3. South African specific products

Question 1

Provide a list of risk products

Answer 1

Death: WoL and TA
Lump sum disability
CI
PHI
Key person cover
Credit life products

Question 2

What factors do contracts depend on?

Answer 2

Sophistication of policyholder
Access to financial advice

Question 3

What are the key characteristics that distinguish contracts?

Answer 3

Term
Disability vs critical illness
Standalone vs accelerator
Premium frequency
Premium paying patterns
Cover level
Future cover option
Underwriting level: simplified uw vs full

Question 4

What are potential risks a company might face?

Answer 4

Correct pricing
UW risk
Advances in medical science
Economic cycle changes
Anti-selection
No uw&raquo_space; extra mortality due to aids?
Reputational risks

Question 5

What strategies can be used to manage risk?

Answer 5

UW
Waiting periods
Premiums guaranteed for limited time
Age limits on benefits
Clear disclosure at sale
Reinsurance
Retention incentives, e.g. cash back benefits

Question 6

Lump sum can be regular income if suffer from one of defined conditions. True or False

Answer 6

True

Question 7

Name 4 major critical illnesses

Answer 7

Heart attack
Cancer
Stroke
CABG

Question 8

Critical illness is an indemnity product. True or False

Answer 8

False. Critical illness is not an indemnity product.

Question 9

Can you explain how a critical illness is considered be a hybrid and payable product

Answer 9

Upon happening of event, independent of extent

On reaching defined degree of impairment

On undergoing surgical procedure

Question 10

What characteristics make an illness eligible for coverage under the insurance product?

Answer 10

Condition perceived by public to be serious and occur frequently

Each condition covered can be clearly defined so no ambiguity at claim stage

Sufficient data to price benefit

Ability to avoid anti-selection

Question 11

What are the challenges associated with a critical illness product?

Answer 11

Complex definitions- need clear and precise definitions esp for complex medical terms and partial payouts for minor conditions

Accurately pricing benefits challenging because of variability in condition-specific rates and predicting future trends

Anti-selection and non-disclosure

Question 12

Discuss 3 market practices and regulatory standards for the critical illness product

Answer 12

SCIDEP (Standardised Critical Illness Definitions Project) aims to standardise definition for 4 major conditions to protect customers from complex terms and lack of transparency

Policy variability- defs and requirements can differ between insurers- complicating consumer understanding and expectations

Standalone policies may have survival period requirements to manage payout risks when death occurs shortly after CI event

Question 13

List consumer needs for financial support

Answer 13

Medical expenses
Income replacement
Loan repayments
Business buyouts
Lifestyle changes
Installing home medical equipment

*Flexibility to use funds as need- might also be windfall effect that could exceed immediate medical costs

Question 14

List risks for insurers

Answer 14

Risks above +

Market conduct risk&raquo_space; reputational risk and regulatory scrutiny

Transparency and communication: ambiguous and vague clauses and premium review practices&raquo_space; poor customer outcomes and regulatory issues

Question 15

Permanent disability complements CI. True or False.

Answer 15

True

Question 16

What does permanent disability cost of cover depend on?

Answer 16

Cost of cover depends on disability definition

Question 17

Explain how permanent disability is occupation based?

Answer 17

*Established by inability to carry out occupation
Own occ
All occ for which suited, given education, training or experience
Any occ

*Flexibility in underwriting
Various definitions&raquo_space; broader coverage and manage risk appropriately
If don’t qualify under own occ, might be eligible under other definitions&raquo_space; more inclusive offerings.
*NB to monitor claims and experience and …
… adjust pricing to prevent losses from more lenient interpretations of defns
*High-risk occs or jobs requiring specific skills may be suited to more restrictive defns e.g. any occ- to manage costs and minimise frequent claims due to minor disabilities

Question 18

What is the purpose of ADL and ADW’s?

