0. Meeting cum-Seminar on Preparedness Towards De-tariffing Non Life Insurance Hyderabad March 14, Pricing Microinsurance Products An Overview Denis Garand Consultant BearingPoint Inc.

1. Presentation Outline What is microinsurance Importance of data
Rate components and key determinants
Health insurance- additional considerations
Modeling techniques
Examples
Conclusions

2. What is microinsurance?
An important financial service
Expect good management practices
Properly designed data base
Regular review of results
Data managed as valuable resource
Microinsurance mostly community rated

3. Importance of Data -Demographics
Credible data is the foundation of MI pricing
Data must be complete, consistent, timely, accurate
Best: specific data for the target group.
-Demographics
-Claims experience, etc.
-Exposure to risk
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

4. Minimum Data Requirements
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
Transactions history for each product
-to determine who is covered or lapsed, time value of money considerations, etc.
Product rules history for each product
-used to reconstruct exposure to various risks, for administration reasons, etc.
Claims history
-for health, record all costs whether covered or not, split by benefits category
-need cause of claim; for health use ICD codes

5. Price: Main Components
Claims cost
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
Profit-
Expenses- marketing, administration, claims payment, depreciation, etc.
Investment earnings- use to discount expected claims and expenses

6. Price: Important Factors
Product features and benefits, maximums, co-payments
Timing and frequency of premium payments
-expenses, interest earnings
Group size- scale of economy, expenses, risk premium needed, etc.
Participation and renewal rates- affects expenses, mortality, morbidity
Projected MI growth
-affects trends in mortality and morbidity since it affects demographic mix
Stability of the group- affects expenses, renewals, etc.
Occupations, livelihoods of the members/participants
-affects mortality, morbidity
Premium collection system
-affects expenses, lapses, investment earnings
Communication of benefits
-affects claims
-client satisfaction which in turn affects dropouts and renewals
Exclusions and pre-existing conditions- affects claims
Inflation- expenses, claims, investment earnings

7. Health: Additional Considerations
Expected claims by benefit: incidence, claim amounts
Trends in utilization
-pricing should anticipate
High inflation rates
-need benefit maximums
-need to negotiate tariffs.
Changes in treatment, advances in technology
-need treatment protocols
Claims management
-determines how well moral hazard is controlled.
Co-payments: deductibles, co-insurance
-will reduce rates
Geographic location
-affects access to provider, mortality, morbidity, etc.
Rates should be reviewed every 6-12 months if possible

8. Actuarial Modeling Techniques
Models are not a substitute for data.
Models enable more effective use of existing data.
Models outputs are indicative in nature, are not promises.
“What if” scenarios possible

9. Rank from easiest to hardest
Difficulty in pricing
Rank from easiest to hardest
Accidental death
Life insurance, tied to loan
Life insurance, community based
Hut insurance
Health (prevention, links with medical professionals important) and livestock
Crop insurance

10. Example 1

11. Example 2 Child health insurance Benefit Rs 2,000 per household
Voluntary
Hospitalization
Claims per family
Year 1 Rs 97
Year 2 Rs 85
Year 3 Rs 70
What happened?
Percentage of households with insurance increased

12. Example 3 Health insurance Surgical benefit Voluntary
Claims per insured
Year 1 Rs 65
Year 2 Rs 95
What happened?
Increased communication
Large variations by region
Monitoring found one hospital had high rate of hysterectomies

13. Example 4 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.

14. Conclusions
Data is important and should be managed
Pricing requires an understanding of the whole plan, management, administration, claims, etc.
Periodic monitoring
Health insurance requires more skill to price
Microinsurance requires good management skill and can lead to success in many other markets