Health Insurance ERM

1. Health Insurance ERM Unique Aspects of Risk Faced by Health Insurers

2. Topics • Comments on the general nature of risk • Health risks and how they differ from the risks that our life and P&C brethren accept

3. Risk is a Four-Letter Word • Negative connotation - something to be avoided • Abstract yet concrete • Actuaries have chosen to try to make sense out of risk

4. 2 Types of Risk • Measurable • Comfortable with this type of risk • Can apply incorrect models • Data is not available that reflects the given risk • Unmeasurable • Unnerving • Want to be able to assess it • Need to accept it and deal with it

5. Unique Aspects of Health Risk • Not found in other types of insurance • Have a much larger role in health insurance than in other types of insurance

6. Mainly Employer-Based • Insulates consumers from the true cost of services • Employers decide what benefits to offer • May shift as baby-boomers age and purchase Medicare Supplement coverage

7. Viewed as a “Right” • Entitlement mentality • Feeds into other risks such as legislative and legal risks

8. Benefits Can Be Used Over and Over and Over… • Most people do not want to use life or P&C benefits frequently if at all. • Illness is a fact of life. • When people get sick they want the best care and fastest relief.

9. Provider Networks • Not unique to health insurance but they represent a much larger risk than for other types of insurance • Represent one of a health carrier’s greatest assets. • Stability • Large enough to handle all of the carrier’s business

10. Provider Networks (cont’d) • Risks • Disgruntled providers • Financial viability of providers • Disagreements between providers and health insurers are very public • Growth

11. Economy • Slow Economy - Increased use of services before layoffs • Tight Job Market - Firms offer richer benefits to attract and retain staff

12. Legal, Regulatory, & Legislative Risks • Health carriers, especially managed care firms, are more susceptible to lawsuits • Mandated benefits • Delays in rate approvals • Life/P&C laws applied to health insurance

13. Reserve Adequacy • Based on a carrier’s experience • Data is critical • Fine line between adequate and excessive

14. Reinsurance • Some reinsurers pulled out of the market • Harder to find coverage • More expensive • Insurers take on more risk • Can affect new product offerings

15. Anti-Selection • Large effect due to option sales • Hard to measure • Can be positive or negative

16. Reputational Risk • More susceptible these days due to the stage provided by the internet • Disgruntled member • Rating agencies • Stock analysts • Lack of corporate governance

17. Incentives • Management Incentives – same issues for any other company • Provider Incentives • Need to line up with the health insurer’s goals • Must not be perceived by the members as inhibiting care • Should we even have them?