Actuary Magazine

the

��

��

Editorial Board

Liyaquat Khan, [email protected]

Members:K P Narasimhan [email protected] Basu [email protected] N Agarwal [email protected] Sharma [email protected] Mainekar [email protected] Joshi [email protected] Jagannathan [email protected] Swain [email protected]

Chief EditorNarasimhan, K PTel + 91 44 26433669E-mail [email protected]

Managing EditorAgarwal, G NFax + 91 22 22028321E-mail [email protected]

Deputy Managing Editor

Joshi, Varsha MadhavTel +91 22 2269 1051 (Ext. 209)Fax +91 22 2269 1052E-mail [email protected]

Features EditorBasu, HeerakTel + 91 22 55060304Fax + 91 22 56492106/07E-mail [email protected]

News EditorSharma, SunilTel + 91 22 56612160Fax + 91 22 56612123E-mail [email protected]

Puzzles EditorMainekar, ShilpaTel +91 22 56635082Fax +91 22 56635111E-mail [email protected]

COUNTRY REPORTSDe Oude, WalterSingapore, Malaysia & South East AsiaE-mail [email protected]

Batliwalla, Minoo RAustraliaE-mail [email protected]

Smith, John LaurenceNew ZealandE-mail [email protected]

Burra, PravinAfrican ContinentE-mail [email protected]

Chakraborty, Dilip CEuropean Union (EU)E-mail [email protected]

Chung, Phuong BaTaiwan, Hong Kong & JapanE-mail [email protected]

Akers, PeterChina (Mainland)E-mail [email protected]

Wason, StuartCanadaE-mail [email protected]

Ali, Syed AsadUSAE-mail [email protected]

Cheema, NaumanPakistanE-mail [email protected]

Guerard, YvesIndonesiaE-mail [email protected]

Iyer, Subramaniam NSwitzerlandE-mail [email protected]

Published Monthly By:

Actuarial Society of India

302, Indian Globe Chambers, 142, Fort Street,Off D N Road, Near CST (VT) station,Mumbai 400001Tel +91 22 2269 1051Fax +91 22 2269 1052E-mail [email protected] www.actuariesindia.org

For circulation to members, connectedindividuals and organizations only.

DisclaimerThe Actuarial Society of India or any of the Editorsare not responsible for opinions put forward in thisMagazine. The contents of the advertisementspublished in the magazine are entirely of theadvertisers and “the Actuary India” does not ownany responsibility for it or any consequences arisingout of it.

I nd ian Actuar ia l P ro fess ionServ ing the Cause o f Pub l i c In te res t

��

��

��

�

� FROM THE PRESIDENT 4PRESIDENT R KANNAN DEPICTS SOME INTERESTINGDEVELOPMENTS OCCURRED IN THE ACTUARIAL FIELDGLOBALLY

� FROM THE CHIEF EDITOR 5K P NARASIMHAN WRITES ABOUT A REGULAR FEATURE INACTUARY AUSTRALIA MAGAZINE, WHICH IS REPORT ONSURVEYS, CONDUCTED EVERY MONTH ON CURRENTISSUES.

� INDIAN HEALTH ACTUARIES IN A CHANGINGENVIRONMENT 7-11RICHARD KIPP AND RONALD G HARRIS WRITE ABOUTINDIAN HEALTH INSURANCE INDUSTRY.

� PRESS RELEASE 11INSTITUTE OF ACTUARIES ANNOUNCES NEW PRESIDENT-ELECT.

� TAIWAN’S NATIONAL HEALTH INSURANCE –AN INTEGRATED APPROACH TOSOME ISSUES 12-14CHIU-CHENG CHANG GIVES INTRODUCTION ABOUT THETAIWAN’S NATIONAL HEALTH INSURANCE (NHI) PROGRAM

� INTERVIEW MYTHS DECODED 15-16BEYOND THE KNOWN – LANDING YOUR FIRST ACTUARIALJOB

� UPDATE- HEATH INSURANCE BOARD 16P A BALASUBRAMANIAM, CHAIRMAN HEATH INSURANCEBOARD REPORTS ABOUT VARIOUS ACTIVITIES OF THEBOARD

� THE HEALTH INSURANCE INDUSTRY IN INDIAAND ITS GROWING POTENTIAL 17-18WALTER DE OUDE AND RAJAGOPALAN KRISHNAMURTHYEXPLAIN THE STATE OF HEALTH INSURANCE INDUSTRY ININDIA.

� ACTUARIAL ASPECTS OF HEATH INSURANCEPRICING 19-20HERBERT MEIZER DETAILS VARIOUS CRUCIAL ASPECTSABOUT HEALTH INSURANCE PRICING.

� ANNOUNCEMENT 21SEMINAR ON CURRENT ISSUES IN RETIREMENT BENEFITS(CIRB), MUMBAI, 23-24 DECEMBER 2005.

� CURRENT HAPPENINGS 21

� THE GROWTH OF PRIVATE MEDICALINSURANCE MARKET IN JAPAN 22-27TAKAHITO OTOMO ENLIGHTENS ABOUT THE GROWTH OFPRIVATE MEDICAL INSURANCE MARKET IN JAPAN

� ANNOUNCEMENT 21INDIA FELLOWSHIP SEMINAR ON 15-17 DECEMBER, 2005AT HOTEL SEA PRINCESS, MUMBAI

� 8TH GCA 28OFFICE ORDERS ABOUT CONSTITUTION OF 8TH GCASTEERING COMMITTEE AND 8TH GCA PROGRAMMECOMMITTEE.

� PUZZLE CORNER 29

� WEB COLOUMN AND WORLD VIEW 30LET’S BE INFORMED ABOUT WHAT’S HAPPENING ON THENET!


��

��

��

�

��

Thank you

R. Kannan

The 8th Global Conference is scheduled onMarch 10 and 11, 2006 at Mumbai. You allknow well that this is an important event forall of us. During the recent IAA meeting atRio-De-Janeiro, Brazil I invited Presidentsand other executives of various actuarialassociations and also experts in variousfields for this conference. I have alsorequested many of the subject specialiststo present papers. Although I agree with you

that this conference is used as a forum for exposing ourselves to thedevelopments abroad, we should also consider this as an opportunityto review our own policies and practices from the actuarial angle. Thiswill help policy makers to take decisions and improve wherever required.Hence I request all of you and in particular chief actuaries / appointedactuaries and senior actuarial students to present focused papers forthis conference. I give below some of the developments abroad whichare of interest to us.

