Health Insurance ERM
Unique Aspects of Risk
Faced by Health Insurers
Topics
 Comments
risk
 Health
on the general nature of
risks and how they differ from
the risks that our life and P&C
brethren accept
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
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
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
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
Viewed as a “Right”
 Entitlement
 Feeds
mentality
into other risks such as
legislative and legal risks
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
 When
is a fact of life.
people get sick they want the
best care and fastest relief.
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
Provider Networks (cont’d)
 Risks
– Disgruntled providers
– Financial viability of providers
– Disagreements between providers and
health insurers are very public
– Growth
Economy
 Slow
Economy - Increased use of
services before layoffs
 Tight
Job Market - Firms offer richer
benefits to attract and retain staff
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
Reserve Adequacy
 Based
 Data
 Fine
on a carrier’s experience
is critical
line between adequate and
excessive
Reinsurance
 Some
reinsurers pulled out of the
market
– Harder to find coverage
– More expensive
 Insurers
 Can
take on more risk
affect new product offerings
Anti-Selection
 Large
 Hard
 Can
effect due to option sales
to measure
be positive or negative
Reputational Risk
 More
susceptible these days due to
the stage provided by the internet
 Disgruntled member
 Rating agencies
 Stock analysts
 Lack of corporate governance
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?