Welcome
Cogent ME
International Insurance
& Reinsurance Brokers
June, 2005
Cogent ME
Medical Insurance
Product Development,
Pricing and Reinsurance
Presented by
Sameer Gammoh
June, 2005
Cogent ME
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Introduction
Causes Behind Health Insurance
Losses
 Importance of Maths in Health
Insurance
 Data Recording and Classification
 Continuance Monitoring
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June 2005
Cogent ME
Causes of Loss
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Inability to Identify Legitimate Insured Members
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Inability to Control Extensive Procedures by HCPs
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Health Care Providers abuse of benefits
No control mainly in out-patient claims
Growth Limitation
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Fraudulent claims – Insured members abuse
No control mainly in out-patient claims
Personnel needed
Huge number of claims – consistency
No Accurate Recording of Data
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June 2005
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 knowhow
Cogent ME
Importance of Maths
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Mathematical Modeling and Prototyping Based
on Market Info Provides Better Understanding
of Medex Insurance Business in any Market.
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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
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June 2005
Cogent ME
Importance of Maths
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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.
June 2005
Cogent ME
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Benefit Design
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In Patient Benefits
Out Patient Benefits
Maternity Benefit
Dental Benefit
Optical Benefit
Others
 Repatriation
 Assistance
 Evacuation
 Travel and accommodation
 Long Term Care
June 2005
Cogent ME
Considerations
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Limits
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June 2005
Coverage Limits
 Covered cases
 Excluded cases
Frequency Limits
 In-Patient
 Out-Patient
 Other Limits
Financial Limits
 Maximum limits
 Deductibles
 Co-insurance
Cogent ME
Considerations
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Coverage Duration
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June 2005
Short term
Annual
Long term
Age, Gender and other Risk Factors
Pre-Existing Conditions
Eligibility Conditions
Dependency Type
Nationality
Contributions
Cogent ME
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Pricing & Feasibility
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Data Availability
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Underwriting Info
 Global – Related to the employer
Specific – Related to insured member
Past Claims Profile and Experience
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Guessing Game
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June 2005
Compared to Similar Situations
Market Trend
Special Deviation Margins
The rule of Thumb
Cogent ME
Pricing & Feasibility
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Pure Premium ( NRP )
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Gross Premium
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June 2005
Expected Actual Cost of Claims According to Benefit
Contingency Margins
Inflation
Pure Premium
Other Loadings
 Profit
 Commission
 Other overhead expenses
 TPA fees
 Stamps duty and Taxes
Cogent ME
Expected Cost Calculation
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June 2005
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
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In Patient
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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
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June 2005
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
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In Patient
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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
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June 2005
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
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Total Insured Members
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June 2005
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
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Experience Rating (Pricing)
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Historical Data Needed
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June 2005
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)
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Calculate the Following
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June 2005
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)
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Calculate the following
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Extrapolate a 12 months B/C out of the historical data available
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In Patient
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Out Patient
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June 2005
B/C PPPA = (B/C PPP /Period in study in days)* 365
B/C PPPA = (B/C PPP/Period in study in days)* 365
All Other Benefits – The same
Cogent ME
Experience Rating (Pricing)
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Calculate the Following
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Load for Deviation
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June 2005
% Normally 5% to 10%
 3 Years experience 5%
 2 Years experience 7.5%
 1 Year experience 10%
Cogent ME
Experience Rating (Pricing)
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Calculate the Following
 Load for Inflation
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2 Inflation loadings ( Value – Frequency )
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June 2005
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
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Outstanding & IBNR
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Definition
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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
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June 2005
Cogent ME
Outstanding & IBNR
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Definition
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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
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June 2005
Cogent ME
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Situation = No TPA
Reinsurers
Covered
Covers
Pays
Insureds
Visits
Pays
Healthcare
Providers
Insurers
June 2005
Cogent ME
Insurance Company’s Problems
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June 2005
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
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June 2005
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
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June 2005
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
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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)
June 2005
Cogent ME
Healthcare Providers Problems
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June 2005
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
Insureds
3rd Party
Admin.
Insurers
June 2005
Healthcare
Providers
Cogent ME
Ideal -TPA Concept
TPA IT Cluster
Payers
Adjudicate
Insurance
Policy
Ins. Co / RI
Insureds
Visit
Medical
Record
Review
Enter
Treatment
Plan
Submit
EOB
Employers
$
Financial
$ Claims
Management
Agreement
$
Network
Agreement
3rd Party Administrator - TPA
Healthcare Provider Network
Ideal Communication System
Insureds
HC Provider
TPA
Internet
Insured Co.
Insurer
Reinsurer
June 2005
Cogent ME
37
Agenda
Introduction
 Product Development &Benefit Design
 Pricing & Feasibility
 Experience Pricing
 Outstanding & IBNR
 The Role of TPAs
 Reinsurance

June 2005
Cogent ME
Medex Reinsurance Types
Facultative
Treaty
Proportional
Non-Proportional
Proportional
Q.S
X.L
Q.S
X.L
Surplus
Stop
Loss
Surplus
Stop
Loss
Spec.
Agg.
Spec.
Agg.
June 2005
Non-Proportional
Cogent ME
When And Why
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
June 2005
Cogent ME
Non-Proportional
1- Huge Portfolio
2- Low Volatility
3- Homogenous Portfolio
4- Long Experience
5- Acquired the Needed Knowhow
6- Reliable Pricing Structure
7- Reliable Claims Handling
System
8- Maturity Stage
The Role of a Good Broker
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June 2005
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
Q&A
June, 2005
Cogent ME
Thank you for your time
June, 2005
Cogent ME