Cogent ME International Insurance & Reinsurance Brokers

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Medical Insurance Product Development,Pricing and ReinsurancePresented bySameer Gammoh

Agenda • Introduction • Product Development &Benefit Design • Pricing & Feasibility • Experience Pricing • Outstanding & IBNR • The Role of TPAs • Reinsurance Cogent ME

Introduction • Causes Behind Health Insurance Losses • Importance of Maths in Health Insurance • Data Recording and Classification • Continuance Monitoring Cogent ME

Causes of Loss • Inability to Identify Legitimate Insured Members • Fraudulent claims – Insured members abuse • No control mainly in out-patient claims • Inability to Control Extensive Procedures by HCPs • Health Care Providers abuse of benefits • No control mainly in out-patient claims • Growth Limitation • Personnel needed • Huge number of claims – consistency • No Accurate Recording of Data • 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 know-how Cogent ME

Importance of Maths • Mathematical Modeling and Prototyping Based on Market Info Provides Better Understanding of Medex Insurance Business in any Market. • 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 Cogent ME

Importance of Maths • 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. Cogent ME

Benefit Design • In Patient Benefits • Out Patient Benefits • Maternity Benefit • Dental Benefit • Optical Benefit • Others • Repatriation • Assistance • Evacuation • Travel and accommodation • Long Term Care Cogent ME

Considerations • Limits • Coverage Limits • Covered cases • Excluded cases • Frequency Limits • In-Patient • Out-Patient • Other Limits • Financial Limits • Maximum limits • Deductibles • Co-insurance Cogent ME

Considerations • Coverage Duration • Short term • Annual • Long term • Age, Gender and other Risk Factors • Pre-Existing Conditions • Eligibility Conditions • Dependency Type • Nationality • Contributions Cogent ME

Pricing & Feasibility • Data Availability • Underwriting Info • Global – Related to the employer • Specific – Related to insured member • Past Claims Profile and Experience • Guessing Game • Compared to Similar Situations • Market Trend • Special Deviation Margins • The rule of Thumb Cogent ME

Pricing & Feasibility • Pure Premium ( NRP ) • Expected Actual Cost of Claims According to Benefit • Contingency Margins • Inflation • Gross Premium • Pure Premium • Other Loadings • Profit • Commission • Other overhead expenses • TPA fees • Stamps duty and Taxes Cogent ME

Expected Cost Calculation • Utilization Rate According to Benefit Type • In Patient • Out Patient • Dental … Optical ….. • Average Cost per Incident According to Benefit Type • In Patient • Out Patient • Dental … Optical ….. • Exposed Insured Population By • Class of Coverage • Age • Sex • Benefit Type Cogent ME

Utilization Rate Calculation • In Patient • 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 • 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 • 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 • 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 • 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

Experience Rating (Pricing) • Historical Data Needed • 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 • B/C Burring Cost by Benefit Type per Insured Member (Age Group, Sex & Dependency) • In Patient • B/C PPP= ((Exposed population * Utilization Rate)*(Average Cost per Visit))/Exposed Population • Out Patient • 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 • Extrapolate a 12 months B/C out of the historical data available • In Patient • B/C PPPA = (B/C PPP /Period in study in days)* 365 • Out Patient • 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 • Load for Deviation • % Normally 5% to 10% • 3 Years experience 5% • 2 Years experience 7.5% • 1 Year experience 10% Cogent ME

Experience Rating (Pricing) • Calculate the Following • Load for Inflation • 2 Inflation loadings ( Value – Frequency ) • 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

Outstanding & IBNR • Definition • 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 Cogent ME

Outstanding & IBNR • Definition • 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 Cogent ME

Situation = No TPA Covered Covers Insureds Reinsurers Is insured Pays Visits RI Broker Insures Pays Healthcare Providers Insurers Cogent ME

Insurance Company’s Problems • 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 • Unavailable Statistical Info • No Accurate Recording of Vital Data • Reporting Delay • Inability to Propose Corrections on Time • 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 • 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) Cogent ME

Healthcare Providers Problems • Delays in Payment • Reimbursement Losses Due to: • Fraud • Vagueness of Coverage • Handling Different Polices and Plans • Identifying Legitimate Insured Members Cogent ME

Situation = With TPA Reinsurers 3rd Party Admin. Insureds RI Broker Insurers Healthcare Providers Cogent ME

TPA IT Cluster Insureds Visit Employers Review Enter Treatment Plan Submit Financial Claims EOB $ $ $ Ins. Co / RI Healthcare Provider Network 3rd Party Administrator - TPA Ideal -TPA Concept Payers Insurance Policy Medical Record Adjudicate Management Agreement Network Agreement

Insureds HC Provider TPA Insured Co. Insurer Reinsurer Ideal Communication System Internet Cogent ME

Medex Reinsurance Types Facultative Treaty Proportional Non-Proportional Non-Proportional Proportional Q.S X.L Q.S X.L Surplus Stop Loss Surplus Stop Loss Spec. Agg. Spec. Agg. Cogent ME

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 Non-Proportional 1- Huge Portfolio 2- Low Volatility 3- Homogenous Portfolio 4- Long Experience 5- Acquired the Needed Know-how 6- Reliable Pricing Structure 7- Reliable Claims Handling System 8- Maturity Stage When And Why Cogent ME

The Role of a Good Broker • 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

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Cogent ME International Insurance & Reinsurance Brokers