(Papers) ACET Paper May 2010 "ST1 – Health and Care Insurance"

Q. 1)

(i) Outline the targets to be considered while designing and pricing a health insurance product.
(ii) Describe the potential conflicts amongst the targets stated above.
(iii)Describe briefly the significance of these conflicts for a health insurer who enjoys monopoly status in the market in which it operates?

A health and care company is proposing to launch a unit-linked regular premium critical illness product. The company will deduct regular charges, in respect of the difference between the selected level of cover and the value of the units allocated, by cancelling units. The unit fund is payable should the insured die without a valid claim occurring. If insufficient units are available to meet the morbidity charges at any time the level of cover may be reduced, additional premiums may be payable or the contract may lapse.

(iv)Discuss the factors that should be considered when determining the suitability of this contract design.

Q. 2) Describe what is worksite marketing and how this marketing is different from an agency force.

Q. 3) You are the Appointed Actuary of a health & care insurance company which sells mainly PMI products. The Chief Executive Officer (CEO) of the company calls you and the Chief Financial Officer (CFO) for a meeting to discuss how the company can cut costs and manage expenses.

Discuss the points you would put forward in the discussions with the CFO and CEO.

Q. 4) A health and care insurance company is considering using industry-average sickness rates collected over a period of three years, ending two years ago, for pricing a new income protection contract.

Discuss the risks the company would face in using these data.

Q. 5) A life insurance company transacts regular premium health insurance contracts for both individuals and groups of employees. The contracts contain an optional waiver of premium rider benefit for which an additional premium is charged. Currently, the same premium rates and underwriting conditions apply to members of groups as to individuals. Life cover is not available under the contracts. The marketing manager has suggested that for group policies there should be no underwriting. He also argues that, in view of the economies of scale available, the rider benefit should be provided free of charge to groups.

Comment on the marketing manager’s suggestions.