Applying the actuarial control cycle in private health insurance

Transcription

1 Applyng th cturl control cycl n prvt hlth nsurnc Bn Oo FIAA Prsntd to th Insttut o Acturs o Austrl 2005 Bnnl Convnton 8 My 11 My 2005 Ths ppr hs bn prprd or th Insttut o Acturs o Austrl s (Insttut) Bnnl Convnton Th Insttut Councl wshs t to b undrstood tht opnons put orwrd hrn r not ncssrly thos o th Insttut nd th Councl s not rsponsbl or thos opnons Bn Oo Th Insttut wll nsur tht ll rproductons o th ppr cknowldg th Author/s s th uthor/s, nd nclud th bov copyrght sttmnt: Th Insttut o Acturs o Austrl Lvl 7 Chlls Hous 4 Mrtn Plc Sydny NSW Austrl 2000 Tlphon: Fcsml: Eml: nsct@cturs.sn.u Wbst:

2 Insttut o Acturs o Austrl Bnnl Convnton 2005 CONTENTS 1 INTRODUCTION Bckground Th cturl control cycl Ovrvw ANALYSIS OF SURPLUS FOR PRIVATE HEALTH INSURANCE Introducton Bckground Dntons nd nottons Assumptons Sttng th scn Mthodology Summry A PRACTICAL EXAMPLE Sprdsht Prctcl mplmntton ssus Furthr dvlopmnt Tmng o rvw Mtrlty Concluson REVIEW OF THE PROVISION OF OUTSTANDING CLAIMS Introducton Objctvs o ths scton Bckground Dtrmnton o th provson or outstndng clms Sucncy o th provson Bs Vrblty Th provson o outstndng clms or th nnul rport Concluson ACKNOWLEDGEMENTS REFERENCES Pg 2 o 23

3 Insttut o Acturs o Austrl Bnnl Convnton INTRODUCTION 1.1 Bckground Ths ppr ws motvtd orgnlly by th nd to communct to mngmnt o prvt hlth nsurrs: Th lnk btwn prcng nd protblty. Tht vrtons btwn ctul nd projctd rsults rqur xplnton nd ssst wth urthr rnmnt o prcng nd projcton ssumptons. Although I hv wrttn ths ppr ssumng tht th rdr hs som knowldg o th currnt Austrln prvt hlth nsurnc nvronmnt, I hv ttmptd to mnms th nd or pror knowldg whr possbl. 1.2 Th cturl control cycl Jrmy Goord ntroducd th orgnl concpt o th cturl control cycl or l nsurnc compny n 1985 sttng tht: Th prot tst provds csh lows to buld modl o th compny. Th ctul rsults o th compny r comprd wth th modl nd th drncs nlysd: th nlyss o surplus. Ths drncs r montord ldng to th possbl rnmnt o ssumptons usd n th prot tst. Th cntrl tur o ths control mchnsm s th nlyss o surplus,.. th comprson o ctul xprnc wth tht projctd by th modl nd th ollowng up o substntl drncs. Th gnrl concpt o th cturl control cycl hs bn brodnd subsquntly to th ollowng or ny gvn nvronmnt/contxt: 1. Spcyng th problm. 2. Dvlop soluton / modl. 3. Rvw, rport, rspond nd montor th xprnc. 4. Bck to (1) nd so on. In th contxt o prvt hlth nsurnc, th problm cn b thought o s wht s th pproprt prmum rt or gvn constrnts such s prot rqurmnts, trgt cptl, prudntl rgultons, bnt/product dsgn rstrctons, mrkt xpcttons, tc. Pg 3 o 23

4 Insttut o Acturs o Austrl Bnnl Convnton 2005 Th soluton cn b thought o s prvt hlth nsurnc modl whch cn b usd to: Prorm prot tsts. Modl control rqurmnts. Dtrmn o th provson or outstndng clms. 1.3 Ovrvw Ths dscusson ppr wll ttmpt to ocus on th rvw nd montor th xprnc prt o th control cycl, nmly: 1. Ongong mngmnt o nncl projctons n prvt hlth nsurnc by mns o n nlyss o surplus. 2. Rvw o th provson or outstndng clms. Pg 4 o 23