• Almost all developed countries have moved towards risk basedcapital. In this context the adherence of solvency ratio is testedon a continuous basis and both the companies and the regulatorstake proactive view on economic capital, regulatory capital andthe actual capital available. Experience of various countries hadclearly demonstrated that moving towards risk based capital is atime consuming one and one has to prepare for this at least 3/5years.

• Many European countries have introduced fair value accountingin 2002. According to these rules, life insurance provisions maynot be smaller than the liabilities measured at “best estimate” plusa market value margin.

The market value margin (MVM) is extra charge added to theexpected value of the liabilities which an acquirer of the company’sinsurance portfolio would demand as a payment to take on therisk inherent in the uncertainty in the estimation of the sizes and /or dates of the payments except for the uncertainty which can bediversified by having a large portfolio. The MVM depends on thespecific portfolio and the guaranteed benefits of the policies inthis portfolio and not on other circumstances in the company. It isthus portfolio dependent and company dependent. When the fairvalue accounting rules were introduced, a method to calculatethe MVM was not prescribed, but a simple rule was accepted.According to this simple rule the interest rate used for discountingcould be multiplied by 0.95 and the extra provision which was aresult by this was the MVM. Now many regulators expressed theirconcerns and they no longer accept this simple rule without specificjustification based on the portfolio in question. The MVM is inprinciple a market price. Lack of a market for decomposed policies(policies stripped of the bonus obligations) makes it necessary tofind a substitution and then different methods must be applied tocalculate the MVM.

Which models / methods can be applied? Various methods canbe applied. The report identifies four groups of methods:

1. A margin is added to/ subtracted from the elements in thecalculation basis. The simple rule with a 5% deduction in thediscount rate is an example. The report suggests that it mightbe better to have a margin on the mortality and morbidity.

2. A margin is added to the cash –flows.

3. A percentile on the proper probability distribution is used.

4. The cost of the necessary capital is used.

• Two important developments in the pension sector are worthnoting. Many corporates in USA and also in Europe feel thatactuaries do not have an effective role in defined contributionschemes and financial economists have an important role to playin managing the funds in these schemes. It is somewhatunfortunate that the role of actuaries in defined contributionschemes is not well known to the public and it is the responsibilityof the profession to inform how actuaries are equally important inrunning defined contribution schemes also. Secondly the fundingof deficit and the company’s asset liability management issuesare becoming prominent recently and actuaries have to evolve asustained funding of the deficit by taking into accountimplementable asset liability management techniques.

In this issue, many aspects of health insurance are discussed indetail. Regarding general insurance I will outline some of the crucialissues, in my next column.

In my last column I had requested senior students regarding theirrequirement for conducting coaching classes in SA/ST subjects. Ihave not received even a single reply for this. Shall I presumethat senior students are not in need of any coaching classes?

So far the Actuarial Society of India has not conducted anyseminar/workshop exclusively for students, except the one foreducation strategy. As a beginning we are planning to conductone day seminar for students in selected five metro centers sothat students will be exposed to the latest developments in ourfield, various changes brought out in the educational strategy etc,including the performance of students in recent years. This seminarwill also help ASI to understand better the expectation of studentsso that we in the ASI can serve them better to their fullestsatisfaction.


��

��

��

�

��

I continue with material from issues ofActuary Australia that I had drawn on for myearlier piece.

Another regular feature in the magazine is areport on surveys conducted every monthon issues current as they could seem, withthe respondents being members of IA&A. Infact, members are even invited to indicatequestions on which they would like general

opinion to be elicited. A series comes under the head ‘Actuarial Pulse’.

I have been a little more selective this time in picking on the surveysand the particular questions posed, to remain of some relevance andinterest to our readers.

The May 2005 issue has three questions on the proposed requirementfor general insurance actuaries in Australia to prepare FinancialCondition Reports (FCR) for their Boards. The FCR will be to informthe insurer boards of risks to solvency and profit.

The questions and responses have been as under:

a. Do you believe that actuaries are well-placed to do this?

Choice Count % answering

Yes 244 93.1

No 18 6.9

b. Do you think that actuaries should comment broadly on theinsurers’ business or just limit our comments to issues aroundactuarial pricing and reserving?


Broad scope 206 79.2

Limited scope 54 20.8

c. Do you think actuarial education and training equip us toprepare this report?


Yes 171 66.3

No 87 33.7

The comments in the Australian context were that the issue investigatedwas around the breadth of actuarial opinion and the responses sent aclear message to the nay-sayers, with more than 90% consideringactuaries well-placed to provide the required FCR, the primary reasonhaving been seen to be that actuaries are the only professionals withskills to do it. While some thought that actuaries did not have all theskills required at this stage, by a process of elimination there was noone better.

What was considered even more reassuring was that almost 80% had

thought that FCR should comment more broadly on the insurers’business rather than the traditional actuarial risk areas.

Leading naturally to the question of the extent to which the trainingthat actuaries receive prepare them to report on broad issues, theresponse level of 66% did indicate a level of equipment to perform theduties required. The comment, in a further analysis of the 34% negativeresponse, saw the issue as less around training and examinations andmore around the experience requirements. A strong view was notedthat there should be strengthening of CPD requirements, peer review,etc., to make sure that the appropriate skilled professionals are involvedin these assignments.

In our context, how do we see the perceptions of Australian actuariesand the need – however fast be the process – to move to the wideresponsibilities spelt out as such for appointed actuaries under theIRDA regulations? What could be measures to be taken – in ASI, IRDA,et al. – to have actuaries in the numbers required who could confidentlytake to their larger role in general insurance companies? Apart fromarranging to have added CPD programmes for the existing actuariesin general insurance, what do we do to bring up the numbers newlyqualifying with general insurance specialization and, more seriously,to be induced to take the subject at the ST level instead of avoiding itin the choice that is now available? How do we target in the meanwhileon those who have passed subject 303 under the earlier syllabus?

The next issue I have drawn from is the one from June 2005. Thesurvey questions here are addressed in the context of a revision beingmade to the Code of Professional Conduct. There are some differencesapparently between the present code in Australia and what we haveadopted to apply to us.

Some of the questions posed have been as under with responses alsobeing given alongwith:

a. Currently actuaries are not required to comply withProfessional Standards. It is proposed that non-compliance witha professional standard be considered actionable conduct. Therewill be no exceptions. Do you agree with this change?


