CH 6 (WM) Flashcards
(28 cards)
Explain the importance of customer attraction and clarity. [1.25]
- A product may be attractive if offers an opportunity to provide protection against a risk that is currently a worry✓✓ at a reasonable price✓.
- The product may be unattractive if it meets this need but is hard to understand✓✓.
List the five main factors relating to product design affecting level of customer attraction. [1.75]
- meeting specific needs ✓
- providing cash ✓
- providing peace of mind ✓
- simplicity and clarity ✓✓
- guaranteed vs reviewable premiums and benefits ✓✓
List the 4 specific needs met by Health and care insurance products. [2]
- Finance medical treatment bills.✓✓
- Provide funds to finance costs of lifestyle adjustments following a critcal illness.✓✓
- Health insurance can finance the cost of care in old age.✓✓
- Can provide a lump sum to repay loans.✓✓
State the primary interests of customers in the design of HC products. [2]
Their primary interests are to have products that:
* meet their needs✓✓,
* are clear in purpose✓,
* have an appropriate charging structure✓✓ (eg guarantees and options)✓✓,
* and are affordable✓.
Describe the merits of cash benefit payments to the policyholder. [1.75]
Cash gives the policyholder choice✓, both in terms of:
* the level of benefit ✓
* the use of the benefit✓.
However, this choice may not be positive if the policyholder makes a poor choice.✓✓
An advantage of indemnity benefits is that the insurer may be able to obtain cheaper prices from healthcare providers due to the volume of business given to providers.✓✓
Describe the nature, cash vs indemnity, of the benefits offered under a PMI policy. [2]
Policies are normally written on an indemnity basis✓✓, although there may be a cap on the benefits paid for certain procedures✓✓. The insurer usually pays the provider of treatment directly.✓✓
Exceptions to this include cash benefits that are paid when a State alternative is used✓ and health cash plans, which provide cash benefits.✓
Describe the nature, cash vs indemnity, of the benefits offered under a CI policy. [2.25]
CI insurance –
The lump sum cash benefit is not related to the actual loss incurred by the insured✓✓ and it can be used for any purpose✓.
Benefits can be more than the cost of immediate care✓✓; the surplus may be used for recuperation / rehabilitation.✓✓
Sometimes the benefit is a genuine windfall to the policyholder (which can cause anti-selection)✓✓.
Describe the nature, cash vs indemnity, of the benefits offered under a LTCI policy and the main risks to the insurer under their preferred benefit approach. [1.5]
LTCI –
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 (annuity) risk✓ and the risk of benefit inflation being greater than expected✓.
Describe the peace of mind offered by HC products. [1]
For many individuals there is a positive psychological effect✓ of knowing they are protected✓ should they suffer incapacity or sickness✓✓.
Describe the term micro insurance. [2]
- Microinsurance in insurance that is targeted towards those who are working but with low incomes.✓✓
- It should be designed to meet needs with greater emphasis on covering basic components and affordability.✓✓
- Limited benefits for low premiums.✓✓
- Microinsurance is particularly important for the developing world.✓✓
Describe the main concerns PHs have about private medical treatments. [0.5]
PMI – The main concerns are that the costs of treatment are unaffordable or that the quality of State provision is inadequate.✓✓
Describe the main concerns PHs have about critical illnesses. [0.5]
CI insurance – The main concern is being diagnosed with certain headline diseases or the need to undergo serious surgical procedures✓✓.
Describe the main concerns PHs have w.r.t. LT care. [1]
LTCI – 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 come from a family member or friend.✓✓
Outline the simplicity and clarity offered by PMI products. [5]
PMI – The concept is clear✓, but policy conditions can complicate the product✓ and lead to misunderstandings by policyholders✓.
In particular:
* the underwriting and acceptance processes can be misunderstood ✓✓
* there may be limits on the benefits ✓ (eg excesses and upper limits) ✓✓
* there may be exclusions ✓ (eg for pre-existing and non-acute conditions) ✓✓
* certain treatment may be excluded✓, eg cosmetic surgery, infertility, frail care and experimental treatment [1]
* there may be complicated arrangements for sharing the risk between the policyholder and the insurer ✓✓
* claims may be required to be pre-authorised ✓✓
* the choice of hospitals or other establishments in which treatment can be provided may be restricted.✓✓
Outline the simplicity and clarity offered by CI products. [4]
CI insurance – These policies appeal to consumers✓ as they are simple to understand✓.