5 Insttut o Acturs o Austrl Bnnl Convnton ANALYSIS OF SURPLUS FOR PRIVATE HEALTH INSURANCE 2.1 Introducton Fnncl projctons n prvt hlth nsurnc r rqurd or numbr o purposs, ncludng: Prcng. Dtrmnton o th cptl dqucy rqurmnt. Cptl mngmnt. Budgtng. On mportnt prt o th cturl control cycl s rvw nd montorng nd n nlyss o prot s usul to: Rvw th nncl prormnc o th hlth nsurr nd dnty sourcs o unxpctd surplus Rvw th pproprtnss o th nncl projcton (th modl, ssumptons nd othr nputs) 2.2 Bckground Th nlyss o surplus/prot hs bn usd n l nsurnc, suprnnuton nd gnrl nsurnc. Th objctv o n nlyss o surplus s to: Provd chck on th vluton Idnty th sourc o th surplus Isolt nd qunty th mpct o tht sourc o surplus Ectvly th nlyss o surplus th ctul xprnc gnst th projctd (or xpctd) rsult s ollows: Actul Expctd Prmums (or contrbutons) c c Lss Clms (or bnt lblty) b b Prot (or surplus) Whr th ctul surplus, cn b xprssd s th xpctd surplus togthr wth ctul dvtons rom th xpctd surplus, s ollows: = ( - ) (1) Pg 5 o 23

6 Insttut o Acturs o Austrl Bnnl Convnton 2005 Th dvtons rom th xpctd surplus cn b ttrbutd to dvtons rom th xpctd prmum nd dvtons rom th xpctd clms, s ollows: = [(c c ) (b b )] Howvr complctons rs whn th dvtons r rsult o numbr o undrlyng ctors. For xmpl, prmums r dpndnt on both th numbr o mmbrs nd th prmum rt. An ncrs n th numbr o mmbrs rom tht xpctd s lkly to ct both th prmums nd th clms. Thror th nlyss o surplus wll nd to dnty th dvtons n prmum rom xpctd du to chng n th numbr o mmbrs rom othr ctors such s chng n th prmum rt rom xpctd. Pg 6 o 23

7 Insttut o Acturs o Austrl Bnnl Convnton Dntons nd nottons I hv usd th ollowng symbols nd dntons s ollows: m r c b s p d t l q = Surplus = Avrg SEUs ovr th rvw prod (or mmbrshp) = Prmum rt pr SEU = Contrbutons = Bnts = Avrg bnt pr srvc (clm sz) = Avrg numbr o srvcs pr SEU (utlston rt or clm rquncy) = Rnsurnc bnts s % o totl bnts = Avrg stt dct pr SEU = Rnsurnc pymnt nto th Hlth Bnts Rnsurnc Trust Fund = Stt lvy = Stt lvy pr SEU = Invstmnt ncom = Invstmnt rturn (%) whr = A0 A1 2 = 2 A A 0 1 A = Assts t tm t g = Mngmnt xpnss SEU = Mngmnt xpnss s % o contrbutons = Sngl Equvlnt Unt (Ths s msur o mmbrshp n th hlth nsurnc nvronmnt.) Not tht rnsurnc n prvt hlth nsurnc s drnt to tru rnsurnc n th l nd gnrl nsurnc nvronmnt. Hlth nsurrs prtcpt n rsk qulston pool to cltt communty rtng, nd ths s clld th Hlth Bnts Rnsurnc Trust Fund. Pg 7 o 23