Yes 107 63.7

No, why not 61 36.3

b. Currently the Code of Conduct requires that ‘all actuarialadvice must be unbiased and that any constraints on theindependence must be disclosed’. It is proposed to drop therequirement for independence given the well-defined concept of‘independence’ following recent legislative and corporategovernance requirements in Australia and overseas. The focusin the code will therefore be on ‘unbiased’ advice. Do you agreewith this change?


��

��

��

�


Yes 121 72.5

No, why not 46 27.5

c. The existing code requires that the advice be in the publicinterest. One of the issues is that there is potential for obligationsto conflict with the commercial interests of employers or clients.In effect, when do the interests of third parties override theinterests of employers or clients? Do you think that:

• Actuaries should never breach client/employer confidentiality

• Actuaries should breach confidentiality if third parties arematerially affected by actuarial advice that is used contraryto the Institute’s standards

• Other


Actuaries should never breachclient/employer confidentiality 38 22.8

Actuary should breach confidentiality ifthird parties are materially affected byactuarial advice 68 40.7

Other (please specify) 61 36.5

d. It is proposed that the new code exempt the Senior Actuaryfrom personal responsibility for a professional conduct ofmembers of the firm. The Senior Actuary’s role is to be more aliaison point with the Institute and provide professional guidance.Do you agree with this change?


Yes 140 83.3

No, why not 28 16.7

The comments, it may again be noted, have been made in the contextin which the survey was conducted, of provisions as they stand todayin Australia and the amendments proposed therein. In relation to thefirst of the questions, the numbers supporting change were expectedto be larger since the change is considered fundamental to the proposalsgenerally on review of the Code of Professional Conduct, as providingunambiguous to the Council to discipline members who do not complywith professional standards. Importance was also seen in the regulatornoting that the Institute is serious about quality control.

While enforceability of the PCS is not a issue with us, it is interesting tonote some of the responses against requiring strict compliance.

• A PS can be outdated or irrelevant to the task at hand. Farbetter to require an explanation of departure

• May limit/restrict people’s legitimate ability to think forthemselves. It would be okay if the standards set out principlesand not methods

• Judgement is key, spirit not letter should be applied

• The actuarial profession is OVER-REGULATED as it is

Quite a few of our members may well agree with the averments quotedabove in relation to mandating professional standards.

The comment on second question was that the respondents had notgenerally understood the subtlety of the issue and felt that it would bebest to retain the ‘independence’ tag. In our own understanding of theEnglish language I believe that we would like any actuarial advice tobe independently given and to be unbiased, however we see thedistinctness of the requirements.

On the third question it was noted that the majority of respondents hadconsidered it appropriate to breach confidentiality where this was inthe broader ‘public good’. Specific responses against the ‘other’ choiceincluded:

• Use discretion and judgement, that is, don’t take on the job

• Should breach confidentiality when actuarial advice is beingmisused

• Only if illegal actions are proposed/undertaken

• Not breach conf ident ial i ty but DECLINE WORK IFUNETHICAL

The proportion standing out for strict confidentiality could seemsignificant. The varied responses do not however indicate anythingdifferent from the range of thinking amongst us.

On the fourth question, the comment was to note the clear resultfavouring a change in the code to absolve responsibility of the SeniorActuary personally for the conduct of the members of the firm, themain reason being given otherwise to hold the Senior Actuary liablebeing if they knew that there was a case of misconduct and did notintervene. In our case, an actuary in doubt is advised to consult aSenior Actuary and what the Senior Actuary does could be seen to beproviding ‘professional guidance’ and suggesting, if need be, areference to the ASI. As an issue that could arise, do we likewiseconsider the actuary concerned, who consults the Senior Actuary,responsible for any action that he takes as arising out of his ownjudgement in the utilization of whatever ‘guidance’ he may havereceived from the Senior Actuary?

A general caveat about the surveys covered is that response level,varied as it has been, was never near the full membership sought tobe covered. This is so with any survey exercise, and with fairly largenumbers still responding, any possible bias from the level of non-response could need to be kept in mind. For us, the results such asthey are from the IAA surveys, should still be interesting and possiblyconfirming many of us in our respective views, however we differamongst ourselves.

K P Narasimhan


��

��

��

�

��

For the last several years the Indian government has been working to expandthe insurance industry. Each insurance field has felt the force of change,perhaps none of them any more than Health insurance. Today Health insuranceis provided through various mechanisms – governmental schemes and privateplans. It is the private market for individual and employer group insurancethat we have been tracking with greatest interest. With changes in start-upcapital requirements, the foreign direct investment percentage, tariffs for non-life insurance and data availability on the horizon, the role of the actuary inhealth insurance is about to undergo a dramatic transformation. While Healthinsurance may have been a second thought for many of today’s non-lifeinsurers, this can not continue. In addition, once stand-alone health insurancecompanies enter the market with their single focus on health products, changewill be accelerated. So what will be the new role for the actuary in this changingenvironment? What will companies need in the way of actuarial analysis tohelp them compete profitably in this newly enlivened market? We will explorethese responsibilities in the discussion below.

At the Senior Level of Management

In most insurance organizations around the world, you will find an actuary, ifnot in the CEO seat, at a seat nearby. It is essential for risk-bearingorganizations to have the advice and counsel of an actuary to assist them informulating their understanding of the company’s performance, as well as tohelp develop their expectations for the future. Actuaries help companies sellingand underwriting health insurance to determine trends in the cost and use ofhealth benefits that underlie the market at both a macro and micro level.Marketing functions rely heavily on them to set reasonable prices for currentproducts as well as price new products. At the senior level this is usually donein an advisory capacity because the detailed analytical work is performed byspecialists trained in the specifics of their functions. The senior level actuaryserves as interpreter.

There may be no more important role in an insurer offering health insurancethan the seasoned health actuary. When questions arise about capital needs,it should be the actuary that advises. When Marketing wants to know theimpact on the portfolio’s performance of introducing a new product, the actuaryneeds to be consulted. If the Finance department is asked to providemanagement with a five-year forecast, the actuary must play an importantrole because the largest element of the forecast with the greatest uncertaintyis the cost of claims.

Whether it is strategic planning at the highest business level, or simply assistingwith the establishment of the estimated liabilities of the company at the mostdetailed technical level, the health actuary is involved.

At the Functional Level

Indian health actuaries will be at a disadvantageinitially in the country’s emerging market due toa lack of historical claims experience.Nonetheless, they will be responsible for thesame tasks as they would if data were available.The general categories of tasks include:

• Rating• Risk Assessment• Financial Reporting, Operations andManagement• Provider Analysis

• General Data AnalysisWithin these categories there are many actuarial tools, techniques andapproaches that can be used to accomplish the required tasks. Some ofthem may be new to the Indian health insurance industry, and others mayalready be in place. We will discuss some of these below.