Two aspects of simplicity✓
* lump sum payout - cannot be subsequently withdrawn by insurer.✓✓
* claims trigger of diagnosis is easy to explain.✓✓
However confusion✓ can arise due to exclusions✓,
point-of-claim underwriting✓ and non-standard claim definitions✓.
Tiered benefits CI:
* is more complex than a standard CI contract✓✓, making it hard to compare✓
* has potential for a higher degree of claims dispute✓✓.
Outline the simplicity and clarity offered by LTCI products. [2.75]
LTCI –
While the concept is straightforward✓, confusion✓ may arise over the extent of the benefits✓.
* Cash benefits may not meet the costs of care✓✓,
* and may be subject to maximum amounts or payment period✓✓.
These conditions complicate matters for a non-expert purchaser.✓
Also, trigger events are usually defined in terms of ADLs✓✓, which need to be explained to an applicant✓.
Describe the guarantees and reviewability of premiums and benefits under a PMI contract. [1.5]
PMI is short term✓ and usually annually renewable✓, and so premiums and sometimes T&Cs can be changed each year✓✓.
Premiums may be guaranteed for 3 - 5 years, when medical inflation is stable.✓✓
Describe the guarantees and reviewability of premiums and benefits under a CI contract. [2]
What are serious illnesses✓, and how they are treated✓, changes rapidly with medical advances✓.
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 premiums business being sold✓.
Describe the guarantees and reviewability of premiums and benefits under a LTCI contract. [2.75]
Immediate needs✓
- Present no problems of guaranteed premiums✓✓.
- Income stream is brought by single premium✓.
- Income stream may move based on increasing disability✓.
-Pre-funded LTCI✓
-Reviewable products dominate✓✓.
-degree of premium variation depends on past &
future expected claims experience✓✓.
-& estimated trends to which the policy is linked✓.
Define Keyperson cover. [2.5]
Keyperson products are taken out by an employer to cover key employees.✓✓
They fall into two categories✓:
- Those designed to provide compensation for loss of profits✓✓.
- Those designed to cover the key employee’s salary✓✓ (to facilitate the temporary recruitment of a replacement)✓.
The insurance should cover sickness, incapacity or death of the key employee✓✓.
In what sense could you argue that PMI is more focused than CI? [2]
CI pays a cash sum✓ on the occurrence of one of the serious conditions listed in the policy✓, irrespective of the actual loss suffered by the insured✓.
PMI is an indemnity product✓ that pays for the actual medical treatment expenses incurred✓ as a result of sickness or injury✓. The size of the payment is related to the actual loss✓, and so it is more focused✓.
Notes Q 6.4
Discuss how PMI cover might meet the medical needs in old age. [3]
Q6.4
Solution 6.4
PMI cover will provide cover for treatment of chronic conditions✓ (eg diabetes medication)✓ as well as acute conditions✓ (eg surgery and recuperation)✓✓.
However it should be noted that extended recuperation benefits may not be available commercially✓✓.
Frail care✓ or nursing assistance✓ that involves activities of daily living✓ (sometimes referred to as “custodial care”)✓ will not be covered under PMI policies✓.
This is a DISCUSS question.
Describe two major health care risks that are not covered by CI insurance. [1.75]
- the result of serious accidents✓✓ (eg injuries following a car accident)✓, unless these result in permanent disablement✓
- psychiatric and similar illnesses✓ (eg stress)✓, unless these result in permanent disablement.✓
Hanna and Gabs
Notes Q6.5
What risks are the insurer exposed to if indemnity benefits are provided?
Name three ways in which the insurer can reduce these risks. [4]
The insurer is exposed to fraud✓ and moral hazard✓, where policyholders claim for more expensive benefits than necessary✓.
The insurer can reduce this risk by:
* introducing co-payments✓, particularly in the form of a percentage of the claim✓ so that the policyholder is responsible for part of the claim amount✓
* setting limits to the maximum amount✓ that can be claimed annually✓ for a certain condition✓, or in total for the PMI cover✓
* excluding treatment✓ where there is a greater propensity✓ for consumers to demand✓ or healthcare providers to supply✓ more expensive treatment✓ (eg excluding caesarean sections✓ except in emergencies under maternity benefits✓).