8 Insttut o Acturs o Austrl Bnnl Convnton Assumptons Svrl ssumptons hv bn md to smply ths ppr, s ollows: Only 1 hosptl product. Th numbr o srvcs lgbl or rnsurnc s bsd on th proporton o rnsurnc bnts s prcntg o totl bnts. Contrbutons hv no dscounts or rt protcton provsons. Totl ssts r usd to dtrmn o nvstmnt ncom nd othr ncom. 2.5 Sttng th scn Surplus () s xprssd s ollows: = Incom Outgo = (Prmums Invstmnts nd othr ncom) (Bnts Rnsurnc pymnt Stt lvs Mngmnt xpnss) = (c ) (b t l g) (1b) whr, Contrbutons c = r m Invstmnt ncom = A Bnts b = s m Rnsurnc pymnt t = d m 0.79 p b (Not tht th rnsurnc pymnt nto th pool s clcultd s th clcultd dct lss th gross dct, whr th gross dct s 79% o th non-ncllry bnts lgbl or rnsurnc.) Stt lvy l = q m Mngmnt xpnss g = c Thror quton (1) cn b xprssd s ollows: = {((c ) (b t l g )) - {((c ) (b t l g )) } = { c b t l g } (2) In othr words, th ctul surplus cn b lloctd to th xpctd surplus nd ny dvton rom th xpctd componnt o th surplus (g contrbuton, bnts, tc). Pg 8 o 23

9 Insttut o Acturs o Austrl Bnnl Convnton Mthodology Contrbutons c = drnc n vrg contrbuton rt bsd on th xpctd mmbrshp c = (r - r ) m Mngmnt xpnss An xpns tm rss whn th ctul xpns rt (xprssd s sy % o contrbutons) s drnt to th xpctd. g = drnc n th mngmnt xpns rt bsd on th xpctd contrbuton drnc n contrbuton rts nd mmbrshp bsd on th ctul mngmnt xpnss g = ( - ) c c c m m g m = ( - ) c r 1 g m r Not tht th scond componnt bov s not mmdtly ntutv, howvr t s rqurd du to th bov ssumpton o xprssng th xpns rt s % o contrbutons, whch s nothr surplus tm. Ths s th rsultng scond ordr mpct o tht ssumpton Stt lvs A stt lvy tm rss whn th ctul xpns rt (xprssd s nnul stt lvy pr SEU) s drnt to th xpctd. l = drnc n stt lvy rt bsd on th xpctd mmbrshp l = (q - q ) m Rnsurnc t = drnc n rnsurnc bnts du to drnc n drwng rts; drnc n rnsurnc bnts du to drnc n proporton o rnsurnc bnts; drnc n vrg dct pr SEU; bsd on xpctd mmbrshp Pg 9 o 23

10 Insttut o Acturs o Austrl Bnnl Convnton 2005 t = ( s s ) m p 0.79 (p p ) b 0.79 (d d ) m Bnts b = drnc n drwng rts bsd on xpctd mmbrshp b = ( s s ) m Howvr, mor nsghtul nlyss s to splt th drwng rt nto vrg bnts nd utlston, s ollows: b = drnc n vrg bnts drnc n utlston Lt AP = ( ) s / {(s s ) ( ) s } UP = (s s ) / {(s s ) ( ) s } Whr AP UP = 1 b = b AP b UP Mmbrshp movmnts m = mpct o drnc n SEUs (or mmbrshp) m = drnc n SEUs ctul surplus pr SEUs m = (m - m ) / m Invstmnt ncom = - = A A whch cn b r-rrngd to = drnc n nvstmnt rt drnc n ssts (du to ccumultd surplus) = ( - ) A (A - A ) Not tht A A0 A1 = nd A = 2 A A1 2 0 (A - A ) cn b r-xprssd s 2 ( - - ( - )) gvn tht th sst movmnt s cusd by gross o nvstmnt ncom surplus. Ths cn b r-lloctd bck to th non-nvstmnt surplus tm s ollows: Pg 10 o 23

11 Insttut o Acturs o Austrl Bnnl Convnton 2005 Pg 11 o 23 [ ] ( ) surplus tm ( ) 2 Thror th totl non-nvstmnt surplus tm cn b r-xprssd s [ surplus tm ] [ surplus tm ] ( ) ( ) 2 whch cn b smpld to [ surplus tm ] ( ) ( ) ( ) 2 whr ( ) ( ) ( ) =. [ surplus tm ] 2 1 To kp th qutons n ths ppr smpl, lt F = 2 1. (Anothr wy o lookng t F, s tht ch surplus tm wll rn nvstmnt ncom.) In ddton, n djustmnt must b md to rduc th nvstmnt surplus du to th mpct o nw mmbrs. = ( ) ( ) F m m m A

