Health Underwriting Klaus Palmen Herbert

Health Insurance
Underwriting
6th Global Conference of Actuaries

New Delhi, 18th & 19th February 2004
Presentation by Klaus Palmen, Actuary (DAV)
Co-Author: Herbert Meister, Actuary (DAV)
Münchener Rück
Munich Re Group
Aspects of Health Insurance Underwriting Munich Re Group
Agenda
Risk Assessment in Health Insurance

Individual Underwriting
Group Underwriting
Underwriting supported by IT-Systems
Practical Examples - India
2
Risk Assessment in
Health Insurance
Risk Assessment
… in Private Health Insurance is essential in order:
To arrive at risk commensurate premiums

based on the equivalence principle
(= congruence of performance and counter-performance).
To develop a profitable portfolio which supports

competitiveness of the standard insurance premium.
4
>> Risk Assessment
Adverse selection and moral hazard is more likely than in

other classes of insurance.
“People tend to palliate their health status at the point of

application.”
“People are more likely to know when they will get sick
than when they will die.”
“People can easily influence the time and scope of
treatment.”
5
Why is individual underwriting/assessment necessary?
For the premium calculation (standard premium) only the
general (statistical) risk circumstances are taken into
account which as a result represents the “average sick or
healthy person”
Therefore, each individual risk has to be evaluated
separately by considering
– adverse selection,
– excess-morbidity risk
and additional
– the possibility of moral hazard.
7
>> Individual Underwriting

… Different types and aspects
Risks in health insurance business
Objective risks as
– Age and Sex, Profession, Health status, Family history
Moral hazard as
– Over-cautious behaviour and treatment, non-disclosure of
pre-existing conditions, submission of invoices for
uninsured persons, attempts to influence doctors,
hospitals, socio-economic class etc.
8

General exclusion of pre-existing conditions.

“Point of claim underwriting”
Medical Underwriting
“Qualified assessment at point of application”
9

Advantages of Qualified Medical Underwriting
For the policyholder For the insurer
Fair underwriting process Less administrative work

in the event of a claim
Full protection
Risk-adequate premium
Prompter payment in the
event of claims: Better portfolio
(reduces point of claims performance
underwriting to non-
Less “negative press”
disclosure cases)
10
Group Underwriting
Group Underwriting
Why do we differentiate Individual business is

between underwritten according to
individual the individual risk of the

insured person
and
group Group business is

underwritten according to
underwriting ?
the structure and needs of
the insured group
12
>> Group Underwriting
Therefore, the following items are relevant for group

underwriting:
– size of the group
– type of the group (voluntary ore compulsory)
– geographic distribution of employees
– industry
– sex distribution
– age distribution
– number of dependants including age and sex distribution
– number of dependant children
– salaries of insured group
– policy holder‘s (employer‘s) administrative facilities
13
Underwriting supported
by IT-systems
Underwriting supported by IT-systems
Knowledge creating systems (actuarial approach)

– Lack of data and often too small database for reliable
results.
Rule based expert systems (knowledge based systems)

– High flexibility. Good controlling and transparency of data.
Self learning systems

– There is a high risk of: Garbage in à Garbage out
Lack of transparency on decisions
15
>> Underwriting supported by IT-systems
A consistent underwriting approach at point of application

is in our point of view one important key to create profitable
health insurance business
Only an IT-based assessment system can “guarantee”

a consistent approach.
Our preference is clearly a rule based system.
16
>> Underwriting supported by IT-systems
How can a rule based system be used?
for a centralized Underwriting

(integration as “black box” into an existing IT-environment
or as simple as a PC stand alone solution)
at the Point of Sale (PC-Solution) or at branches

(Client-Server)
or for direct selling via Internet
17
Practical Examples
India

… Effects of Insufficient Underwriting
Burning Costs Individual

Group
10
8
6
4
2
0
00-35 36-45 46-55 56-65 66-70
years years years years years
19

… Detecting an Objective Risk
Metro
Claim Frequency
Non Metro
3
2.5
2
1.5
1
0.5
0
00-35 36-45 46-55 56-65 66-70
20

… Detecting an Objective Risk
Male
Burning Costs
Female
10
0
00-35 36-45 46-55 56-65 66-70
21
Thank you for your interest
Klaus Palmen, Actuary (DAV)

Herbert Meister, Actuary (DAV)
Münchener Rück
Munich Re Group

Health Underwriting Klaus Palmen Herbert

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Health Insurance

6th Global Conference of Actuaries

Risk Assessment in Health Insurance

… in Private Health Insurance is essential in order:

To arrive at risk commensurate premiums

To develop a profitable portfolio which supports

>> Risk Assessment

Adverse selection and moral hazard is more likely than in

“People tend to palliate their health status at the point of

>> Individual Underwriting

>> Individual Underwriting

General exclusion of pre-existing conditions.

>> Individual Underwriting

Advantages of Qualified Medical Underwriting

For the policyholder For the insurer

Fair underwriting process Less administrative work

Why do we differentiate Individual business is

individual the individual risk of the

group Group business is

>> Group Underwriting

Therefore, the following items are relevant for group

Underwriting supported by IT-systems

Knowledge creating systems (actuarial approach)

Rule based expert systems (knowledge based systems)

Self learning systems

>> Underwriting supported by IT-systems

A consistent underwriting approach at point of application

Only an IT-based assessment system can “guarantee”

Our preference is clearly a rule based system.

>> Underwriting supported by IT-systems

How can a rule based system be used?

for a centralized Underwriting

at the Point of Sale (PC-Solution) or at branches

or for direct selling via Internet

Practical Examples - India

Burning Costs Individual

Practical Examples - India

Practical Examples - India

Klaus Palmen, Actuary (DAV)

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