Answer 18

Alt to occ-based defn esp for self-employed, not in employment or retired
Focus is on inability to perform everyday tasks than performing specific occ

Question 19

List SCIDEP ADL’s

Answer 19

Feeding
Dressing
Washing
Toileting
Mobility
Transfer

Question 20

Briefly describe the criteria for a claim

Answer 20

If insured can’t perform a # of ADLs unaided

Insurer may customise ADL list- combining ADLs or using diff pre- and post- retirement defns

Question 21

List the advantages of ADL and ADW

Answer 21

Broadly applicable
Simple
Objectivity

Question 22

Provide examples of physical impairments

Answer 22

Loss of limbs or extremities
Loss of senses (e.g. vision, hearing)
Severe burns
Permanent confinement to bed/wheelchair
Facial disfigurement
Amputation

Question 23

Provide examples of functional impairments

Answer 23

Broader than physical impairments
Addresses impairments affecting ability to perform range of daily functions
Often includes conditions listed under ADLs

Question 24

List key features of functional and physical impairments

Answer 24

Permanent
Severity-based payments
Non-occupation based

Question 25

What is meant by the statement "impairments must be permanent"?

Answer 25

Must be permanent: client has reached maximal medical improvement

Question 26

What is income protection also known as?

Answer 26

PHI

Question 27

Briefly describe the purpose of income protection

Answer 27

Aims to replace portion of income lost due to inability to work caused by illness or an accident Pays regular income during period of incapacity Customer need- meet financial obligations that would typically be covered by salary or self-employment income

Question 28

List the key features of income protection

Answer 28

Insured event triggering benefits is inability to work Can be temporary or permanent Claim criteria less strict than for LS disability Occ-based and ADL disability defs are used

Question 29

List common exclusions for income protection

Answer 29

Unemployment Early retirement Alcohol and drug abuse Self-inflicted injuries Suicide attempts War Criminal activities Non-compliance with medical advice Benefits not payable if living outside SA for extended period

Question 30

Briefly the policy structure for income protection

Answer 30

Long term, allowing mult claims without terminating policy Premium waivers during claim available May be written for fixed term or till specified age usually NRA WP included- from 7 days to 2 years… … some policies pay retrospectively from first day of illness

Question 31

What are the benefits of income protection?

Answer 31

Level or escalating, at fixed rate or in line with inflation May be rehabilitation or proportional benefits for those RTW part-time or to less demanding role *Limits applied for incentive to RTW First 2 years: usually don’t exceed 100% of pre-claim income After 2 years: generally don’t exceed 75% of pre-claim income Limits are aggregated aka apply across all policies Income must be clearly defined

Question 32

What are the risks associated with income protection?

Answer 32

Morbidity: higher than expected i_x or lower than expected t_x Administration Moral hazard- not reporting recover

Question 33

What is the purpose of key person insurance?

Answer 33

Purpose is to protect against financial loss due to death, disability or severe illness of key employee Employer pays premiums and gets benefits

Question 34

What are potential reasons for obtaining key person insurance coverage?

Answer 34

Loss of key person can impact profitability due to difficulty in replacing skills Covers costs such as hiring replacements, training new employees, adjusting business model Settle loan accounts / buy out shareholding of deceased to prevent uninterested heirs from becoming owners

Question 35

What are the risks associated with key person insurance?

Answer 35

Mortality Morbidity Early termination if employee leaves company

Question 36

Briefly describe the purpose credit life products and what it entails

Answer 36

Purpose is to protect lender from risk of borrower defaulting on loan from q_x or i_x Usually mandated by loaners Popular in micro-loan industry Cover outstanding loan amt over repayment periods Premiums single / recurring with ters from 3 months to 5 years NCA prohibits adding single premiums to initial loan amount for repayment

Question 37

List the credit life products 2017 regulations

Answer 37

Set maximum charges Define minimum benefits Specify exclusion

Question 38

What are the benefits of credit life products?

Answer 38

Settle outstanding debt if q_x or permanent i_x or Pay 12 months of instalments for temp disability/job loss unless unemployed at start of contract

Question 39

What are the risks associated with credit life products?

Answer 39

Medical data limited at start- pre-existing conditions usually excluded Anti-selection risk small though since tied to loan and small SA Early repayment risk if loan repaid early and premiums level over term >> mismatch with decreasing SA Premiums grouped into broad age bands >> cross-subsidy risk Might behigh profit share arrangements with finance providers to retain business >> impact profitability Reputation: Low historical claim ratios Secondary purchase >> market conduct risk > ph not understand or use policy