Rating – Basic Approaches

A role of crucial importance for the health actuary is establishing a reasonableapproach for setting premium rates for a company’s various major groupsand blocks of business. Rate setting is where risk selection and actuarialevaluation come together driving the company’s profitability. Here is also wherethe policyholder meets the actuary’s work product. If profitable but competitiverates for a given set of benefits are not offered to the market, the insurer willquickly lose either money or its policyholders.

The basic situations in which the health actuary has to establish and maintainrating approaches are initial (new business) and renewal (continuing business)rating. In situations where reliable, credible experience data applicable to thegroup or block of business is available, the actuary is likely to conclude thatsuch experience data is an appropriate basis from which to develop premiumrates. Where this is not the case, heavier reliance on manual rates (or internaltariffs as they are sometime termed) would likely form the foundation forcalculating premium rates, with appropriate adjustments to reflect the actuary’sjudgment as to the particular risk characteristics present.

The basic actuarial formula for calculating a renewal premium rate increasefactor for a group or block of business with reliable, credible experience dataavailable can be stated in general terms as follows:

[(GCE/PRI) x T]/DLR = GRAF

Where, GCE is the group claims experience for some experience period forthe group or block of business being rated (typically covering at least a year),PRI is the present rate income for exposure during the same experienceperiod, T is a trend factor, and DLR is the desired loss ratio. The product ofthis calculation is then GRAF, which is the group rate adjustment factor thatcan be used to change the present premium rate for the group or block ofbusiness to the renewal rate level.

Alternatively, this generalized formula can be expressed in terms of a groupexperience-based premium rate level, instead of a premium rate adjustmentfactor, as follows:

[(GCE/GE) x T]/DLR = GER

Where, GE is the group exposure during the experience period, and GER isthe group (or block of business) experience-based premium rate.

If reliable experience data is not available, then premium rates must normallybe based on the insurer’s actuarial rate manual or internal tariff schedule,making adjustments for known and anticipated risk characteristics of the groupor block of business to be rated. The basic actuarial formula for calculatingthe premium rate level for a group or block of business under thesecircumstances can be stated generally as:

[(MCC x BAF x T) x (DF x OF)]/DLR = GMR

Where, MCC is the manual claims cost per exposure unit, and BAF is abenefit adjustment factor one would use to reflect any necessary adjustmentdue to the benefits sold not matching those underlying the manual. DF is thedemographic factor which would reflect the cost difference expected due todemographics of the group, and the OF is a catch-all other factor for any

��

��Richard Kipp, MAAA

& Ronald G. Harris, FSA, MAAA

Richard KippMilliman, [email protected]


��

��

��

�

other necessary adjustments to reflect risk or other characteristics. The productof this calculation is the group-adjusted manual rate, GMR.

The equations become more complicated in situations where the insurer hasexperience for the group or block, but for any of various reasons it is determinednot to be fully credible. In that case a credibility factor is commonly employedto address the situation. One example of a generalized credibility-basedformula is shown below.

[(GER x Z) + (GMR x (1-Z))] = GCR

Where, Z is the credibility percentage that is assigned to the group’sexperience based rate calculation, and the complement is the percentageassigned to the group’s manual rate calculation. The other terms are definedas they were above.

This credibility-based formula may also be expressed as:

GMR x [(EF – 1) x Z + 1] = GCR

Where, the experience factor EF, is simply the ratio (GER/GMR). This issimilar conceptually to the basic equation for a group or block of businessGMR, except that some use of experience data is incorporated explicitly.

There are many other considerations the actuary must address which furthercomplicate the actual calculations, such as the handling of large claims, benefitchanges during the experience period, demographic and health statuschanges, and the like.

If a group is being taken over, that is, moving from one health insurer to another,the same general formulas apply if experience is provided, but the experiencewould be from another insurer. The analysis undertaken in this situation isreferred to as a Transferred Business Analysis (TBA). The TBA is made morecomplex by the fact that in working with another insurer’s experience theactuary never knows for sure how to deal with claim lag for the prior insurer,differences in reimbursement due to discounts or the providers in the respectivenetworks, and potentially different claim paying policies.

Setting premium rates for groups that are too small to use their own experienceas the rating basis is done in a similar method to that described for the ratingof a large group from the manual. The rates from the manual would be adjustedto reflect any differences in benefits and in risk characteristics such asdemographics and health status.

There are a number of ways that health benefits can be financed. The one ofprimary interest here is prospective premium rating. In that case premiumrates are established in advance of the rate effective period and sold on thebasis that the policyholder transfers the full risk for the insured events to theinsurer, in return for a premium. It is not uncommon for large employers toessentially underwrite their own claim risk, in whole or part. These alternativeforms of financing usually allow the group to control the claim reserve andderive the benefit from any favorable experience that develops. In trade forthat privilege, the group may pay a lower risk or profit charge, but it takes onmore of the claim risk. Depending on the structure of the financing arrangement,however risk or profit charges can actually be greater than those built intoprospective premium rates because annual settlements may be done makingthe settlement risk to the insurer greater than it would be under a prospectivepremium arrangement.

As can be seen from the formulas described above, the actuary would beresponsible for evaluating any experience that was available, includingestimating the unpaid claim liability, referred to most often as IBNR (incurredbut not reported). The actuary develops the trend assumption and the manualrate schedule, and usually is heavily involved in developing the DLR. TheDLR, or the desired loss ratio, is essentially defined to be the loss ratio aninsurer needs to produce adequate revenue to cover administrative expenses(including commissions) and produce the desired level of profit. Typically theactuary works with the Finance function to develop an understanding of theadministrative expenses and how to express them in a factor that can be

used in rating. Senior management, after adopting its financial forecast, usuallyhas a target for the earnings it needs to produce in order to protect its solvencyand keep its owners or shareholders satisfied. The actuary needs to have anunderstanding of the entire company’s functions and how they all fit together.He needs to understand how claims are paid and how providers arereimbursed. He needs to understand treatment costs by disease and be ableto determine when those costs look out of line. Most importantly the actuaryneeds to be fearless in asking questions and searching for answers.

Before premium rates are assigned to a particular individual or employer, arisk assessment needs to be undertaken by an underwriter. The actuarytypically helps the underwriter in this regard by arming the underwriter withtools to evaluate the risks that present themselves. We talk briefly about thisfunction below.