12 Insttut o Acturs o Austrl Bnnl Convnton Summry In summry, quton (1) cn b xprssd s quton (2) gvn quton (1b) s ollows: = ( - ) (1) Gvn = (c ) (b t l g) (1b) = { c b t l g } (2) whr m g = ( - ) c F r 1 g F m r l = (q - q ) m F t = { ( s s ) m p 0.79 (p p ) b 0.79 (d d ) m } F c = (r - r ) m F b (vg bnt) = ( s s ) m F AP b (utl rt) = ( s s ) m F UP AP = ( ) s / {(s s ) ( ) s } UP = 1 - AP m = (m - m ) / m F A m = ( ) ( m m ) F Whr F = 2 1 Pg 12 o 23

13 Insttut o Acturs o Austrl Bnnl Convnton A PRACTICAL EXAMPLE Th ollowng s summry o prot nd loss sttmnt or XYZ Hlth und or 1 qurtr: Rsults or 1 qurtr ($'000s) Actul Projcton Contrbutons 7,100 7,000 Incurrd bnts (5,100) (5,000) Rnsurnc (700) (800) Stt lvs (120) (100) Gross mrgn 1,180 1,100 Mngmnt xpnss (820) (800) Invstmnt ncom Surplus Th ollowng s summry o ddtonl nputs rqurd or th nlyss o surplus: Othr Assumptons Actul Projcton Avrg SEUs 11,000 10,000 Srvcs 52,000 50,000 Gross dct 850, ,000 Clcultd dct 1,550,000 1,500,000 Invstmnt ssts (t = 0) 17,000,000 17,000,000 Invstmnt ssts (t = 1) 17,660,000 17,550,000 Pg 13 o 23

14 Insttut o Acturs o Austrl Bnnl Convnton 2005 Th ollowng s th rsultng nlyss o surplus: Anlyss o surplus or 1 qurtr ($'000s) Prot tm Prot Projctd surplus 550 Chng n mmbrshp 61 Contrbutons (550) Bnts Chng n vrg bnts 96 Chng n utlston rt 271 Rnsurnc Gross dct Totl bnts (61) Grtr thn xpctd gross dct 134 Lss thn xpctd vrg stt dct pr SEU 92 Stt lvs (9) Mngmnt xpnss 55 Invstmnt ncom 22 Incurrd surplus Mmbrshp Actul mmbrshp ws grtr thn projctd (11,000 ctul SEUs comprd to 10,000 projctd SEUs). Ths ncrsd th ctul surplus comprd to projctd du to th ovrll protblty o th busnss Contrbutons Th ctul vrg contrbuton pr SEU or th qurtr ws $645 comprd to th projctd vrg o $700. Ths dcrsd th ctul surplus comprd to projctd. Possbl cuss o vrton n th ctul vrg contrbuton pr SEU cn b ttrbutd to: Drncs n th ctul xprnc o rt protcton rom th xpctd xprnc. Tbl drt (lso known s contrbuton dgrdton) - lthough ths xmpl only ssums on hosptl product, common cus n prctc s du to mmbrs movng (or drtng) to lss xpnsv tbl, thrby rducng th contrbuton ncom or th und. Furthr rnmnt o th nlyss o surplus du to contrbutons s dscussd n scton 3.4. Pg 14 o 23

