Chapter 1 Health & Care Insurance products

Question 1

Private Medical Insurance: Definition & types of cover

Answer 1

Is usually an indemnity-based product that seeks to provide compensation for the cost of private medical treatment.
This refers to products that cover for medical expenses that would be funded by individuals or employers. In SA insurers are prevented from providing indemnity benefits for health related benefits.
- Renewable annually. Premiums can be changed annually.
-cover not guaranteed from one year to the next.

Question 2

What are the main elements of a product cycle?

Answer 2

• Product design
• pricing
• marketing sales
• underwriting
• claims management
• experience monitoring
• valuation

Question 3

Product Cycle: What does product design need to consider?

Answer 3

• The needs of customers
• roles of stakeholders
• cover provided & premiums
• risks involved in providing health insurance

Question 4

Product cycle: Pricing considerations

Answer 4

• Experience may vary widely by provider.

- Stricter claims underwriting should be reflected with lower premiums.

Question 5

Product cycle: Marketing and sales

Answer 5

-This product may be seen as a genuine need by customers. However, the product may still need to be marketed to maintain a competitive position in the market.

Question 6

Product cycle: Claims management & underwriting

Answer 6

• Underwriting, waiting periods and claims management have fundamental implications for the resulting claims experience and subsequently premium rates.

Question 7

Product cycle: Experience monitoring and valuation

Answer 7

• Premiums are usually reviewed annually.
• National or industry statistics on treatment costs covered by PMI products will not be applicable to the customers of individual insurance provider. Hence monitoring is important part of premium rating.

Question 8

Risk benefits of PMI

Answer 8

• Usually covers in-patient treatment covering both diagnostic tests and operations.
• In-patient stays, the room costs, drugs, dressings, theatre fees, specialists.
• Outpatient treatment may be covered subject to benefit limits.

Question 9

MSA

Answer 9

Daya-to-day medical expenses like medication, GP and specialist consultations are slef-funded by policyholders through a MSA.

Question 10

General exclusions

Answer 10

• Alcohol & drug abuse
• self-inflicted injuries
• cosmetic surgery
• frail care
• infertility
• war risks
• costs for which 3rd party is responsible.

Question 11

Policy excess

Answer 11

• The insured is liable for the first tranche of any claim (a pre-specified monetary amount known as the excess).
• The premiums discount obviously increases as the level of excess rises.

Question 12

PMI: Claims experience and risk rating

Answer 12

• Cost of treatment made up of various components: medical practitioner fees, medication, medical supplies and nr of days in hospital.
• When reviewing premiums insurer needs to consider premium increases that will be tolerated by the market.
• Premiums reflect changes in expected claims experience over period of cover.
• Insurers may elect to introduce additional limits than introducing excessive increases.
• Community rating does not use individual information for premium rating. Only income and number of dependants are the factors used.

Question 13

How can insurers manage claims costs (PMI)?

Answer 13

• Limitations and exclusions on benefits where likelihood of moral hazard is high. Eg purchasing designer spectables through PMI.
• Co-payments and levies require a policyholder to pay a fixed proportion of cost of the healthcare services used.
• Medical savings accounts where policyholders are required to self-fund day-to-day medical expenses.
• Approved provider networks where policyholders are encouraged to seek services from healthcare service providers who are registered with the insurer. Costs are managed through:
  1. negotiating fees and service standards
  2. introducing treatment protocols
  3. requiring prior authorisation from insurer for hospitalisation.
  4. employing their own healthcare professionals to set rules & assess special cases.
  5. regularly reviewing utilisation to identify moral hazard and avoid unnecessary or more expensive treatment.
• Wellness programmes that encourage healthy living and exercising by providing discounts may reduce claims costs.
• Preventative screenings detect illnesses early and thus higher chances of successful treatment.

Question 14

PMI products?

Answer 14

• Major medical expenses (UK)
• Health cash plans
• Dental plans
• Optical plans
• Waiting list plans
• Health benefits in travel insurance policies

Question 15

Major medical expenses

Answer 15

• Provides a lump sum when a policyholder undergoes a surgery.
• Lump sum varies with the severity of the case.
• There is no guarantee the benefit will cover the in-patient costs from complications.
• Does not cover out-patient episodes.
• One big advantage is that this is a fix benefit.

Question 16

Health cash plans

Answer 16

• Defined-benefit defined premium products
• Subscriber is entitled to a range of payouts depedent on certain healthcare related events: hospitalisation, gap cover, dental, optical, maternity, recuperation, hearing aids, consultation.
• Limits may apply eg payout is not more than 50% of clients medical bill.
• The policy doesn’t indemnify the client.
• This reduces risk of anti-selection.