Risk Assessment

Risk assessment is generally the day to day responsibility of the underwriter.It involves both an identification process and an evaluation process. Riskassessment is undertaken on an individual basis for individual product linesand an overall group basis for group lines.

Individual risk assessment is becoming more scientific as better data sourcesbecome available. Today, in addition to Underwriting Guidelines that anunderwriter may have as a risk assessment tool, information about a person’sprescription treatments can be used to reveal probable existing conditionsthat need to be considered by the underwriter in developing individual premiumrates. There are also a number of risk adjustor tools that provide an underwriterwith relative values of the cost of various diseases. These risk adjustors, whileimproving with more research, are still in their infancy. As more patientinformation is digitalized these tools will be able to improve even further.

The following is an example of a Medical Underwriting Guideline that mightbe used to identify the risk level of an individual:

AppendicitisAn inflammation of the appendix. Usually occurs on an acute basis. Occasionally may be chronicwith abdominal pain intermittently for many years.

Development

1. When was appendix removed? Any complications? Explain.

Rating Points Riders Points w/Riders

Un-operated 200 0903 50

Operated

No complications STD

Complications <1 year SA

>1 year STD

From this you can see several things. First there is a brief layperson definitionof the disease. Next is the beginning set of questions an underwriter wouldask to the applicant about the conditions he may have. Depending on theanswers the underwriter assigns points to the case.

These points reflect the relative cost of this condition to that of a healthyindividual, remembering that even a healthy person generally has some healthconditions and associated costs in a year. Other terms that appear in thisGuideline are STD which indicates a Standard Risk, or one that needs norating up, and SA which indicates that this may be the symptom of anotherdisease. When that determination is made by the underwriter, it is wise toinvolve a Medical Director to review the case before assigning the risk level.The notion of an exclusionary rider is also mentioned here. In this case onetool the underwriter may have available is an exclusionary rider which wouldbe used to eliminate the risk to the Insurer that comes from complications ofthe specified condition. That has the effect of reducing the points assigned tothis case.

The actuary’s role in underwriting is to first help with the determination of the


��

��

��

�

appropriate number of points to assign to a condition at its various stages, andto price the impact of riders on the risk. Then the actuary would help design asystem for using the underwriting points as a modifier to a manual (or adjustedmanual) premium rate that would otherwise have applied to a policyholder inthis block of business. Naturally, the actuary would have set the starting rate forthe block as well. For small groups where individual medical underwriting isemployed, the employer group’s rate would reflect the average risk of theindividuals that are employed. A similar enrollment application would be usedto collect the condition information, and the same Guidelines would be used toestablish the relative risk of the members covered under the group policy.

For group risk assessment, the underwriter may also use a number of non-condition related measures to help determine the risk a given employerrepresents to the Insurer. Some of those measures would involve the creditrating of the group, the premium rate history of the group, theindustry, the employer contribution level, the number and percentof participating employees, etc. The actuary would help establishthe relative risk of the presence of each factor and determine arating structure or formula for the underwriter to use to systematicallycalculate the group rate based on the factor values.

Once the rating factors and methods have been established, theactuary would help establish monitoring mechanisms to determinethat the rating systems are working appropriately, producing thedesired financial results. Part of that analysis will involve helping todetermine if adverse selection has occurred in any of the insurer’sblocks of business. The notion of adverse selection is an important one. Theunderwriter uses tools to help ensure that a cross section of risk is underwritten.There is no guarantee that this will occur, so constant vigilance must be usedin monitoring the actual versus expected results.

Financial Reporting, Operations and Management

At the heart of any well run Insurance organization is a team of people thatanalyze financial experience, pull together the necessary monitoring reports,both internal and external, and prepare forecasts of future operations andcapital needs. The actuary is an essential part of that team. We won’t exploreall of the details of these tasks. One task that is core to all of the experienceanalysis that will be done by the actuaries and other analysts is the calculationof the claim reserve. The claim reserve is also often referred to as IncurredBut Not Reported (IBNR) claims, Unpaid Claim Liability (UCL or OutstandingClaim Liability OCL) and lastly and perhaps most appropriately Incurred ButNot Paid (IBNP) claims. This liability amount usually represents the largestsingle liability on the balance sheet of a stand-alone health insurance company.The actuary may use one or more of several techniques to estimate the IBNR.The technique most often used involves analyzing the “lag” pattern of theclaims and using historical patterns to develop factors that can be applied to“complete” the claims to a full incurred basis. The actuary should also drawon information such as claims inventory statistics, Claims Department staffingpatterns, number of work days, data regarding trends, enrollment growth andbenefit changes to help establish the IBNR. More sophisticated models such asa general linear model are also used by some to make the estimate of IBNR.

The starting point for all of this analysis is the lag table or triangle. A sampletable is shown below.

The table above displays columns that contain the Total Paid Claims for eachmonth and the incurred and paid claims for the months of October 2004 throughSeptember 2005. For each incurred month, this table shows the dollars paidby the month in which it was paid. At the bottom of the chart, we show totaldollars, exposure (enrollment, shown as member months) and certaincalculated values such as claims amount per member per month (PMPM).These statistics are by-products of the lag factor analysis. The lag factors areshown on the next chart and are calculated as ratios of incurred and paidamounts to date to the estimated ultimate incurred amount at the variousdurations. Having a systematic way of calculating these factors is extremelyimportant. By having such a system, the actuary can quickly test the impactof various scenarios of payment patterns and the impact of different underlyingtrend assumptions.

Ultimate Incurred Amounts

The lag factors shown above are developed by examining the historical patternof payments and calculating the ratio of incurred and paid amounts throughthe various durations to the ultimate incurred amount for the period. So, forexample, if all payments have been made for the incurred month October2004, the ratio of claims paid at various points in time in October 2004 to theultimate incurred amount for October could be used to “complete” the amountpaid to date for more recent incurred months. Note that for the very mostrecent months the incurred amounts per member per month trends aregenerally analyzed and used instead of lag factors to project the incurredamounts per member month. This approach is generally used when thecompletion factors are under some benchmark level, such as .70-.80.

There are other methods for calculating lag factors which involve other ratiosof paid amounts. One such method is referred to in the literature as theMultiplicative method. It involves calculating ratios of amounts, at each duration,and multiplying the ratios together to reflect the appropriate number of paidmonths for the incurred month that is to be completed.

Understanding claim payment patterns, and what the root causes are for theactual patterns that are observed, is part of the actuary’s responsibility. Adirect by-product of the lag analysis is the IBNR, which will be needed forfinancial statement purposes.