15 Insttut o Acturs o Austrl Bnnl Convnton Bnts Actul bnts wr lss thn projctd drvn by both th vrg bnt pr psod/srvc nd utlston bng lss thn projctd Rnsurnc Th ctul rnsurnc rsult or th qurtr ws mor vourbl thn projctd. Ths rsultd rom combnton o ctors s ollows: Furthr nlyss o prot rltng to rnsurnc ($'000s) Prot Gross dct Totl bnts (61) Grtr thn xpct gross dct 134 Lss thn xpctd vrg stt dct pr SEU 92 Totl 165 Th ollowng commnts cn b md wth rspct to th tbl bov: Th ctul vrg dct pr SEU ws lss thn xpctd (ctul vrg dct pr SEU o $ comprd to projctd vrg dct pr SEU o $150.00). Ths contrbutd $92,000 ddtonl surplus. Th ctul proporton o bnts lgbl or rnsurnc ws grtr thn th projcton ssumpton. Ths contrbutd $134,000 ddtonl surplus. Howvr ths ws ost by ctul bnts bng lss thn projctd s notd bov. Consquntly th bnts lgbl or rnsurnc (bsd on th xpctd proporton o totl ctul bnts lgbl or rnsurnc) wr lss thn projctd Mngmnt xpnss Actul mngmnt xpnss wr grtr thn projctd contrbutng smll loss comprd to projctd Invstmnt ncom Actul nvstmnt ncom ws grtr thn xpctd contrbutng smll surplus comprd to projctd. 3.2 Sprdsht An ccompnyng sprdsht o th bov xmpl s vlbl wth ths dscusson ppr. 3.3 Prctcl mplmntton ssus Th mjor ssus wth n nlyss o surplus r: Rportd rsults r not lwys th sm s ctul ncurrd rsults. Pg 15 o 23

16 Insttut o Acturs o Austrl Bnnl Convnton 2005 A chck on th provson o outstndng clms s rqurd to nsur tht th ctul rportd rsults rsonbly rlct th ctul ncurrd rsults. Th stt vrg dct pr SEU s notorously dcult to projct. Du to dlys btwn th dt o srvc nd th dt o procssng, n stmt o th outstndng clms s rqurd to dtrmn th ultmt ncurrd bnts. Ovr tm s ctul clms r rcvd (or dvlopd), th lvl o th outstndng clms rducs nd th condnc n th stmt o th ultmt ncurrd bnt ncrss. Th dly prod nd pttrn o clm dvlopmnt dpnd on th clm typ: Most hosptl clms typclly hv dly o up to 3 months. Mdcl clms usully hv smlr dly dvlopmnt to hosptl clms, howvr ths cn dr s mdcl clms r not procssd by th hosptl. Ancllry clms whch r on HICAPs wll hv no dly. HICAPs s n lctronc pymnt systm, whch nbls th hlth nsurr to py th srvc provdr wthout dly. Ancllry clms whch r not on HICAPs my hv dly o up to svrl months. For most hlth nsurrs, th mjorty o clms r rcvd/pd wthn 3 months o th orgnl dt o srvc. Ths mpls tht n nlyss o surplus cn b prormd on th tm undrlyng rsult pproxmtly 3 months tr rsults r rportd. Th pproprtnss o th provson o outstndng clms dpnds on th mthodology nd ssumptons doptd. Th ccurcy o th rportd rsults my b mpctd by chngs n th provson or outstndng clms. Smlrly, rportd rsults cn nclud stmts or rnsurnc trnsrs whch my dr rom th ctul trnsr. Th rvw o th outstndng clms provson s urthr dscussd n scton Furthr dvlopmnt Th nlyss o surplus prsntd s on xmpl nd cn b urthr rnd. Th ollowng r w suggstd modctons By product, bnt typ, scl, group, stt tc. To provd mngmnt wth urthr nsghts on protblty, th nlyss o surplus cn b prormd on products or tbls, bnt typs, busnss lns, scls, groups, stts, sgmnts, tc. Th lvl o grnulrty wll howvr dpnd on th lvl o dtl vlbl n th projcton nd undrlyng ssumptons. Pg 16 o 23