Question 17

Hospital cash plans

Answer 17

• Also defined-benefit defined premium insurance products.
• Benefits are paid for each day spent in hospital.
• Not renewed on an annual basis unlike PMI products.
• Individual risk rating is permitted.
• This is allowed because benefits are fixed and not intended to indemnify.
• Insurers rely on waiting periods to limit anti-selection.

Question 18

Medical gap cover

Answer 18

• covers the difference between the cost of medical treatment and the amount covered by conventional PMI products.
• differences arise due to benefits limits or doctors charging higher than what is covered by PMIs.
• benefits limited to annual limit per health event.

Question 19

Dental plans

Answer 19

-capitation basis. Patient pays a regular fee to insurer who deducts an amount for its expenses and passes remainder to dentist. The dentist bears the risk that treatment will cost more than premiums received.
indemnity basis, where the insurer indemnifies the actual cost of treatment delivered.

Question 20

Optical plans

Answer 20

• These provide cover for spectacles, eye-tests and optical treatments.
• Waiting periods and pre-existing condition exclusions may apply.

Question 21

Waiting list plans

Answer 21

• This plan provides standard medical insurance benefits in circumstances where the public health service is not in a position to provide treatment within a specified period.
• This meet the customer need where the desire to buy insurance is to avoid waiting for treatment.

Question 22

Health benefits in travel insurance policies

Answer 22

• Travel insurance provides cover for medical care in foreign country until the insured is well enough to travel.
• Medical evacuation and repatriation also covered
• Benefits limited to maximum amount per trip.
• Pre-existing conditions usually excluded and hazardous activity.

Question 23

What is Personal Accident Cover?

Answer 23

• Policies are short-term renewable.
• They provide lump sum benefits to compensate for bodily injury suffered as a result of an accident.
• Policies usually have reduced rider benefits if the insured’s children suffer an accident.

Question 24

Accidental death and total permanent disability

Answer 24

• Death or disability as a result of an accident is often included within personal accident cover.
• The requirement for the cause of death or TPD to e due to an accident is an important criterion; health-related events eg strokes are excluded.
• Disability is defined as beyond scope of discovery.
• If the insurer expects that recovery will eventually occur then they will not pay a benefit.
• TPD cover compliments personal accident cover despite the different nature of the criteria.

Question 25

Definitions of disability

Answer 25

• Occupation based
• related to activities of daily living
• definitions using working activities or functional disabilities.

Question 26

Occupation based definitions

Answer 26

• Disability is established by inability to carry out an occupation. This could be inability of the insured to perform:
• any occupation
• occupation they have experience for or trained for
• their own occupation.
• When pricing for these three definitions it is important to allow for interpretation in pricing.

Question 27

Activities of daily living definitions

Answer 27

• Occupation-based definitions of disability may be criticized because they do not apply to housewives, househusbands or those in retirement age.
• Alternative criteria to pay the benefit is if the insured is unable to perform day-to-day tasks.
• Definitions of these criteria are similar to those found under long-term care.
• feeding, washing, toileting, mobility, dressing, transferring.
• basis is also known as loss of independent existence.
• It is less subjective than occupation based definition.
• It offers simplicity over the lifetime of policy.
• It can be applied to wider range of lives.

Question 28

Alternative definitions

Answer 28

• Activities of daily work
• Personal capacity tests
• functional assessment tests
• The activities include skills like dexterity, mobility and communication.
• Walking, getting up from a chair without assistance, walking up and down stairs, bending & kneeling,using hands.

Question 29

Accident benefits

Answer 29

• Benefits are usually fixed amounts in the event that an insured suffers an accident resulting in loss of one or more limbs or other specified injury.
• This is not indemnity insurance because it is no possible to quantify value of the loss.

Question 30

Accidents benefits (PA): Exposure measure

Answer 30

• An exposure measure should meet two criteria:
  1. It should be a good measure for the amount of risk taken by insurer; allowing for both expected frequency & severity.
  2. It should be practical. It should be measurable, easy to collect. Verifiable and non-manipulable.

-For PA person-year maybe used as an exposure measure.

Question 31

Personal Accident: Claim characteristics

Answer 31

• Claims are usually reported and settled quickly without delay although there might be disputes.
• Claims can be very large.
• Claim frequency is reasonably stable.
• The claim cost is known in advance this reduces the settlement delay.

Question 32

PA: Risk and rating factor

Answer 32

• Risk factors are factors that are known or suspected to affect claims cost.
• A rating factor is used to determine premium. Rating factors are proxies to risk factors.
• Sum insured
• Occupation
• Premiums will often be independent of both age and gender.
• Group PA only age and industry may be known

Question 33

Accident and Sickness insurance

Answer 33

• Personal accident cover can be combined with disability and unemployment cover (accident, sickness and unemployment (ASU)).
• Contracts usually have relatively low premiums compared to sum insureds, in view of low risk of claim.
• Products are sold on an individual basis as well as through employer-sponsored or affinity group schemes and may not be underwritten individually.