As mentioned earlier, this same analysis produces information that would beused in the rating process. Let’s say, for example, that a block of businesswas being renewed and the twelve month experience period coincided withour example above. The completion factor we would need to complete the

group’s claims would be the sum of the incurred and paid for thetwelve months divided by the sum of the ultimate incurred claimsfor the same twelve months. In our case, the lag table data wouldindicate that payments to date were about 93% complete.

Other responsibilities for the actuary fall under the FinancialReporting, Operations and Management heading. They wouldtypically include development of financial forecasts andmonitoring of actual versus expected results. Also included wouldbe the tracking of capital needs and statutory requirements forsurplus. These tasks are very involved and extremely importantfor any insurance company; therefore, actuaries in the new health


��

��

��

�

insurance environment need to understand the nuances of the Indian healthsystem and how that will give rise to the risks insurers in India will face. Onesuch aspect of the Indian health system that actuaries will need to fullyappreciate involves provider costs and practice patterns, and the public/privateinfra-structure that exists. We discuss these briefly below.

Provider Analysis

For health actuaries, it is important to find ways of drawing distinctions betweenand among various providers of healthcare services. The typical way of doingso usually starts with the way the billing for the services is handled. Hospitalswill usually bill for services rendered at their facilities and physicians and otherpractitioners may bill directly for the services that they provide. The insurancepolicy will specify which services are covered and under what circumstances.It is then very important for the actuary to understand at a very detailed levelwhat the cost of the various services might be and how they vary amongproviders both across type of provider and within type of provider. Anotherimportant aspect of provider practice is how efficient they are when workingwith their patients. This might manifest itself in the type and cost of the treatmentone physician may select to help a person with a given condition versus whatanother physician may choose. Last, but not least, is the notion of effectivenessand how effective one practitioner might be versus another in delivering thesame service to a patient. This latter aspect also has a quality element to it.

Not all patients are the same, so patient severity must be accounted for; andnot all parts of the country cost the same, so area differences should beaccounted for in any analysis. Assuming all of these things could be known,what would the actuary do with the information? There are numerous thingsthat come from this analysis. One important question to address is whichpractitioners should be contracted with to provide service to an insurer’spatients. Another important question concerns the amount that should bepaid to the practitioner and how that amount should change over time? Datalike this could also be used to enable policyholders to better select thepractitioner they may want to help them.

The actuary can play a central role in helping to organize and analyze thisdata. The actuary also needs the same sort of information to undertake trendand pricing analyses. Because the actuary is involved in so many other aspectsof the financial workings of the insurer, it is crucial for him to have a deepunderstanding of how changes in use patterns and the mix of services providedto patients will affect the price of the insurance product. The actuary will oftenbe involved in developing reimbursement levels for providers and may helpdevelop the benchmarks by which providers are measured. Such is the natureof the information that is displayed below.

care for a minor cardiac procedure. The information is also displayed for 4levels of severity which are part of the All Patient Related Diagnostic RelatedGroup coding system. The percentages of avoidable days are determined bycomparing the given hospital’s data to benchmarks that have determined froma separate statistical analysis. The benchmarks themselves are for a group ofhospitals that have been determined to be behaving in a “Best Practice” mannerfrom an efficiency perspective.

This type of analysis opens a window into the practice patterns of the hospitalsin a market and can be used to encourage different behavior at a hospital aswell as give insight to the actuary that is setting product prices for that market.

In a similar fashion, quality indicators can be used to monitor the outcomes ofa given hospital. Those outcome differences could be used to modify paymentlevels for a given hospital. An example of some of the types of patient safetyindicators (a small subset of the overall set of quality indicators) are shownbelow:

• Postoperative hemorrhage, or hematoma

• Postoperative hip fracture

• Postoperative physiologic and metabolic derangement

• Postoperative pulmonary embolism and deep vein thrombosis

• Postoperative respiratory failure

• Postoperative sepsis

The figure below displays how the postoperative hip fracture patient safetystatistic is determined.

The figure above displays statistics about the efficiency of a hospital in theUnited States with regard to its Medicare program. The data is for calendaryear 2002 and shows the number of potentially avoidable days of inpatient

Outcome Discharges with ICD-9-CM code for fracture in any secondarydiagnosis field per 1,000 surgical discharges.

Population at Risk All surgical discharges defined by specific DRGs.

Exclude all patients with diseases and disorders of themusculoskeletal system and connective tissue (MDC 8).

Exclude patients with principal diagnosis codes for seizure,syncope, stroke, coma, cardiac arrest, anoxic brain injury,poisoning, delirium or other psychoses, trauma.

Exclude patients with any diagnosis of metastatic cancer,lymphoid malignancy, bone malignancy or self-inflicted injury.

Exclude obstetrical patients in MDC 14.

Although involvement with efficiency and quality information is not usuallythought to be the domain of the actuary, it is easy to see why the actuary

should be involved in its analysis.These data help the actuaryunderstand underlying costs andusage patterns, which are usefulwhen setting product premiums,determining trends, and assistingwith provider reimbursementmechanisms.

General Data Analysis

It is not uncommon for the actuaryto receive a very large data set andbe expected to make sense of it.We have mentioned numerousanalyses for which the actuarywould typically be responsible.These tend to be ongoing dailyactivities. The actuary is also often

expected to assist in special studies that are needed to help managementmake various decisions. In order for the actuary to do his analysis well, severalthings must be true. They include:


��

��

��

��

• Internal data sources must be known and understood

• Certain tabulation standards must be followed

• External data should be obtained and used for comparison purposes

• Communication skills must be finely tuned

Internal Sources

The internal data that the actuary will need to conduct analysis is, for the mostpart, the by-product of operational processes. Access to claims data, exposureinformation, demographics, provider payment levels, premium revenues, groupinformation, and operating expense information is essential for the actuary toprovide the support to the organization that it needs. A good way for the actuaryto find out what data exists within the organization and how it can be used isto spend time in each functional area talking to the people that create thedata. This people-networking is not a one-time endeavor, but rather is adialogue that needs to occur continuously. Two essential consequences soughtfrom these relationships are (1) getting detailed descriptions of all data setvariables and their meaning, and (2) being informed when any changes occurin the data or the systems that produce the data. The tracking of changes isvery important because changes can totally alter the interpretation one mighthave of the meaning of the data. Once the data is known and understood,then the actuary can consider how best to capture and analyze the data. Inthis age of IT, that solution usually involves setting up a data warehouse.Having a warehouse that can be accessed by the actuary and otherDepartments within the company helps to make the analyses done by thevarious departments consistent.