17 Insttut o Acturs o Austrl Bnnl Convnton 2005 For hlth nsurrs who do not hv pproprt lloctons or mngmnt xpnss, t my b mor pproprt to nlys gross mrgn by product or group to vod xpns llocton ssus Approprt llownc or nw busnss Nw busnss or th rvw prod could b qurntnd nd nlysd sprtly. Th nlyss o surplus prsntd dos not qunty xplctly th mpct o nw busnss. Th pproch bov only llows or chngs n mmbrshp nd th vrg bnt nd utlston xprnc s dtrmnd n ggrgt wth n-orc busnss. Th pproch could b xtndd to llow or nw mmbrs jonng th und, nw mmbrs jonng or lvng th product/tbl (.. ntrnl trnsrs) nd mmbrs lvng th und (lpss) th hlth und rports ths movmnts Dscounts, Rt Protcton, Lvs nd Commsson Mny hlth nsurrs llow dscounts or drnt pymnt rquncs, mthod o pymnts nd corport groups. Mny hlth nsurrs lso provd mmbrs wth rt protcton s wll s collct lvs or mbulnc nd commsson. Th pproch prsntd dos not llow or dscounts, rt protcton, lvs or commsson xplctly, howvr ths r llowd or n ggrgt through us o th vrg contrbuton rt. A urthr rnmnt would b n nlyss th surplus du to dscounts, rt protcton, lvs nd commsson. Th nncl mpct my b sgncnt dpndng on th und Bnt ssumptons Th lvl o grnulrty o bnt ssumptons cn ncrsd nto or xmpl to vrg hosptl ccommodton bnt pr hosptl dy, numbr o hosptl dys pr psod, nd psod pr SEU. Th lvl o grnulrty o th nlyss wll dpnd on th lvl o dtl vlbl n th projcton nd th sz o th group bng nlysd Indrct xpnss Mny hlth nsurrs my hv ndrct xpnss such s costs rltng to oprtng dntl clnc or hosptl. Th bov pproch dos not xplctly llow or ndrct xpnss, howvr mplctly llows or t n mngmnt xpnss Exposur nstd o SEUs Anothr mthod o msurng mmbrshp s v xposur, whch cn thn b urthr rnd to llow or lpss, trnsrs, nd nw busnss mor ccurtly Tx Pg 17 o 23

18 Insttut o Acturs o Austrl Bnnl Convnton 2005 Th currnt pproch dos not llow or txton o surplus. Anothr rnmnt could b th ncluson o tx n th nlyss o surplus Othr Th pproch prsntd cn lso b rnd to llow or chngs n modllng mthodology, ssumpton chngs, sst vluton tchnqus nd chngs n th mthod o dtrmnng th provson or outstndng clms. 3.5 Tmng o rvw Th rquncy o prormng n nlyss o surplus would vry rom hlth und to hlth und. An nlyss o surplus should b prormd t lst onc yr howvr bst prctc suggsts n nlyss o surplus ch qurtr. Th tmrm o th nlyss my chng dpndng on how rquntly th hlth nsurr s nncl projctons r rvsd. 3.6 Mtrlty Whl t my b thortclly possbl nd cturlly sound to drll-down to vry ocusd lvl, th rsults my bcom spurous, nd wll b drvn by th mount o dt vlbl. 3.7 Concluson An nlyss o surplus s n nvlubl tool to mng th pproprtnss o nncl projctons or vrous purposs. Furthr rnmnt wll dpnd on th lvl o dtl vlbl n supportng ssumptons nd thror th projcton rsults. Prctcl rstrctons my lmt th rsoluton o th nlyss. Pg 18 o 23

