Sept 2007, #5

[MindFull]

Hi All,

I was just wondering about the examiner's answer to the question that talks about the deferred period. So it says that Basis 1 would be better for shorter deferred periods and Basis 2 would be better for longer ones. I'm not quite sure I'm understanding why that would be so.

Thanks.

 

[Mark Willder]

Hi All,

I was just wondering about the examiner's answer to the question that talks about the deferred period. So it says that Basis 1 would be better for shorter deferred periods and Basis 2 would be better for longer ones. I'm not quite sure I'm understanding why that would be so.

Thanks.

Hi MindFull

Let's say that the company offers deferred periods of 3, 6, 9 and 12 months.

Basis 1 might require the policyholder to notify the insurer of illness before the end of the first month of incapacity. This would work well for the shorter deferred periods as it gives the policyholder enough time to provide the information and still gives the insurer enough time to prepare for the payments to start. However, this wouldn't be appropriate for the longer deferred periods as the insurer would be informed of lots of illnesses that would never reach the end of the deferred period, and so it would create a lot of unnecessary work.

Basis 2 might require the policyholder to notify the illness at least 3 months before payments start. This works well for the longer deferred periods as it gives the insurer lots of time to prepare for the payments and perhaps help to get the policyholder back to work. However it clearly wouldn't work for the shortest deferred period as the policyholder would be unable to notify the insurer in time.

Best wishes

Mark

 

[MindFull]

Hi MindFull

Let's say that the company offers deferred periods of 3, 6, 9 and 12 months.

Basis 1 might require the policyholder to notify the insurer of illness before the end of the first month of incapacity. This would work well for the shorter deferred periods as it gives the policyholder enough time to provide the information and still gives the insurer enough time to prepare for the payments to start. However, this wouldn't be appropriate for the longer deferred periods as the insurer would be informed of lots of illnesses that would never reach the end of the deferred period, and so it would create a lot of unnecessary work.

Basis 2 might require the policyholder to notify the illness at least 3 months before payments start. This works well for the longer deferred periods as it gives the insurer lots of time to prepare for the payments and perhaps help to get the policyholder back to work. However it clearly wouldn't work for the shortest deferred period as the policyholder would be unable to notify the insurer in time.

Best wishes

Mark

Hi Mark,

I think I must be misunderstanding something from your response. For basis 1, if everyone has to report within a month of being sick, why would having a longer deferred period matter since the deferred period starts after they are sick? Everyone will have to report before the end of the first month of incapacitated so I'm a little confused .

Thanks again Mark!

 

[Mark Willder]

Hi Mark,

I think I must be misunderstanding something from your response. For basis 1, if everyone has to report within a month of being sick, why would having a longer deferred period matter since the deferred period starts after they are sick? Everyone will have to report before the end of the first month of incapacitated so I'm a little confused .

Thanks again Mark!

Hi MindFull

Yes in my example for basis 1 everyone will have to report before the end of the first month of incapacitation. This isn't a good way to do things for a long deferred period such as 12 months. The insurer will get lots of unnecessary notifications as the vast majority of these people will have recovered in the next 11 months and so will never actually be paid a benefit.

If instead the insurer asked to be notified 3 months before the start of the payments (basis 2), then there would still be plenty of time to prepare and the insurer would be saved the expense of dealing with lots of notifications in the early months of sickness.

Best wishes

Mark

 

[MindFull]

Hi MindFull

Yes in my example for basis 1 everyone will have to report before the end of the first month of incapacitation. This isn't a good way to do things for a long deferred period such as 12 months. The insurer will get lots of unnecessary notifications as the vast majority of these people will have recovered in the next 11 months and so will never actually be paid a benefit.

If instead the insurer asked to be notified 3 months before the start of the payments (basis 2), then there would still be plenty of time to prepare and the insurer would be saved the expense of dealing with lots of notifications in the early months of sickness.

Best wishes

Mark

Hi Mark,

Actually I'm re-reading the question again and my question was the wrong way around. The examiner's report says that basis 1 (notification after incapacity) would be better for longer deferred periods and basis 2 would be better for shorter. So on that basis, is the examiner's report wrong?
Aside from that, are you saying that for basis 1, having a shorter period is better because you don't want to do claims processing on claims that won't turn into actual payments (even tho that won't reduce the amount of people who claim during the first month - which may mean that all potential claims reported will turn into payments)?

 

[Mark Willder]

Hi Mark,

Actually I'm re-reading the question again and my question was the wrong way around. The examiner's report says that basis 1 (notification after incapacity) would be better for longer deferred periods and basis 2 would be better for shorter. So on that basis, is the examiner's report wrong?
Aside from that, are you saying that for basis 1, having a shorter period is better because you don't want to do claims processing on claims that won't turn into actual payments (even tho that won't reduce the amount of people who claim during the first month - which may mean that all potential claims reported will turn into payments)?

Hi MindFull

I don't think the Examiners Report is very clear, so I wouldn't worry about their wording too much.

All the examiners wanted was the ideas that:

• a very short notification period would give more time for the insurer to intervene, but would mean handling more notifications
• a very long notification period would avoid the need to deal with notifications which would never become claims, but would give less time for the insurer to intervene.

So actually both of the suggested bases are bad. We'd probably want notifications somewhere more in the middle of the deferred period, ie we want different notification periods for different lengths of deferred period.

Best wishes

Mark