Chapter 7

Question 1

Factors to consider when dealing with life. Health, GI products (12)

Answer 1

LUCKS PRIME MK

1. Legislation
2. Underwriting
3. Contract design
4. Key product features
5. Provisioning
6. Reinsurance, mutuality, solidarity, 7. community rating
7. Investment strategy
8. Medical trends
9. Entities providing cover (types of)
10. Mechanisms of reimbursment
11. Key risks

Question 2

what is the Principle of mutuality (3) and what are its advantages (1) and disadvantages (1):

Answer 2

-a pooled fund is created and premiums are paid into the fund by policyholders
-the premium paid by the policyholder is determined by the risk presented by the policyholder at the time of taking out the policy
-claims are paid out of the pooled fund

Adv:
-the risk pool is not sensitive to policyholders entering and leaving since each policyholder is contributing according to their risk

DisAdv:
-The high risk lives may not be able to access cover due to affordability and this could have adverse social implications

Question 3

Risks that may arise with offering healthcare cover on an indemnity basis: (3)

Answer 3

1. fraud and moral hazard, where policyholders claim for more expensive benefits than necessary.
2. Overuse of Healthcare -policyholder may opt for more frequent and more elective procedures
3. Healthy people may leave the scheme (cancel their cover), while unhealthy people stay to keep claiming. This worsens the risk pool

Question 4

Similarity and difference between solidarity and mutuality (1:2) Difference between indemnity cover and stated benefit cover for health events (4):

Answer 4

• both involve the concept of sharing losses

Diff
-solidarity- premiums not bon risk, they are set equally based on ability to pay
-solidarity- losses are paid according to need (the sicker ones will claim more but pay the same premium as the healthier ones)

Diff:
-indemnity cover relates to the loss incurred on the occurrence of a health event
-This may be the medical expense or the loss of income.
-In some cases, health insurance products will provide access to the care itself through contracted health facilities (or facilities owned by the insurer).
-For stated benefit cover, the policy document defines the benefit that is payable on the occurrence of a defined health event, regardless of the actual loss incurred.