19 Insttut o Acturs o Austrl Bnnl Convnton REVIEW OF THE PROVISION OF OUTSTANDING CLAIMS 4.1 Introducton Scton 2.10 o th Hlth Bnts Orgnztons - Intrprtton Stndrd 2003 dns th outstndng clms lblty s ollows: Outstndng Clms Lblty s th bst stmt lblty n rspct o th ccrud but not dmttd clms, nd rltd xpns, lblts o th Fund t th vluton dt. And, Outstndng clms rlt to clms tht hv bn rportd nd hv not yt bn sttld, clms whch hv bn ncurrd but not yt rportd (IBNR) nd clms whch hv bn dmnstrtvly nlsd nd whch my b ropnd. Th outstndng clms lblty n ths dscusson ppr wll b rrrd to s th provson or outstndng clms to rmnd th rdr tht t s n stmt o th ctul outstndng clms. Th movmnt n th provson ovr prod plus th bnts pd to contrbutors durng tht prod provds n stmt o th ctul ncurrd clms or th prod. Th mjorty o hlth nsurrs r not-or-prot orgnstons nd tnd to hv rltvly smllr surplus thn or-prot orgnstons. Hlth nsurrs wth long dly btwn dt o srvc nd dt o pymnt my rsult n lrg provson or outstndng clms. As such, th movmnt n lrg provson or outstndng clms cn potntlly b sgncnt drvr o th surplus, thror hvng hypr-snstv mpct on th surplus. 4.2 Objctvs o ths scton Ths scton o th dscusson ppr ms to ocus on mngng th sucncy o th provson, prtculrly th gross componnt o th provson. 4.3 Bckground Th provson s composd o th ollowng componnts: Gross componnt ths rrs to unprsntd nd outstndng clms gross o rnsurnc rcovrs rom nd pymnts to th Rnsurnc Trust Fund. Admnstrton componnt ths rrs to ny dmnstrton xpnss tht my b ncurrd by ths outstndng clms. Rnsurnc componnt ths rrs to th nt mount n rspct o rcovrs rom nd pymnts to th Rnsurnc Trust Fund n rspct o unprsntd nd outstndng clms. Pg 19 o 23

20 Insttut o Acturs o Austrl Bnnl Convnton 2005 Ths scton ocuss on th gross componnt nd ny rrnc to th stmt o th provson o outstndng clms rrs to th gross componnt s th dmnstrton componnt nd rnsurnc componnt r lkly to b rltvly smll. 4.4 Dtrmnton o th provson or outstndng clms Th ollowng s br summry o mthods ncountrd n th currnt prvt hlth nsurnc nvronmnt to dtrmn th outstndng clms provson: Pd chn-lddr mthod s pr th PHIAC 2 tmplt. Modd chn-lddr mthod. Ths s th pd chn-lddr mthod wth mnul djustmnts (or judgmnt, ddtonl normton rom clms mngmnt, tc). Chn lddr modd by sttstcl nlyss. Provsons my b dtrmnd sprtly by: Bnt typ (.g. hosptl, mdcl, dntl, ncllry, tc) Product Stt Th pproch doptd wll vry wth th mount o crdbl dt nd ntrnl rportng rqurmnts. Th outstndng clms provson should b rvwd rgulrly to nsur: Th dtrmnton o or th provson s pproprt,.. th provson provds rsonbl stmt o th ctul outstndng clms. Th provson s not bsd,.. th stmt dos not rgulrly ovr or undr stmt th stmt. Th voltlty o th stmt round th ctul dos not ncrs ovr tm,.. th bsolut drnc btwn th stmt nd th ctul outstndng clms dos not ncrs ovr tm. 4.5 Sucncy o th provson A nd or rvw o sucncy s rqurd to nsur tht th dtrmnton o th provson s sutbl nd pproprt. Th ollowng drnt ctul Vs xpctd rvws hv bn obsrvd: A comprson o: o Th ntl stmt o th gross provson or outstndng clms t pont n tm, sy 30 Jun 2004; gnst o Actul clms pd to sy, 30 Sptmbr 2004, n rspct o clms ncurrd up to 30 Jun Ths ssums tht th mjorty o outstndng clms r procssd wthn 3 months o th ncurrd dt. Pg 20 o 23

