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IAI Actuarial Core Principles · Business Management · Business and consumer needs, the industry value chain and competitive forces

An Indian health insurer designs a product after finding that customers want certainty that hospital bills will be paid, while the insurer needs to control claim costs and avoid adverse selection. Which design balances both sets of needs best?

Cashless treatment through a hospital network with pre-agreed tariffs, disclosed waiting periods and clear exclusions balances both needs. Customers get payment certainty and transparency, while the insurer controls costs and adverse selection. The other designs ignore either the customer's certainty or the insurer's risk and sustainability.

  1. AUnlimited cover with no waiting periods and no underwriting
  2. BCashless treatment at a network of hospitals with pre-agreed tariffs, disclosed waiting periods and clear exclusionsCorrect
  3. CCover only after the customer has paid for treatment and submitted all bills, with undisclosed exclusions
  4. DVery high deductibles on all claims with no network
  5. Premiums fixed for life regardless of claims experience or medical inflation

Explanation

Cashless network treatment gives customers payment certainty, while pre-agreed tariffs, waiting periods and clear exclusions control cost and anti-selection transparently. Unlimited cover without underwriting ignores insurer needs, and undisclosed exclusions, large deductibles or fixed lifetime premiums fail customers or the insurer's solvency.

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