Download Value of a Health Insurer

Value of a Health Insurer
David Gulland
&
Tony Jeffery
Contents
Scope
 Why is health different (and difficult)?
 Theoretical Measures
 Tools and Warnings

Scope
UK and Ireland (mainly)
 Stand-alone company or (large) portfolio
 Medical Expense Repayments

Why Health is not Life or
General…
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Premium/contract structure is neither purely
annual or purely long-term
Variety (and complexity) in product design
Exposure to external political risks (e.g. in UK
purchase is voluntary, replacing “free” State
cover)
Infinite consumer demand for “health” services
Group and Individual markets very different
What features of Health pose
problems…
Medical expense inflation is not well
modelled
 Very few companies
 Even fewer for profit companies
 Consumer issues affect ability to price
 Better than average public image (?)

Theoretical Value Measures
Market Price related measures
 Embedded values
 Fair Values
 Infrastructure Values

Market Price related measures
Discounted Cash Flow Measures
No data on discount rates
P/E Ratios
No data at all
Embedded Value Method
Discount
rate
Claims Inflation
Multipliers
Significant Risks
Fair Values (IAS) (a)
Future Premiums Criteria
If there is value to the policyholder in
the renewal then future premiums
should be taken into account
Fair Values (IAS) (b)
Select Period
Term
(life)
Y
Motor
Medex
(general) (Health)
N
Y
Rewrite
N
Y
N
Rerate(global)
N
Y
Y
Policy value
Y
N
???
Fair Values (IAS) (c)
Discount
Rate
Allowance for Risk
Presentation
Infrastructure Method - Cost of
replicating what is there.
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IT systems
Provider network
Distribution methods
Intellectual capital (risk models)
Economies of scale
Solvency and Working capital
“Brand value”
Tools and Warnings
Understanding recent claim costs
 Complexities in projections
 Reserving methodology
 Capital adequacy requirements

Understanding recent claim costs
Complexity varies with data quality
 Multivariate analysis and GLIM
 Coherence between model and premium
structure
 Impact of changes in product design
 Impact of changes in provider relationships
& “managed care” protocols

Complexities in projections
Lapses - Any evidence of adverse selection
(congruity with GLIM model and duration)
 Contribution increases and “claims
inflation”
 Adherence to stated Pricing Protocols
 Treating Customers Fairly
 Reasonableness checks

Reserving methodology
Usually not a problem because of short tail
 Issues with Group Business
 Congruency with claims administration
 Impact of changes in practice
 Impact of changes in provider behaviour (!)
 Seasonality

Capital requirements
Current FSA “rule of thumb”
 CP136 and self assessment
 Other areas of risk and need for capital

Contents
Scope
 Why is health different (and difficult) ?
 Theoretical Measures
 Tools and Warnings

Value of a Health Insurer
David Gulland
&
Tony Jeffery