Tabulation Standards

To deal with the fact that multiple actuaries and analysts will be working withthe company’s data, it is generally wise to establish a set of tabulationstandards. Those standards would include (1) balancing and reconciling thedata to other sources, (2) using control totals to establish overall data integrity,(3) documentation of the analytical process, (4) detailed checking oftabulations, (5) overall reasonableness checking, and lastly (6) using replicationof results, as needed, to prove accuracy of the process and methods.

External Sources

A very important function of the actuary is to test the results of any analysisfor reasonableness. One of the ways that is done is to use alternative externalsources of data, especially when the internal data source may not be fullyreliable or credible. In India at this point in time, it will be difficult to obtainexternal data, but that is all the more reason it’s needed. So little health datais available now, and what is available has been so little used, that specialefforts must be made to find data to use for these purposes. As the health

insurance industry evolves and the government and the regulators work toimprove the health care system, much more information should becomeavailable. Until that time, Indian actuaries will need to find external sources tocomplement their company’s data by looking to private organizations thatspecialize in data and data analysis.

Communication

One of the most important skills the actuary can possess is the ability tocommunicate complex mathematical/actuarial notions to non-technicalaudiences. The actuary may work with large volumes of data and producelarge amounts of analysis, but this could well be ignored unless it can betranslated into understandable information. To help senior management withits responsibilities, summary reports – sometimes called dashboard reports –can and should be created to provide important statistics at a glance. Moredetailed reports and explanation can be provided once the summaryinformation has been reviewed.

Final Thoughts

As can be seen from the discussion above, health actuarial work can andshould be very involved. Health insurance markets can move quickly, and theactuary plays an important role in the overall financial success of hisorganization. Taking the time to learn the Indian health system from the insideout will make it easier for the actuary to provide the valuable insights insurerswill need to be successful and profitable. Having access to data will beessential. The actuary’s role will be to

• Assist senior management in evaluating its corporate strategies

• Work with marketing/sales and underwriting to establish properpricing for all products

• Work with the finance function to evaluate the company’s liabilitiesfor financial reporting

• Assist the provider contracting function in establishing fair yetcompetitive fees to pay providers

• Understand all available data and be able to transform that datainto usable information for all levels of management and allfunctional areas within the insurer

This is no small task, but one that has not generally been perceived as neededin the health insurance industry until recently in India. The reform of theinsurance industry is making actuaries’ lives much more interesting andchallenging. For non-life and stand-alone health insurers, a much greater focuswill be on health insurance products going forward. Health actuaries will helpbring rationality to this market that will be greatly needed as it expands.

4 November 2005Institute of Actuaries announces new President-Elect

The Institute of Actuaries has today announced that Nick Dumbreck will be its next President. Mr Dumbreck,who will take up the Presidency in July 2006 and who will serve a term of two years, joined the Professionin 1976. He qualified as a Fellow of the Institute in 1982. He was a member of the Council of the Instituteof Actuaries from 1993-98 and from 1999 to 2005, acting as Vice President to the Institute from 2003-05.He was Chairman of the Profession’s Education and Continuing Professional Development (CPD) Boardfrom 2002-04 and served as Honorary Secretary of the Institute from 1996-98.

Mr Dumbreck has been a member of the Education Committee of the International Actuarial Associationand the Groupe Consultatif Actuariel Européen since 2002. He also chaired the Staple Inn ActuarialSociety (SIAS) between 2002 and 2004.

��

Nick DumbreckPresident-Elect, IoA


��

��

��

�

Approach

In this article, I first introduce Taiwan’s National Health Insurance (NHI)program briefly and its problems extensively. NHI’s approaches to itsown problems are then described and their shortcomings and failuresare noted. Taiwan’s new pension regulations are then introduced andthe integrated strategy for solving Taiwan’s NHI problems by combiningNHI into individual retirement account is described with reasons. Thisstrategy is expected to succeed because it will make free market workin the health care industry by fundamentally changing the behavior ofboth consumers/patients and medical service providers. Much of thecontent of this article is based on a paper on the same subject presentedto the 13th East Asian Actuarial Conference held in Bali, Indonesia inSept. 2005.

Introduction

Since its inception in 1995, Taiwan’s NHI program has been the focusof many research projects conducted by actuaries, medical economists,public health specialists, and health care professionals and these arein public domain. It is intended that issues discussed in this article willbe of interest to not only Taiwan but many other jurisdictions whichface similar issues.

Taiwan’s NHI Program

Before the establishment of NHI in 1995, Taiwan had thirteen differentpublic insurance systems, each covering a particular group of thepopulation. These systems include Labor Insurance (1950),Government Employees Insurance (1958), Farmers’ Insurance (1985),Low-Income Household Insurance (1990), and some others. Togetherthese programs covered about 59 percent of Taiwan’s population. Thisleft over eight million mainly childred under Age 14 and aged over 65uninsured, a segment whose health care needs no emphasis.

NHI began operations on March 1, 1995, two months after theestablishment of the Bureau of National Health Insurance (BNHI). NHIis a government-run, single-payer national health insurance program,

financed through a mix of premiums andtaxes, that compensates a mixed public andprivate delivery system predominantly on afee-for-service basis. To ensure sufficientrisk pooling and a broad-based collection offunds, NHI enrollment is mandatory coveringmore than 97 percent of Taiwan’s population.

Premium Income

The NHI is financed on a pay-as-you-gobasis with the premiums being based onincome. Individual families, employers, andgovernment all pay a share of premiums.Currently, 40 percent of the NHI’s totalpremium revenue come from insured, 33percent from employers, and 27 percent

�� !��

��" ��#�� $��Chiu-Cheng Chang, PH D, FSA, FCIA, FAIRC, CLU, CHFC, MAAA

from government.

The share of the premiums paid by the insured, employers, andgovernment varies greatly within the six categories of population groups.For employees of public or private enterprises, for example, governmentpays 10 percent of the premium, the employer 60 percent, and theemployee 30 percent. The self-employed professionals pay 100 percentof their income-based premium without any government subsidy. Formilitary personnel and their dependents, and low-income families, thegovernment subsidizes 100 percent of the premium. The premium foran individual varies with the number of dependents (for whom premiumsare levied on a per capita basis), which is capped at three.

Benefits

The NHI’s benefits include inpatient care, ambulatory care, lab tests,diagnostic imaging, prescription and certain OTC drugs, most dentalcare, traditional Chinese medicine, limited home health care, and certainpreventive medicine. Expensive treatment for HIV/AIDS and organtransplants are also covered.