21 Insttut o Acturs o Austrl Bnnl Convnton 2005 A comprson o th ntl provson or outstndng clms s md gnst ch succdng month s rvson o th provson. For ch ncurrd month, comprson o th ntl stmt o ncurrd clms gnst ch succdng month s rvson o th ncurrd clms. A comprson o th stmtd ncurrd clms nd ncurrd drwng rts gnst hstorcl trnds o ncurrd clms ovr tm. Th rst rvw mthod dscrbd bov s prhps th lst complctd, howvr t hs th ollowng dsdvntgs: It ssums tht hgh proporton o clms r pd wthn 3 months. Som hlth nsurrs my hv dlys o mor or lss thn 3 months. Hlth nsurrs wll nd to wt 3 months bor rvw cn b prormd. Th scond rvw mthod s smlr to th rst xcpt t s prormd rlr nd mor rgulrly. Ths s usul chck or hlth nsurrs tht prorm monthly rportng to nsur sucncy o th stmt rom th prvous month. Th thrd rvw mthod s ssntlly th sm s th rst two mthods bov xcpt tht th comprson s md gnst ncurrd clms s opposd to outstndng clms. Th nl rvw mthod bov s complmntry chck tht som hlth nsurrs hv usd to chck tht th stmtd ncurrd clms s consstnt wth hstorcl trnds o ncurrd clms on monthly bss. 4.6 Bs Th stmt o th provson should not b bsd.. th stmt o th provson should b grtr thn th ctul mount 50% o th tm nd lss thn th ctul mount 50% o th tm. I th stmt o th provson s contnully grtr or lss thn th ctul mount, thn th stmt could b sd to b bsd. Solly msurng n bsolut tolrnc lvl dos not pproprtly msur bs. A msur o th bs could b th msurmnt o cumultv tolrnc (plus nd mnus) on rollng 12-month bss. Ovr tm ths should b clos to zro. 4.7 Vrblty Th voltlty o th stmt o th provson round th ctul should b s smll s possbl nd not ncrs ovr tm. Ths cn b dtrmnd by msurng th stndrd dvton ovr tm to dtrmn ts sz nd trnd. Th stndrd dvton ovr tm should b montord to nsur tht: Pg 21 o 23

22 Insttut o Acturs o Austrl Bnnl Convnton 2005 Th stndrd dvton s not too hgh (.. th stmts r rsonbly clos); Th voltlty o th stmt s not ncrsng ovr tm. Msurng th tolrnc on monthly bss my b npproprt du to th voltlty o th monthly rsults. A mor pproprt msurmnt my b rollng 12, 18 or 24 months. 4.8 Th provson o outstndng clms or th nnul rport For th purpos o nnul rsults (to 30 Jun), t pprs common prctc n th ndustry to rvs th provson or outstndng clms wth ctul clms pd to lt Sptmbr n rspct o th ncurrd prod (12 months to 30 Jun). As A sgncnt proporton o hosptl nd mdcl clms r usully pd wthn 3 months o th dt o srvc; nd A sgncnt proporton o ncllry clms r pd v HICAPS whch mnmss th dly btwn th dt o srvc nd dt o pymnt o th bnt. th rvsd stmt cn b xpctd to hv low lvl o uncrtnty wth th outstndng clms rltng to longr-tl (grtr thn 3 months dlyd) clms. Ths pproch rss som ntrstng ssus wth rspct to rsk mrgns tht wll b rqurd undr IFRS. 4.9 Concluson Hlth unds nd to ssss th sucncy o thr outstndng clms provson s prt o th rvw nd montor componnts o th cturl control cycl to ddrss th ollowng: Assssmnt o sucncy o pst provsons, ncludng bs nd vrblty o th pst provsons; Assssmnt o th pproch usd n dtrmnng th provson; Scop or mprovmnt n utur provson dtrmnton. Pg 22 o 23

23 Insttut o Acturs o Austrl Bnnl Convnton ACKNOWLEDGEMENTS I would lk to thnk Brry Lung nd my collgus t KPMG Acturs nd n prtculr, Dvd Torrnc nd Dmty Wll or th onrous tsk o pr rvwng ths ppr nd supportng sprdsht. I m grtul or thr hlpul commnts nd suggstons. 6 REFERENCES Goord J, (1985) Th Control Cycl: Fnncl control o l ssurnc compny, TIAA Hlth Bnts Orgnztons Solvncy Stndrd 2003, PHIAC 2003 Hlth Bnts Orgnztons Cptl Adqucy Stndrd 2003, PHIAC 2003 Hlth Bnts Orgnztons Intprttons Stndrd 2003, PHIAC 2003 Pg 23 o 23