Welcome Cogent ME International Insurance & Reinsurance Brokers June, 2005 Cogent ME
Medical Insurance Product Development, Pricing and Reinsurance Presented by Sameer Gammoh June, 2005 Cogent ME
Agenda Ü Introduction ¡ Product Development &Benefit Design ¡ Pricing & Feasibility ¡ Experience Pricing ¡ Outstanding & IBNR ¡ The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Introduction ¡ Causes Behind Health Insurance Losses ¡ Importance of Maths in Health Insurance ¡ Data Recording and Classification ¡ Continuance Monitoring June 2005 Cogent ME
Causes of Loss ¡ Inability to Identify Legitimate Insured Members l l ¡ Inability to Control Extensive Procedures by HCPs l l ¡ Health Care Providers abuse of benefits No control mainly in out-patient claims Growth Limitation l l ¡ Fraudulent claims – Insured members abuse No control mainly in out-patient claims Personnel needed Huge number of claims – consistency No Accurate Recording of Data l l l June 2005 Inaccurate utilization rate by incident , type of illness and procedures Inaccurate premiums that aren’t driven according to benefit design Improper underwriting which isn’t based on accumulation of knowhow Cogent ME
Importance of Maths ¡ Mathematical Modeling and Prototyping Based on Market Info Provides Better Understanding of Medex Insurance Business in any Market. l Statistical Data Related To : Average Cost Per In Patient Visit ¡ Average Cost Per Out Patient Visit ¡ Average Length Of Stay in Hospital ¡ Average Cost Per Night ¡ Average Utilization PPPA for In Patient ¡ Average Utilization PPPA for Out Patient ¡ Exposed Population in a Specific Underwriting Year ¡ June 2005 Cogent ME
Importance of Maths l ¡ ¡ In Preparation to Calculate: ¡ Average B/C PPPA for In Patient ¡ Average B/C PPPA for Out Patient ¡ Average B/C PPPA for Each Benefit Type Testing the Reliability of the Collected Data Testing the Reliability of the Mathematical Model Based on The Collected Data. June 2005 Cogent ME
Agenda Ü Introduction Ü Product Development &Benefit Design ¡ Pricing & Feasibility ¡ Experience Pricing ¡ Outstanding & IBNR ¡ The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Benefit Design ¡ ¡ ¡ In Patient Benefits Out Patient Benefits Maternity Benefit Dental Benefit Optical Benefit Others l Repatriation l Assistance l Evacuation l Travel and accommodation l Long Term Care June 2005
Considerations ¡ Limits l l l June 2005 Coverage Limits ¡ Covered cases ¡ Excluded cases Frequency Limits ¡ In-Patient ¡ Out-Patient ¡ Other Limits Financial Limits ¡ Maximum limits ¡ Deductibles ¡ Co-insurance
Considerations ¡ Coverage Duration l l l ¡ ¡ ¡ June 2005 Short term Annual Long term Age, Gender and other Risk Factors Pre-Existing Conditions Eligibility Conditions Dependency Type Nationality Contributions
Agenda Ü Introduction Ü Product Development &Benefit Design Ü Pricing & Feasibility ¡ Experience Pricing ¡ Outstanding & IBNR ¡ The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Pricing & Feasibility ¡ Data Availability l Underwriting Info ¡ Global – Related to the employer Specific – Related to insured member Past Claims Profile and Experience ¡ l ¡ Guessing Game l l June 2005 Compared to Similar Situations Market Trend Special Deviation Margins The rule of Thumb Cogent ME
Pricing & Feasibility ¡ Pure Premium ( NRP ) l l l ¡ Gross Premium l l June 2005 Expected Actual Cost of Claims According to Benefit Contingency Margins Inflation Pure Premium Other Loadings ¡ Profit ¡ Commission ¡ Other overhead expenses ¡ TPA fees ¡ Stamps duty and Taxes Cogent ME
Expected Cost Calculation ¡ ¡ ¡ June 2005 Utilization Rate According to Benefit Type l In Patient l Out Patient l Dental … Optical …. . Average Cost per Incident According to Benefit Type l In Patient l Out Patient l Dental … Optical …. . Exposed Insured Population By l Class of Coverage l Age l Sex l Benefit Type Cogent ME
