Micromedical Product Report-2015
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This document describes a proposed microinsurance medical product for Jubilee Insurance Company of Kenya. It provides specifications for the product, including an inpatient cover for families with a general limit of 200,000 KES. Premiums would be 1,800 KES per member annually. The target market is low income Kenyans with credit facilities. Actuarial pricing techniques are used to estimate premiums, drawing on available data sources and adjusting assumptions to reflect the community characteristics. The premiums estimated using standard techniques are intended to be comparable to practical rates.
Micromedical Product Report-2015
- 1. MICROINSURANCE PRODUCT MEDICAL COVER JUBILEE INSURANCE COMPANY OF KENYA Application Actuarial Function is responsible for Calculating costs in respect of Microinsurance Medical Product Author Antony Okungu Version Effective from 1.0 June 2015
- 2. Microinsurance Product Jubilee Insurance Company of Kenya Page 2 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY………………………………………………………………………………………………….3 Background……………………………………………………………………………………………………………….….3 2. INTRODUCTION…………………………………………………………………………………………………………..4 3. PRODUCT SPECIFICATIONS .................................................................................................... 6 4. PROJECTIONS……………………………………………………………………………………………………………11
- 3. Microinsurance Product Jubilee Insurance Company of Kenya Page 3 1. EXECUTIVE SUMMARY Background 1.1. Microinsurance is growing as usage as tool to help poor communities mitigate the risks they face. Medical microinsurance schemes are used to manage the burden of high healthcare costs for poor families when a family member falls ill. 1.2. Medical microinsurance schemes often have limited financial resources; therefore if the premium they collect is insufficient, the scheme could be forced to close. Robust pricing techniques are needed to ensure that this Medical microinsurance schemes are able to cover the claims and their running costs. 1.3. This report explored the application of JICK’s standard pricing techniques, which usually is used for pricing conventional medical insurance schemes, to health microinsurance schemes. This demonstrated the techniques that are most suitable for these microinsurance schemes. 1.4. The report describes the steps taken to estimate the premiums for pilot microinsurance scheme already in our books. Actuarial Function undertook the pricing exercise by researching available data, deriving the relevant pricing assumptions and building a pricing model the scheme. The methodology adopted by the team was based on techniques that would be used to estimate premiums for conventional schemes. 1.5. The premiums estimated using the standard technique was comparable with those that might be used in practice. The study found that Kenya National Bureau of Statistics (Economic Survey 2013) data was the most useful and readily available data; assumptions were often adjusted to reflect the characteristics of the community.
- 4. Microinsurance Product Jubilee Insurance Company of Kenya Page 4 2. INTRODUCTION Aim 2.1. The aim of this report is to explore the pricing techniques and premium adequacy approach used for setting premiums for Microinsurance Medical products. Background 2.2. Microinsurance services low income communities that are unable to afford traditional insurance products. It is aimed at providing coverage for low-income households but it is not limited to a specific product or product line. 2.3. Generally these low-income communities are in developing countries and are not serviced by the conventional insurance market or social insurance schemes because the premiums are unaffordable or their income is irregular. This is because most of the people in these communities are part of the informal employment sector or the agricultural sector. Often referred to as the working poor, this has created a huge potential in terms of the client numbers. 2.4. A Micro-medical product is a microinsurance product that provides healthcare cover for its members. It generally operates by collecting premiums for a group of individuals in order to pay for the provision of healthcare services of the persons in the group, when needed. The premiums collected from the members may not cover the full cost of the scheme; the extra costs may be covered by a subsidy from the government or a charity organization. There are some schemes that aim to operate on a fully funded basis i.e. with the premiums collected covering the full costs and even providing a profit for providers.
