Hi Niluki
Chapter 1
pg 6: I think the issue is more the fact that HIV infection may not be readily detectable at the underwriting stage, so somone who knows that they are a high risk (but not necessarily diagnosed) could take out IP - passing the u/w stages - and then claim later. So it's more an anti-selection risk, not moral hazard.
pg 21: The version with no escalation in claim would be a major issue for a long-term claimant - eg who received benefit for 20 years without that benefit ever increasing. So you can argue either way. It's not a major issue, though, as neither of these versions are common (compared with those that escalate in all states).
pg 23: Depends on the reviewability terms. If premiums (contributions) are reviewable, then the company will require an increase in contribution at the review date if there is any likelihood of negative units before the next review. If the policyholder doesn't comply, then the policy may be lapsed on the spot or at the future point at which the fund reaches zero, depending on the policy conditions. If the policyholder has complied with all reviews and it still goes to zero before the next review, then that's the company's problem until the next review. Of course, if all terms/premiums etc are guaranteed, then the risk of fund implosion is entirely borne by the company - but full guarantees are contradictory to the UL idea so are unlikely ever to be found.
pg 27: It's probably just a matter of practical convenience and for the avoidance of disputes: the net-of-tax calculation would have to take account of the members' actual tax rates, and these can differ between individuals due to other sources of income etc. Much easier to define as a % of gross salary, which is uncontestable. The "net" effect can be the same either way - as the CR basically says.
pg 31: It's actually saying that group versions are not normally underwritten - justification for this is the same as for group IP as described in the previous section of the notes.
pg 32: I'm sure there would be a demand - it's the uncertainty involved with a long-term version which would make it too expensive to sell, and/or too risky for the insurer to take on.
Chapter 2
pg 4: It would have to be!
pg 16: Not really sure - anyone else know? In any case, the main point is that the cost would be very high.
pg 18: There is very little difference. The distinction seems to arise in practice in their application - eg in the UK the tests that are applied in relation to claims for state benefits seem to be more commonly called PCAs, while those that are applied in relation to claims for insurance benefits seem to be more commonly called FATs. The distinction doesn't seem worth worrying about.
Chapter 3
pg 9: I think it would depend on the policy conditions. The contract might transfer benefit type from CI to LTC on reaching a certain age - so would only pay one type of claim - or it may pay twice - eg lump sum followed by an income. The premium would obvioulsy reflect this.
pg 17: The minimum period applies but is likely to be irrelevant, unless the unit fund is so small that it is entirely used up during this period. Drawing down money from units is like a partial surrender of units and essentially just spending the policyholder's own money - the insurer can't enforce a "deferred period" on this. The deferred period purely relates to payments of claim by the insurer - ie from the non-unit fund.
Chapter 6
pg 7 - because the alternative - charging special rates or imposing terms - causes bad feeling to the applicant and is a lot of hassle (expense) for the insurer. This would be a significant barrier to sales. If brokers got wind that a large majority of an insurer's applicants ended up being rated, then they would soon remove their custom.
Chapter 7
pg 16: These (I think) are notices/letters sent to the members (employees) informing them of what their cover is, and associated terms and conditions, when they join a group scheme. Basically, the point of the paragraph is that the broker will do quite a lot of the admin on behalf of the employer.
Chapter 8
pg 5: Basing remuneration on benefit has some similar, and some different, effects compared with basing on premium. It's similar in that the commission will generally increase with the size of policy, and as profits generally increase in absolute terms the bigger the policy, then this seems reasonable. The emphasis on policy size has a second effect, which is to encourage sales to younger lives. A premium-related commission would do the opposite. Provided it can be argued that younger policyholders generate more profit for the insurer than older ones, then this has some logic too.
Last edited by a moderator: Feb 27, 2007