider to liaise with healthcare providers.
• Benefits limited to maximum amount per trip and PH can select benefit limit most appropriate to them.
• Premiums are individually risk rates are depend on: age, gender, destination, cost of healthcare at destination, length of trip, type of trip.
• Hazardous activities are usually excluded unless specialised policy purchased.
• Pre-existing medical conditions usually excluded.

Question 25

What is personal accident cover?

Answer 25

• Short-term renewable
• Provide lump sum to compensate for specified bodily injury (could include loss of one or more limbs) as a result of an accident
• Usually have a rider benefit that pays if insured’s children suffer an accident.
• Additions to personal accident cover includes: death cover or TPD
• Additions allow product to cater for loss of function unrelated to conditions listed in personal accident cover
• Benefit definitions
  
  • Not indemnity insurance cause not possible to quantify value of loss e.g. arm.
  • Level of cover normally required by one person
  • if family members covered under group/individual plan then we need more details of these members to calculate exposure measure (person year)

Question 26

What is total permenant disability cover?

Answer 26

• “Total” - cannot perform any or a substantial part of job/function
• “Permanent” - even if disability is severe in short term, if there is an expectation that recovery will eventually occur then benefit will not be paid
• “Disability” - definition of disability considers the severity of the condition and extent of the disablement
• Difficult to determine if disability is permanent → advisable to use waiting period here
• Maintain IBNS claims while wait for final outcome of disability to be clear
• Unlikely every element of job failed completely, if elements failed do not compromise a major part of the role then failure not considered total.
• Cost of TPD depends on the definition of disability used.
• Different to personal accident benefits where focus is on the diagnosis of an illness or injury that is directly caused by an accident, rather than the severity or long-term effects of the condition.

Question 27

What are the different definitions of disability?

Answer 27

• Occupation-based
  
  • inability to perform their own occupation, all occupations suited by education, training or experience and any occupation)
  • if occupation requires certain skills (e.g. pianist) which can be impaired by minor disability an “own” occupation definition is not suitable as claims would be paid frequently on minor injuries
  • “any occupation” definition may be seen as unfair so usually depends on education, training or experience and any occupation
  • occupations that have above average accident risk (e.g. site worker), offered TPD cover on “any occupation” definition cause comprehensive cover is expensive
  • may be difficult to apply to housewives, househusbands and those not in employment or past retirement age
• Activities of Daily Living
  
  • This definition applies to more people (unemployed and retired)
  • Less subjective than occupation based definition
  • Definition use inability to perform a number of normal everyday tasks (ADLs)
  • ADLs include: feeding, dressing, washing, toileting, mobility and transferring. (fuck the world, dmt)
  • Need to be able to undertake, unaided, a given number of ADLs (three/four)
  • Might be harder to satisfy this definition rather than occupation based
• Working activities/functional abilities
  
  • Activities of Daily Work (ADWs), Personal Capability Assessments (PCAs) and Functional Assessments Tests (FATs)
  • Definitions include: dexterity, mobility and communication. (dmcs)
  • More objective, especially if skills relate to occupation

Question 28

What is difference between risk and rating factors?

Answer 28

• Risk factors are known to influence claim cost and can be hard to measure
• Rating factors are used to determine premium, and are proxies to risk factors

Question 29

What is main difference between critical illness and MME?

Answer 29

Critical illness only pays out on diagnosis of specific critical illness. MME pays out on need of list of certain operations. There may be some overlap, where serious condition requires certain operation.

Question 30

Why are exposure measures including in premium calculation?

Answer 30

• Need to determine how much risk there is in each policy,to determine premium
• The measure of exposure needs to meet two criteria
  
  • It should be a good measure of the amount of risk - allow for expected frequency and expected severity
  • It should be practical i.e. objectively measurable, easily obtainable, verifiable and not open to manipulation
• Exposure measures often incorporate time units (policies for 2 years should be charges twice premium of 1 year policies)

Question 31

What are reasons why employers want group product for their employees?

Answer 31

So the best employer in the world is Liberty. The people aren’t very attractive and they don’t stay for very long. But the perception of Liberty is great in the market. Liberty gives you access to someone who can write your cover page for you, which is usually something you can’t afford. Liberty actually take a portion of your salary to pay for this benefit, which makes things easier for you. Or they might pay for the whole thing themselves. Usually tax-free. The quality of cover letters come out a lot better and mistakes are corrected quickly so individual can return to work. Overall they’re thinking of making this a requirements but are unsure if it will improve wellbeing of everyone.

• attract and retain good staff
• perceived value > cost to employer
• gives access to cover they may not be able to get on their own
• employer facilitates the premium collection this can be seen as a positive to employee (admin wise)
• employer contributes to premium (or pays full premium)
• CI can help employee financially when they needed extended time off work
• May have tax advantages over individual insurances
• Promotes health and wellbeing in workplace
• PMI ensures acute medical conditions are treated quickly and staff return to work quickly
• PMI may improve quality of treatment, meaning employees are more satisfied and productive in long term
• May be a legal requirement (e.g. income protection insurance)

Question 32

What are risk equalisation funds?