- 5. Microinsurance Product Jubilee Insurance Company of Kenya Page 5 Product Objectives 2.5. Low cost medical insurance product would enable low income earners get protection against health risks and high costs. 2.6. Single premium calculation for all ages should be easy to sell. 2.7. Improve JICK’s intermediary bouquet Target Market 2.8. Our target market is all Kenyans who have credit facilities either through Societies or Banks with major focus on Low income earners. According to Cohen and Sebstad (2005), health risks are identified as one of the most significant risks to low income households. People in poor communities often need to sell some of their most valuable assets such as livestock in order to pay for healthcare when a family member falls ill. The World Bank estimates that more than 100 million people are pushed into poverty each year because of healthcare costs (The World Bank, 2010). Microinsurance can help manage these health risks and so prevent these households from falling back into abject poverty. Period Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 No of policies 1,800 3,600 5,400 7,200 9,000 10,800 12,600 14,400 16,200 18,000 19,800 21,600 Value Proposition 2.9. Low cost medical insurance product would enable low income earners get protection against health risks and high costs. 2.10. Single premium calculation for all ages should be easy to sell. 2.11. Improve JICK’s intermediary bouquet
- 6. Microinsurance Product Jubilee Insurance Company of Kenya Page 6 3. PRODUCT SPECIFICATIONS General Description 3.1. The product provides an inpatient cover for the family 3.2. Product Structure. PRODUCT STRUCTURE BENEFIT LIMIT Overall Inpatient 200,000 Inpatient Optical within IP 30,000 Inpatient Dental Within IP 30,000 Maternity(Normal Delivery) 20,000 Maternity(C/S) 20,000 Last Expense Per Member 50,000 Annual Premium Per Member 1,800 3.3. Eligibility. a) .Minimum of 40 members. b) .The maximum joining age is 65 years. c) .Members can be covered up to a maximum age of 70 years 3.4. Benefits. INPATIENT SUMMARY OF SCOPE OF COVER Benefit Limit Scope of cover 200,000 Pre- Existing /Chronic conditions 100,000 within Inpatient limit HIV /AIDS and related opportunistic conditions. 100,000 within Inpatient limit Maternity- normal delivery Covered up to Kshs.20,000 Caesarean Section Covered up to Kshs.20,000 Last Expense Kshs.50,000 per member In patient Dental Covered up to Kshs.30,000 per member within inpatient limit Inpatient Optical Covered up to Kshs.30,000 per member within Inpatient limit Bed entitlement(admissions) General ward bed
- 7. Microinsurance Product Jubilee Insurance Company of Kenya Page 7 3.5. Inpatient Overview of the Benefits. a) .Term Hospital accommodation charges for a general ward bed. b) .I.C.U., H.D.U and theatre charges. c) .Prescribed drugs/ medicine, dressings and internal surgical appliances. d) .Pathology (Routine Diagnostic Lab Tests) and radiology (X-ray, ultrasound) e) .Day care surgery. f) . Maternity tariffs j) .Chronic and pre-existing conditions. k) .HIV/AIDS 3.6. Subject to the following conditions. a) .The cover is for main members only. b) .Cover commences after 30 days upon registration with Jubilee Insurance. 3.7. Waiting Period. a) The standard waiting period is 30 days for all claims except accidents and medical emergencies baby, b) 6 months for maternity and related conditions. c) Surgical treatment is 6 months unless it’s accidental. d) Illnesses-1month. e) Last Expenses due to natural causes-1 month
- 8. Microinsurance Product Jubilee Insurance Company of Kenya Page 8 3.8. Key Exclusions. a) .Congenital conditions b) .Treatment of infertility or impotence. c) .Treatment outside the geographical boundaries of Kenya(unless pre-authorized) d) .Alcohol and substance abuse. e) .Injury caused by suicide or self-inflicted injury f) . Weight management treatments and drugs g) .Cosmetic, plastic or maxillofacial surgery or any other beauty treatment h) . Nutritional supplements unless prescribed as part of medical treatment of specified conditions i) .Self-referred or self-prescribed treatment j) .Treatment outside the appointed panel of service providers (unless pre authorized) k) .Treatment by non-qualified persons, herbalists nor traditional medicine men l) . Alternative (acupuncture, chiropractor, homeopathy etc.) and herbal medicine Diagnostic equipment (glucometers, BP machines etc.) and hearing aids m) .Experimental treatment or treatment subject to medical research n) .External surgical appliances (frames, wheelchairs). 3.9. Pricing Actuarial Pricing Team has developed ways of estimating the expected future costs under health insurance policies. The technique applied will depend on type of policy in our case its Group Private Medical Insurance. For the group PMI scheme we calculate a risk premium that represents the future cost of claims under the policy. The risk premium is then increased to include the costs of selling and administering the policy, the cost of holding capital and reserves, and a profit margin – this gives the office premium. In conventional insurance schemes this office premium is what the scheme member will pay. Rafiki Microfinance Scheme Type Private Medical Insurance Method of Financing Self- funded for profit Distributor Microfinance institution Policy Type Individual family policy Premium Type Monthly premium collected with loan repayment Regulatory Environment Subject-specific regulation
