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Case Study - Health Insurance New product
Institute of Actuaries of India
Serving the Cause of Public InterestIndian Actuarial Profession
A PRESENTATION BY - Jyoti Vaidya & Rajkishor Chaurasia
GUIDE - Samreen Asif
21st Indian Fellowship Seminar
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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A brief background
• A New health insurance company in India• A new product is identified by Chief Marketing Officer
• It has a good business opportunity• Product Development Actuary needs to‐‐ price the product‐ set aside reserves
• Two scenarios‐
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A brief background‐ scenarios
Scenario 1 Scenario 2
• The product is available in the market.
• It is new to his company.
• It is new to him.
• The product is the consequence of new regulation.`
• No product specific knowledge is available
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Key aspects of products‐Marketing
Scenario 1 Scenario 2
• Research done by Chief Marketing Officer about‐‐ Customer need‐ Target market for product‐Market size available‐ Risk and reward
•No prior experience as new to market • Key features of product prescribed by regulator• How to capture market for this product‐‐ Competitive premium rates‐ Better servicing aspects ‐Marketing and advertising‐ Volume of business & capital
requirementwww.actuariesindia.org 6
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Key aspects of products‐ General
• Treating Customers Fairly‐‐ Sales prospectus, policy terms & conditions, advertisements, etc.
• Profitability of products‐‐ Premium rates, expenses / charges, commission, sales volume
• Claims management‐ Reinsurance, underwriting, waiting periods, pre‐authorization
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Key aspects of products‐ Key Stakeholders
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INSURER
COMMUNITY HOSPITALSQuality Service
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Product design‐ Product 1
• Type of product‐‐ Individual , family floater, group
• Term of product‐ Guaranteed premium for one year / two year
• Life time renewability• Benefit structure• Riders / add on• Risk sharing with customers‐ Co‐pay ‐ Deductibles
Whether similar product is available in the market.
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Product design‐ Product 2
• Understand features of product from regulation‐‐ Compulsory features‐ Optional features‐ Flexibility given to insurer for pricing ‐ Target group‐ Term of product
• Study of other markets• Availability of reinsurance
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Pricing
• Adequate‐ neither too high and nor too low
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Profitable
SustainableCompetitive
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Pricing ‐ Product 1
• Can we price the product at market rates?• Other data sources‐‐ Insurance Information Bureau of India (IIB) ‐ Reinsurer’s data‐ Competitor’s data
• Data validation • Other assumptions ‐
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Pricing – Both products
• Demographic‐‐ Product 1‐ existing product data, data from other sources mentioned ‐ Product 2‐ reinsurer’s data or other market’s data with suitable changes
• Expense‐‐ New insurance company management expenses may be higher ‐ Commission as prescribed by regulator
• Inflation rate‐ allowance for medical inflation for more than 1 year products
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Pricing – Both products
• Investment return‐‐ Not so important as short term products
• Profitability criterion‐‐May be similar to earlier products
• Margins‐‐ Add margins for prudence APS ( 7)
• Viability of premium rates‐ Stress testing
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Valuation method – Both products
• Incurred But Not Reported Reserve ‐ delay in intimation of claim
• Reported but not settled claim reserve‐ Outstanding claims not yet settled
• Unexpired Risk Reserve ‐ premium received but risk period yet to expire
• Additional reserves‐Disputed claims (declined or terminated)‐ Data quality‐ TCF considerations‐ Reinsurance/Third Party Default‐ Contingencies‐ Premium guarantee , if any
• Compliance with IRDA (ALSM) Regulation ,2000
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Competence & Professionalism
• Competence‐ Requisite knowledge of jobs and functions ( APS 1)
• Professionalism‐‐Work with Competence & Integrity‐ Effective communication
• Data validation‐‐ Section 3.4 Professional Conduct Standards
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Contents
• A brief background• Key aspects of products• Product design• Pricing• Valuation method• Competence and professionalism• Next steps
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Next steps
• Documentation of every process‐ ( professionalism)
• Experience monitoring‐‐ profitability actual Vs expected‐ claims experience ( loss ratio)‐ expense assumption ( combined ratio)‐ grievances ( PRE issue and TCF issue)
• Training to sales staff to avoid mis‐selling
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Thank you
Any questions?
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