Utilization Rate Calculation ¡ In Patient l l ¡ For a Specific Insurance year (No. of Admissions) Exposed Population According to Age , Sex and Class of Cover Length of Stay per Admission According to In Patient Type of Benefit ¡ Utilization = No. of Cases/ Exposed Population Out Patient l l l June 2005 For a Specific Insurance Year (No. of visits) Exposed Population According to Age , Sex and Class of Cover According to Out Patient Type of Benefit ¡ Utilization = No. of Visits/ Exposed Population Cogent ME
Average Cost Per Incident Calculation ¡ In Patient l l l ¡ For a Specific Insurance Year (No. of Hosp Admissions) For a Specific Insurance Year (Total In Patient Costs) Average Cost per Case Average Cost per Hospitalization Night According to In Patient Type of Benefit Out Patient l l June 2005 For a Specific Insurance Year (No. of Visits) For a Specific Insurance Year (Total Out Patient Costs) Average Cost per Visit According to Out Patient Type of Benefit Cogent ME
Exposed Population Calculation ¡ Total Insured Members l l l l June 2005 Total Members At Inception Added Members During the Insurance Year Deleted Members During the Insurance Year According to Actual Transaction Date (Enrollment date) Calculate Total Number of Insurance Days Calculate Total Insured Members That Were Exposed to Insurance for 365 Days At Any given Moment During the Insurance Year Extrapolated for 12 Month (365 days) Cogent ME
Agenda Ü Introduction Ü Product Development &Benefit Design Ü Pricing & Feasibility Ü Experience Pricing ¡ Outstanding & IBNR ¡ The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Experience Rating (Pricing) ¡ Historical Data Needed l l l June 2005 Min. 2 to 3 Years Claims Statistics According to Type of Benefit, Age, Sex and Dependency Type The Exposed Population Corresponding to Claims Statistics for Each Insurance Year Coverage Specifications Corresponding to Claims Statistics for Each Insurance Year (Any Coverage Change Must be Accommodated and Accounted for) Cogent ME
Experience Rating (Pricing) ¡ Calculate the Following l June 2005 B/C Burring Cost by Benefit Type per Insured Member (Age Group, Sex & Dependency) ¡ In Patient l B/C PPP = ((Exposed population * Utilization Rate)*(Average Cost per Visit))/Exposed Population ¡ Out Patient l B/C PPP = ((Exposed population * Utilization Rate)*(Average Cost per Visit))/Exposed Population ¡ All other Benefits – The same Cogent ME
Experience Rating (Pricing) ¡ Calculate the following l Extrapolate a 12 months B/C out of the historical data available ¡ In Patient l ¡ Out Patient l ¡ June 2005 B/C PPPA = (B/C PPP /Period in study in days)* 365 B/C PPPA = (B/C PPP/Period in study in days)* 365 All Other Benefits – The same Cogent ME
Experience Rating (Pricing) ¡ Calculate the Following l Load for Deviation ¡ June 2005 % Normally 5% to 10% l 3 Years experience 5% l 2 Years experience 7. 5% l 1 Year experience 10% Cogent ME
Experience Rating (Pricing) ¡ Calculate the Following l Load for Inflation ¡ 2 Inflation loadings ( Value – Frequency ) l l June 2005 Value Inflation : % According to the changes in price lists, however in some country price lists are fixed by different bodies and dose not change often. Frequency Inflation : More health awareness increases frequency of claims therefore a % of increased health awareness must be added. Cogent ME
Agenda Ü Introduction Ü Product Development &Benefit Design Ü Pricing & Feasibility Ü Experience Pricing Ü Outstanding & IBNR ¡ The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Outstanding & IBNR ¡ Definition l Outstanding Losses: Are the Claims That are Received and Notified for But not Yet Paid Actual counting of claims. ¡ Actual amounting of claimed values (conservative) ¡ Actual amounting of estimated adjudicated payable value ¡ Outstanding = Total value of claims under process ¡ June 2005 Cogent ME