- 9. Microinsurance Product Jubilee Insurance Company of Kenya Page 9 3.10 Assumptions For PMI policies the benefit cost may be given by the hospital provider’s benefit. This information is available for Rafiki Microfinance. Benefit inflation could be derived from the past inflation of benefit costs from the provider for PMI. As the Rafiki Microfinance scheme is new there is no data on benefit inflation; however as the scheme is annually renewable the premium might be adjusted if benefit costs rise to unexpected levels in subsequent years. Expense assumptions are usually based on the company’s recent expenses analysis for similar policies. The results of the expenses analysis will be adjusted for inflation between the time the analysis applied to the time the new product will be sold. The company will assign values for acquisition expenses, i.e. expenses incurred when setting up the product and selling the product. Some of these expenses will be a fixed charge per policy, such as the cost to load the policy into the company’s computer system and some will be proportional to the size of the policy, such as the underwriting costs. There will also be administration or renewal expenses that could be a fixed charge or proportional to the policy size, or both. Expenses and commission under the Rafiki Microfinance have been set at a flat 25 % of the premium. Profit Margin: 5.5% The office premium for the product, P is given by: P = RP + L Where: RP if the standard risk premium for the group or individual L is the loading for expenses, commission and profit Expenses can be loaded as a fixed fee per policy, or a charge proportional to the premium or sum insured or a combination of these two. The commission is usually a charge proportional to the premiums collected and the profit loading may also be proportional to premium.
- 10. Microinsurance Product Jubilee Insurance Company of Kenya Page 10 In most microinsurance the expenses and commission might be a very large proportion of the office premium as the microinsurance risk premium is likely to be very small. This is because the expense of administering a microinsurance scheme may not be significantly less than the expenses incurred in conventional insurance. Office premiums for microinsurance are usually very sensitive to changes in expense and commission levels. In order to ensure that the premium paid is being used to pay for as much healthcare services as possible, the expenses need to be kept as low as possible Our assumption is that Profits for microinsurance would be created through small margins on each policy coupled with a high volume of policies sold .This is especially important as it demonstrates that the product represents value to the target market, thus the profit loading will be only a small proportion of the office premium. Inpatient Limit Kshs.200,000 Incidence Rate 5.59% Risk Premium 1,251 Target Loss Ratio 69.5% Intermediary commission 10.0% Jubilee admin fee 15.0% Jubilee profit 5.5% Office Premium 1,800 Scope of cover Incidence Rate Average Cost Risk Premium Office Premium Pre- Existing /Chronic conditions 0.4995% 40,000 200 288 HIV /AIDS and related opportunistic conditions. 0.1885% 20,000 38 54 Maternity- normal delivery 1.8550% 20,000 371 534 Caesarean Section 1.1550% 20,000 231 332 Last Expense 0.0170% 50,000 9 12 In patient Dental 0.9525% 20,500 195 281 Inpatient Optical 0.9225% 22,500 208 299 Overall Inpatient 5.5900% 1,251 1,800
- 11. Microinsurance Product Jubilee Insurance Company of Kenya Page 11 4. PROJECTIONS Sales Projections 4.1. It is expected that an average of 1,800 new members will sign up on a monthly basis. Period Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 No of policies 1,800 3,600 5,400 7,200 9,000 10,800 12,600 14,400 16,200 18,000 19,800 21,600 Expected Earned Premium 270,000 810,000 1,620,000 2,700,000 4,050,000 5,670,000 7,560,000 9,720,000 12,150,000 14,850,000 17,820,000 21,060,000 Expected Booked Premium 3,240,000 6,480,000 9,720,000 12,960,000 16,200,000 19,440,000 22,680,000 25,920,000 29,160,000 32,400,000 35,640,000 38,880,000 Projected Claims to Date & Loss Ratio 4.2. An amount of Kshs.25, 000 was assumed for every admission case. Month Lives Premium Average Estimated Cases Expected Claims Feb 384 691,200 10 250,000 Mar 1919 3,454,200 10 250,000 Apr 946 1,702,800 10 250,000 May 963 1,733,400 10 250,000 Jun 129 232,200 10 250,000 Total 4,341 7,813,800 50 1,250,000 Loss Ratio 16%