Chapter 9 The general business environment Flashcards Preview

Actuarial F101 - Health and Care Principles > Chapter 9 The general business environment > Flashcards

Flashcards in Chapter 9 The general business environment Deck (22)
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1
Q

The factors to consider in the General environment

A
  • Propensity to buy
  • The regulatory regime
  • The tax regime
  • Professional guidance
  • Economic influences & other influences
2
Q

Propensity to buy vs need to sell

A
  • What makes a policy sell?
  • it might be a legal requirement
  • the contract outweighs the cost
  • person is persuaded they want the contract

-insurers make raise brand awareness

  • insurer should go to client and:
  • find a receptive client
  • finding out about clients healthcare insurance needs
  • advising the client about possible products to meet any needs
  • helping client to buy product they may now wish to buy.
3
Q

Selling characteristics of different products.

A

PMI

  • If all medical expenses are the responsibility of the individual then PMI products will be bought.
  • However if the State provides care then the PMI products will be sold rather than bought.
4
Q

Selling characteristics of Long-term care insurance

A
  • LTCI depends on the perceived attitude of governments to provision of care.
  • There are elements of legal compulsion in some countries.
5
Q

Selling characteristics of Critical illness insurance

A
  • CI insurance is not linked to match specific financial need.
  • The sum can be used to meet any financial needs(if any).
  • It is sometimes sold rather than being sold.
6
Q

Future developments in Healthcare insurance

A
  • There is growing awareness that the State cannot continue to provide wellfare benefits at the same level, given comittments to low taxation & aging population.
  • This awareness increases attraction of health and care insurance products.
  • Increasing sales regulation & disclosure reduce insurer’s ability to create needs through sales process.
7
Q

The aim of regulation

A
  • Governments may expose impose restrictions on the way which insurance companies operate.
  • The aim is to protect the policyholder.
8
Q

Regulatory restrictions

A
  • The type of contract an insurer can offer.
  • restrictions on the premium rates or charges.
  • restrictions on the rating factors allowed to be used for premium rates.
  • requirements relating to terms and conditions of the contracts offered.
  • Restrictions on channels through which insurance may be sold.
  • restrictions on ability to underwrite eg using genetic test results.
  • An indirect constraint on the amount of business that may written. eg minimum level of reserves.
  • restrictions on the type of assets or amount of any particular asset.
9
Q

Regulation on different institutions

A
  • insurance companies are likely to have a monopoly of providing protection benefits not provide savings benefits.
  • other organisations may be allowed to offer arrangements can be regarded as competing with health and care insurance products.
10
Q

Effect of regulatory regime on contract design

A
  • companies will want to make use of the best available regulatory opportunities available to them.
  • contract design will have to take into consideration of regulatory constraints imposed.
11
Q

The tax regime: Approaches to taxation

A
  • Insurers may be taxed in a number of different ways:
    1. a tax on annual profits of business where profits means excess change in assets over change in liabilities.
    2. tax payable on investment income
    3. tax on premium income
12
Q

The tax regime: The profits approach

A
  • profit could be stated as:
    1. (A1 - A0) - (V1 - V0) profit
    2. (A1 - V1) - (A0 - V0) increase in free assets over the year.
13
Q

The tax regime: The investment income approach

A
  • The taxable amount may include some or all of the capital gains realised, as well as investment income.
  • expenses should be allowed for on returns.
14
Q

The tax regime: Tax on different types of insurance business

A
  • different types of insurance business may be taxed differently.
  • this means it can be cheaper for the consumer if certain forms of benefits can be offered as one type of business rather than another.
  • tax concessions available to policyholders may make sales of certain types of contracts easier.
15
Q

Effect of taxation regime on contract design

A
  • the ability to maximise favourable taxation may force constraints on product design.
  • eg tax authorities may be keen that pure savings business should not be dressed up to look like healthcare protection insurance in order to secure favourable tax treatment.
  • they may specify minimum level of cover necessary to secure tax concessions.
16
Q

Professional guidance

A
  • actuarial associations will often issue professional guidance to actuaries.
  • provide a framework of point they need to consider in carrying out their responsibilities.
  • The guidance may typically cover areas such as:
  • policy conditions
  • adequacy of premium rates for new business
  • value of liabilities
  • professional guidance may provide interpretation of government regulations.
  • this occurs where gov does not want to be overly prescriptive.
  • gov may look to actuarial profession to set limits on what would be acceptable.
17
Q

Economic influences

A
  • Inflation
  • Business cycle
  • Employment security
  • Investment returns
  • Political stability
18
Q

Economic influences: Inflation

A
  • Fixed level benefits
  • even if a contract offers fixed benefits the policyholder should be encouraged to increase level of cover and reapply frequently.

Benefits increasing at a fixed escalation rate
-where cover escalates at a fixed rate policyholder should be encouraged to increase benefits and reapply.

Benefits increasing with national inflation index

  • some benefits may increase in line with CPI however the policyholder should still consider increasing care and reapplying.
  • there is still a danger because costs of medical care may sometimes increases at greater rate than CPI.

Benefits not fixed but indemnify actual healthcare costs

  • where a contract indemnifies the actual cost of healthcare the insurer bears the risk of covering inflation.
  • one-year contracts premiums are reviewable annually and can be readjusted.
  • on longer-terms business premiums may not be reviewable, insurer will need to keep level of prospective reserves consistent with both current & future expected cost levels.

expense inflation
-actuary will need to reflect rising expenses in the amounts set aside as reserves for future policy outgo.

19
Q

Business cycle

A
  • during business optimism, there is a +ve jump in demand for employer sponsored insurance, to attract best employees retain best staff.
  • individual generally upgrade cover on existing policies in bouyant times.
  • in times of business downturn employers may be under pressure to cut costs.
20
Q

Employment security

A
  • for individuals, confidence in continuity of remuneration promotes likelihood of insurance purchase.
  • for employees covered under employer sponsored schemes they may claim more when there is lack of confidence in longevity of one’s employment or cover.
21
Q

Investment returns

A
  • The returns available are an important aspect for insurance companies.
22
Q

Political stability

A
  • Some political regimes create a more advantageous environment of health & care insurances than others.
  • Political stability:
  • can indicate national economic wellbeing
  • can mean stability of rules governing the insurance industry
  • is generally desirable by policyholders as it indicates stability of future economic value of their insurance policies.