Transcript Reinsurance Theory and Practice

PUBLIC SERVICES
Meeting cum-Seminar on Preparedness Towards
De-tariffing Non Life Insurance
Hyderabad
March 14, 2006
Pricing Microinsurance Products
An Overview
Denis Garand
Consultant
BearingPoint Inc.
[email protected]
www.bearingpoint.com
Presentation Outline
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What is microinsurance
Importance of data
Rate components and key determinants
Health insurance- additional considerations
Modeling techniques
Examples
Conclusions
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What is microinsurance?
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An important financial service
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Expect good management practices
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Properly designed data base
Regular review of results
Data managed as valuable resource
Microinsurance mostly community rated
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Importance of Data
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Credible data is the foundation of MI pricing
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Data must be complete, consistent, timely, accurate
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Best: specific data for the target group.
-Demographics
-Claims experience, etc.
-Exposure to risk
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Without specific data, actuary must rely on
-Population statistics (census, WHO population mortality, etc.)
-Theory: statistical, risk, life contingencies, etc.
-Experience data from similar MI programs (if available)
-Reasonable assumptions
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Minimum Data Requirements
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Institutional and branch information
MI participants’ information (DOB, gender, photo, promoter, address
etc)Dependents and beneficiaries information
Coverage history for each product
-each person, each product… used to reconstruct exposure to various risks
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Transactions history for each product
-to determine who is covered or lapsed, time value of money considerations, etc.
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Product rules history for each product
-used to reconstruct exposure to various risks, for administration reasons, etc.
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Claims history
-for health, record all costs whether covered or not, split by benefits category
-need cause of claim; for health use ICD codes
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Price: Main Components
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Claims cost
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Mortality cost- by age, sex, region, etc.
Morbidity cost- by age, sex, region, etc.
Dropout costs (lapses, surrenders) and reinstatements
Risk premium- provision for adverse deviation from expected claims, or PAD
Uncertainty premium- if data isn’t credible
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Profit-
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Expenses- marketing, administration, claims payment, depreciation, etc.
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Investment earnings- use to discount expected claims and expenses
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Price: Important Factors
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Product features and benefits, maximums, co-payments
Timing and frequency of premium payments
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-expenses, interest earnings
Group size- scale of economy, expenses, risk premium needed, etc.
Participation and renewal rates- affects expenses, mortality, morbidity
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Projected MI growth
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affects trends in mortality and morbidity since it affects demographic mix
Stability of the group- affects expenses, renewals, etc.
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Occupations, livelihoods of the members/participants
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-affects mortality, morbidity
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Premium collection system
-affects expenses, lapses, investment earnings
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Communication of benefits
-affects claims
-client satisfaction which in turn affects dropouts and renewals
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Exclusions and pre-existing conditions- affects claims
Inflation- expenses, claims, investment earnings
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Health: Additional Considerations
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Expected claims by benefit: incidence, claim amounts
Trends in utilization
-pricing should anticipate
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High inflation rates
-need benefit maximums
-need to negotiate tariffs.
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Changes in treatment, advances in technology
-need treatment protocols
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Claims management
-determines how well moral hazard is controlled.
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Co-payments: deductibles, co-insurance
-will reduce rates
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Geographic location
-affects access to provider, mortality, morbidity, etc.
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Rates should be reviewed every 6-12 months if possible
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Actuarial Modeling Techniques
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Models are not a substitute for data.
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Models enable more effective use of existing data.
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Models outputs are indicative in nature, are not promises.
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“What if” scenarios possible
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Difficulty in pricing
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Rank from easiest to hardest
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Accidental death
Life insurance, tied to loan
Life insurance, community based
Hut insurance
Health (prevention, links with medical
professionals important) and livestock
Crop insurance
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Example 1
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Evolution of life mortality rate
Number
Rate per
Year
insured
Thousand
1998
25,000
19.3
1999
31,000
14.2
2000
30,000
12.1
2001
29,000
11.6
2002
93,000
4.3
2003
110,000
3.7
2004
104,000
4.7
2005
117,000
3.2
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Example 2
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Child health insurance
Claims per family
Year 1
Year 2
Year 3
Benefit Rs 2,000 per household
Voluntary
Hospitalization
Rs 97
Rs 85
Rs 70
What happened?
Percentage of households with insurance increased
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Example 3
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Health insurance
Claims per insured
Year 1
Year 2
Surgical benefit
Voluntary
Rs 65
Rs 95
What happened?
Increased communication
Large variations by region
Monitoring found one hospital had high rate of
hysterectomies
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Example 4
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Creditor Life insurance
Claims per insured certificate
Year 1
Rs 22
Year 2
Rs 59
What happened?
Initially women covered for loans, in second year coverage
was added for their husbands.
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Conclusions
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Data is important and should be managed
Pricing requires an understanding of the whole
plan, management, administration, claims, etc.
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Periodic monitoring
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Health insurance requires more skill to price
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Microinsurance requires good management skill
and can lead to success in many other markets
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