Outstanding & IBNR ¡ Definition l IBNR: Stands for (Incurred But Not Reported) The Claims that Took Place but not Yet Notified for Nor Paid. Depends on the (TAT) Turn Around Time for a claim from the moment it incurred until it’s reported, booked, accounted for and paid. (PMS) Performance Measurement System for claims. ¡ Depends on the (ACPD) Average Claims Per Day (Adjudicated Value) ¡ IBNR = TAT * ACPD ¡ June 2005 Cogent ME
Agenda Ü Introduction Ü Product Development &Benefit Design Ü Pricing & Feasibility Ü Experience Pricing Ü Outstanding & IBNR Ü The Role of TPAs ¡ Reinsurance June 2005 Cogent ME
Situation = No TPA Reinsurers Covered Covers R Is insured Pays IB Insureds Visits ro ke r Insures Pays Healthcare Providers Insurers June 2005 Cogent ME
Insurance Company’s Problems ¡ ¡ ¡ ¡ June 2005 High cost of Health Care Insured Members and Providers Abuse of Benefits Processing Claims are “After the Fact” Insured Members & Providers are Unhappy Cost of in-House Administration Waste in Time and Material Lack of Specialized Technology, Expertise Cogent ME
Reinsurers Problems ¡ ¡ ¡ June 2005 Unavailable Statistical Info No Accurate Recording of Vital Data Reporting Delay l Inability to Propose Corrections on Time l Higher Involvement – Higher Admin Costs Files Open for Tremendous Period of Time Ends up With Very Low Margin / Losses Departing From Market and Use Capacity in Other Markets Cogent ME
Insured Company (Employer) Problems ¡ ¡ ¡ June 2005 Unsatisfied Employee Drop in Productivity Giving Advance on Salaries Management Waste of Time (Solving Insurance Problems ) Changing Insurance Companies Seeking Better Product. Unavailable Important Personnel Statistics Cogent ME
Insured Members Problems ¡ ¡ ¡ ¡ Need Pre-Authorization Forms - Weekends and Holidays Need to fill out Paper Claims Limited Healthcare Provider Network Might Pay and Later Claim Lack of Vital Medical History In Emergencies Lack of a Common Medical Record Vague Exclusions (Poor Satisfaction) June 2005 Cogent ME
Healthcare Providers Problems ¡ ¡ June 2005 Delays in Payment Reimbursement Losses Due to: l Fraud l Vagueness of Coverage Handling Different Polices and Plans Identifying Legitimate Insured Members Cogent ME
Situation = With TPA Reinsurers RI Br ok er Insureds 3 rd Party Admin. Insurers June 2005 Healthcare Providers Cogent ME
Ideal -TPA Concept TPA IT Cluster Payers Adjudicate Insurance Policy Ins. Co / RI Insureds Visit Medical Record Review Enter Treatment Plan Submit EOB Employers $ Financial $ Claims Management Agreement $ Network Agreement 3 rd Party Administrator - TPA Healthcare Provider Network 36
Ideal Communication System Insureds HC Provider TPA Internet Insured Co. Insurer Reinsurer June 2005 37
Agenda Ü Introduction Ü Product Development &Benefit Design Ü Pricing & Feasibility Ü Experience Pricing Ü Outstanding & IBNR Ü The Role of TPAs Ü Reinsurance June 2005 Cogent ME
Medex Reinsurance Types Facultative Treaty Proportional Non-Proportional Q. S X. L Surplus Stop Loss Non-Proportional Spec. Agg. June 2005 Proportional Cogent ME
When And Why Proportional 1 - Small Portfolio 2 - High Volatility 3 - Individual Business 4 - Small Groups 5 - Lack/Poor Experience 6 - Transfer of Know-how 7 - Untested Pricing Structure 8 - Untested Claims Handling 9 - Developing Stage June 2005 Cogent ME Non-Proportional 1 - Huge Portfolio 2 - Low Volatility 3 - Homogenous Portfolio 4 - Long Experience 5 - Acquired the Needed Knowhow 6 - Reliable Pricing Structure 7 - Reliable Claims Handling System 8 - Maturity Stage
The Role of a Good Broker ¡ ¡ ¡ June 2005 Understanding of the Business and Acquiring the Needed know-how Becoming a Consultant to the Client Rather Than Placing the Business Only Working With all Concerned Parties (The Client, The TPA and The Underwriter) Simply Acting More that a P. O. Box Between the Client and the Underwriter Being Able to Deliver on Time A Good Broker’s Job Starts After the Signing of a Reinsurance Contract Cogent ME
Q&A June, 2005 Cogent ME
Thank you for your time June, 2005 Cogent ME
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