Answer 32

• If risk profile of the group becomes poor, it’s difficult to provide adequate benefits at reasonable premium rates
• Risk profile can become poor if the industry has undergone a significant contraction (few young people joining, but older retired employees remain members of the plan) e.g. for goldminers in SA. This is particularly an issue for group plans that are closed to new members as the membership ages.
• If premium rates are increased → risk of selective withdrawals, exacerbating the problem of the poor risk pool → premiums becoming unaffordable / benefits reduced to a level where they are no longer meaningful.
• A risk equalization fund has been developed to allow for cross-subsidisation between groups with high-risk pools and groups with low-risk pools.
• Premium rates are based on the risk profile of members across all groups: groups with healthier members will contribute excess premiums to the risk equalization fund, which will be used to subsidise the claims of the groups with a higher risk profile.

Question 33

What is difference in group underwriting due to size of group?

Answer 33

• Large group
  
  • The health status of individual members is not considered
  • Instead a more global view is taken in assessing the experience of the group as a whole.
  • Look at demographics of group and prior experience
  • Some lives in poor health will be accepted because they will be balanced out by members in good health.
  • Standard premium rates usually apply for all members selecting a particular level of cover / benefit option → anti-selection risk
  • In order to provide ‘more relaxed underwriting’ and in essence avoid anti-selection
    
    • Cover will need to be compulsory
    • Eligibility for membership will need to be tightly defined e.g. need to join within 3 months of starting work.
    • Members need to be ‘actively at work’ when cover begins
• Small group
  
  • Individuals more likely to get underwritten, but not rigurously
  • May consider compulsory membership
• Individuals
  
  • Will collect individual medical questions, and perhaps also tests
  • May load, exclude or decline
  • May be restrictions on extent of underwriting allowed.

Question 34

What are the three different approaches to underwrite PMI?

Answer 34

Full medical underwriting
* Most onerus form of underwriting and most expensive
* All applications will be medically underwritten at outset
* Offers best protection against anti-selection risk.

Moratorium underwriting
* Less costly as policies only underwritten if claims made during moratorium period.
* Underwritng at claims stage may be relatively complicated and time-consuming
* Offers slight protection against anti-selection risk as claims for pre-existing conditions excluded in moratorium period.

Medical history disregard
* Least costly, as there is no formal underwriting at claims stage or policy inception.
* More attractive the cover, the higher volumes of business which could lead to economies of scale and expense savings.

Question 35

Describe four ways health insurance company can obtain underwriting information

Answer 35

Proposal form
* Current health, medical history
* Gender and age, weight and height, occupation, income, smoking habits, country of residence
* Size of benefit, contract applied for
Primary medical attendent’s report
* Confidental report written by applicant’s medical doctor
* Given an account of medical history and opinion about future health
Medical examination
* Applicant required to undergo medical examination by company’s medical officer or indepedent medical practioner
* Includes routine medical tests e.g. bloog pressure test.
Specialist medical tests
* Involve investigation about specific conditions e.g. chest X-ray

Question 36

What types of special terms might apply?

Answer 36

• Charging an extra premium
• Reducing benefit payable
• Postponing decision
• Declining insurance
• Offering different type of policy
• Issuing an exclusion
• Shortening policy term

Question 37

Fund protection

Answer 37

• Protecting the entire investment fund (initial investment + investment growth)
  Min deferred period would apply (normally 3 months)
• Protecting the initial investment
  Deferred period would vary according to the difference between the fund value at the point of claim and the protection benefit selected + min deferred period
• Allowing the entire fund to be exhausted
  Prior to the insurance benefit starting, the policyholder would draw down from their own unit fund through regular partial withdrawals (which would cease when insurance protection commences).

Different periods to be aware of:
* Deferred period the policyholder chooses at outset (fixed - min deferred period)
* Period during which LTC benefits are paid out of the unit fund (depending on the size of the fund and the level of the benefits)
* Period during which LTC benefits are paid out of the non-unit fund (until death / recovery)
i.e. the choice of fund protection is equivalent to varying the deferred period

Question 38

Indemnity commission

Answer 38

• Usually initial commission it not paid in one go, might be paid over 2 years (like picture above)
• Instead of paying a small initial commission for first two years, a lump sum payment from the insurer to the distributor in respect of new business written is paid (indemnity commission)
• This is typically expressed as a % of the first premium / may be a % of the sum insured
• It represents advance remuneration to the intermediary for premiums that are expected to be paid in the future + premium paid on day 1.
• It could be calculated as a discounted value of the initial commission that would otherwise have been paid under the policy.
• Generally, involves the insurer in some form of new business strain.
• May be paid to a distributor who needs cash “up-front” to develop their business (e.g. to support any cost of marketing ahead of commission from resulting sales).
• The insurer will make some form of credit check on the distributor (e.g. for if they go bankrupt, they must pay back the commission in respect to lapses).
• Commission structure is therefore an NB aspect of its new business and marketing strategy

Question 39

What’s factors need to be considered in terms of FCL?

Answer 39

• consider competition and their FCL levels
• consider risk of anti-selection (compulsory vs voluntary, distribution of benefits, the size of employer)
  -consider benefits offered( once-off or reinstatement, benefit level relative to salary (if 3x high anti selection), level of benefits vs competitors
• industry/size of employer(nature of work might have impact of level of risk imposed, small employer might mean volatile experience)
• regulatory restrictions of FCL

Question 40

Why would state provide tariffs on medical expenses related to accidents?

Answer 40

• ensures transparency amoungst stakeholders
• contains the cost of medical expenses
• ensures that those who need medical treatment won’t be overcharged
• ensures there is access to care for all those who need it
• keeps amount of tax(or fuel levies) needed to fund low