Pricing CI Insurance in Canada Flashcards
1
Q
Steps for developing CI incidence rates (8)
A
No industry table is available. Carriers have minimum experience data. Incidence rates provided by reinsurers.
- Start with general pop age-specific incidence rates from government sources and research orgs for the various illnesses covered.
- Adjust these rates to fit the condition definitions in the policy.
- Apply an applicable trends (such as decrease in heart attack rates)
- Use ratios of insured lives to population mortality to adjust rates from general pop to an insured pop
- Use ratios of nonsmoker to smoker mortality to segment rates
- Use ratios of select to ultimate insured mortality
- Compare rates to any available insurance experience and adjust as deemed necessary
- Sum the rates for each of major conditions covered, then add small amounts (about 1%) for each additional covered condition.
2
Q
CI Insurance product basic provisions (9)
A
- Standalone product
- Fully underwritten
- Level face amount
- Level premiums guaranteed to policy expiration
- Face amount benefit is paid when covered condition occurs
- Definitions of conditions that are guaranteed to policy expiration
- Policyholder must survive for 30 days after diagnosis to become benefit eligible
- Cancer not covered if occurs within 90 days of policy issue
- Return of premium if death occurs prior to being diagnosed with a covered CI or death occurs during 30 day period
3
Q
CI product versions (4)
A
- Basic that covers 3 or 4 major conditions
- Enhanced that covers additional 15-20 conditions
- Enhanced + ROPX (returns premiums at policy expiration)
- Enhanced + ROPX + ROPS (returns premium at policy surrender)
4
Q
Pricing process for CI (8)
A
- Develop CI incidence rates
- Expense assumptions similar to term life insurance
- Develop Premium rates - costing and true pricing
- Premium rates adj for reinsurance
- Rates differentiated by sex, smoking status, size, issue age
- Financial proj calculated - takes into account expected sales and mix of business, profit, ROI
- Rates interpolated to calc rates for all ages
- Time prd to develop target rates to finalizing the product and its terms ranges from a few weeks to months.
5
Q
Pricing challenges for ROP riders (2)
A
- Premiums commence at policy issue and benefits (RoP) occurs at later duration
- Lapse and interest rate assumptions over period are important.
- product is lapse supported
- interest rates that are lower than assumed results in inadequate premiums.
6
Q
Develop premium rates by costing and true pricing (3)
A
- Costing - financial objectives. Based on expected cost, profit objectives & cap requirements. Use commercial product modeling software.
- True pricing - marketing objective. Use commercial premium rate quote services along with competitive info to set rates that achieves sales target goal.
- Both approaches used until get rate that satisfies financial and marketing objectives.