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Efficient Reinsurance Management of HealthClaims Portfolios
October 29, 2015
10th CCHFI, Turks & Caicos Islands
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Outline
Purpose of ReinsuranceCase study
BackgroundReview the outcomesConsideration of alternativesAction steps
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Purpose of Reinsurance
Reinsurance is a specialized form of insurance where there is a transference of risk and it is commonly implemented for reasons such as:
Protection against claims that are low in frequency but have high severity (e.g. large dollar/catastrophic claim amounts)Lack of excess capital to support a single large claim (or aggregate claims) that significantly exceed a certain threshold A large claim could be disproportionate to the size of the planDesire improved claims predictability for pricing or budgeting purposesThere is a lack of information to assess the extent of the risk being underwritten
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Case Study - Background
Stop-Loss arrangement that covers the claims in respect of an individual participant that exceed of a certain dollar thresholdThreshold is set at approximately 15 times the average claimReinsurance premium had recently increased significantly
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% of Population % of Total ClaimClaim less than 2 times the average 88% 42%Claim more than 2 times the average 12% 58%
% of Population % of Total Claim> 3 times the average 7% 46%> 4 times the average 5% 38%> 5 times the average 3% 32%> 15 times the average Less than 1% 10%
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Case Study – Is Reinsurance Efficient?
No-Reinsurance
With Reinsurance
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$100$89 $115
5th Perc. Median 95th Perc.
$105$96 $110
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Case Study – Alternatives
Review the level of risk that is appropriate for the planIs a higher reinsurance limit acceptable?
If the stop-loss threshold we to increase by 50% (i.e. a higher threshold applies before the reinsurer pays a claim), the plan performance could improve by 2% (i.e. total costs under the plan could decline by 2%)
Might an aggregate threshold be desirable?By selecting the appropriate aggregate stop-loss threshold the maximum exposure under the plan could have been capped at $105 (which is better than the higher exposure that is possible under the current reinsurance arrangement – see previous slide)
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Case Study – Actions
Consider whether reinsurance is helpful. What outcome is intended and can reinsurance help meet that goal?Review the cost drivers. What is causing claims to exceed a high threshold? Can plan design or targeted programs be effected to mitigate the high costs?Understand your level of risk. What level of risk is acceptable for your plan? What reinsurance arrangement is most suitable?Review the reinsurance arrangement. Can better rates be negotiated? Can guarantee periods be established?Review the market. Perhaps consider marketing the plan?Be better informed. Monitor plan performance and trends.
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Case Study - Change in Large Claimants
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Reinsurance Threshold Multiple
0.0 – 0.4 0.5 – 1.0 > 1.0
0.0 – 0.4 98.5% 0.2% 0.0%
0.5 – 1.0 0.4% 0.3% 0.1%
> 1.0 0.1% 0.1% 0.3%
Year Two
Year
One
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Thank YouHoward Cimring
Partner, Consulting Practice