Freedom of Choice

More than 90 percent of Taiwan’s health care providers contract withthe BNHI. Unlike many managed care models is other countries, theNHI offers the insured complete freedom of choice among providersand treatments. Unlike UK and Canada, there is no rationing of care,and there are no queues for care. The failure of a referral system andthe completely free choice of providers means that patients can godoctor shopping. For example, they can seek care at medical centerswithout regard to the nature or severity of their illness.

Utilization of Health Services

Overall, the volume of health services delivered has greatly increasedsince the inception of the NHI. In fact, the increase is far greater thanwhat may be justified by population growth. With the exception of certaincostly high-tech treatments such as heart, lung, liver, and bone marrowtransplants for which prior BNHI authorization is required, there areeffectively no ceilings on utilization in the NHI. This has resulted inhigh health care utilization rates, especially outpatient care. Taiwan’soutpatient visits have averaged around 15 per capita and arecomparable with Japan’s. Both are by far the highest in the world.

Payment System

Out-of-pocket spending by households represents services not coveredby the NHI, such as orthodontics, prosthodontics, Lab tests that arenot medically necessary, extra charges for non-NHI beds, specialnurses, and physicians requested by patients other than those routinelyassigned by the hospital, long-term care, and nursing home care. Italso includes user fees and copayments for NHI-covered ambulatorycare, inpatient care, and pharmaceuticals. User fees are levied percontact with the provider. Copayments are levied on each componentof a treatment. Exceptions are made for major illness or injury, deliveries,certain preventive services and alike. Moreover, copayments vary by

Chiu-Cheng ChangProfessor, Graduate Instituteof Management,Chang Gung University,[email protected]

��


��

��

��

��

type of provider. They are highest for outpatient care at medical centersand lowest for local clinics.

Payment of Providers

The Health Care providers obtain their revenues from three sources:(1) payments by the NHI, (2) patient user fees and copayments, and(3) proceeds from the sale of products and services not covered bythe NHI. The NHI pays providers on a classic fee-for-service (FFS)basis at uniform, national fee schedules.

In recent years the BNHI has experimented with other paymentmethods, such as diagnosis-related groups (DRGs) for hospitals,primary care capitation for certain population groups and even paymentslinked to clinical outcomes, in an attempt to control costs and improvequality. However, the ultimate cost control measure has been theimposition of global budgets, phased in sector by sector.

NHI Problems

As a consequence of the design of NHI as described above, it hasencountered numerous problems:

NHI’ fee schedule tends to be too low peceived artificial, andarbitrary

Unlike the fee schedules used by the U.S. Medicare program, Taiwan’sfee schedules are not based on the estimated relative resource costsof providing the services in the schedules. Instead, the NHI simplyadopted the relative value scales of the fee schedules used by theLabor Insurance and government Employees Insurance in place priorto 1995. Note that these relative value scales are neither based onresource costs nor updated. Moreover, they tend to be at leastsomewhat artificial and arbitrary.

Providers respond by expanding volume of services, reducingresources for each unit of service, and profiting from sale ofproducts and services not covered by NHI

These responses from providers facing the low fee schedules whichtend to be artificial and arbitrary are to be expected.

Provider-induced demand for services, many of which are notmedically necessary

Just as all open-ended health insurance systems relying on fee-for-service payment of providers, Taiwan’s NHI has experienced rapidincreases in the volume of services which, in turn, has led to chargesof supplier-induced demand for services, many of which may not havebeen medically necessary.

Fee-driven practice may lead to misdiagnosis, improper treatment,or delays in proper treatment

Former BNHI’s CEO once remarked that “Taiwan’s doctors are wellpaid. But they work very, very hard to use volume to make up for thelow fees.” Taiwan’s doctors are notorious for their extremely shortenedvisit length with patients. All this fee-driven practice style may lead tomisdiagnosis, improper treatment, delays in proper treatment, ormedical malpractice suits which have become more and moreprevalent. As a result Doctor-patient relationships have beendeteriorating

“Professional Fee” (PF) system compensates doctors on the basisof their revenue productivity

Under the NHI, more and more hospitals have evolved to adopt the“professional fee” system. This system compensates doctors mainlyon the basis of their revenue productivity: the number of patients seen,procedures performed, lab tests ordered, along with academic andprofessional papers published, speeches given, and even articleswritten in newspapers. The higher the service volume a doctor or ahospital delivers, the greater will be the hospital’s revenue and thedoctor’s pay. Such a reward system can trigger physician-induced carethat may not be clinically indicated.

Overuse and misuse of health care may constitute up to a third ofthe NHI’s total expenditure

This view has been widely shared. Many people also decry the“commercialization of medicine” in Taiwan and the “profit-drivenmotives” of Taiwan’s providers.

“Drug price black hole” leads to serious overmedication ofpatients, including that with antibiotics

In fact, Taiwan’s antibiotic resistance in streptococci pneumonia isprobably the highest in the world.

Poor health care quality

When patients in Taiwan are faced with life-threatening illness, theprobability of losing their lives is several times greater than it is in theU.S. For Example, survival for all cancers in Taiwan is half the rate inthe U.S., deaths from anesthesia is eight times that of the U.S., deathsfrom tuberculosis is ten times that of the U.S. Clearly, NHI’s low costinsurance with prices frozen, which resulted in fast-food health care,has negatively impacted the quality of health care seriously.

Lack of family physician system

Unlike the U.S., Taiwan does not have the family physician system. Asa result, Taiwan places far more emphasis on diseases than prevention.

The failure of the referral system

Under the NHI, the referral system has completely failed. As a result,Taiwan places far more emphasis on specialists than generalpractitioners.

NHI has been financially insolvent

NHI’S Approaches To Its Problems

To counter worsening revenue shortfall

As expected, NHI has tried to increase premiums but has encounteredgreat difficulties due to the public and political resistance. NHI hasalso increased copayments, reduced drug prices, introduced“reasonable outpatient volume” policy, and payment reforms, all withlimited effects. Borrowing from the Canadian and German experience,NHI has used global budgeting trying to control the costs. The evidenceso far is that global budgeting has had its intended effect only in theshort run. It is expected to fail in the long run.

To counter deteriorating health care quality

As expected, NHI has initiated a variety of quality monitoring andassurance programs to move providers toward greater accountabilityfor quality. An example is the so-called fee-for-outcomes (FFO)approach. Another example is the construction of hospital qualityindicators. In 2002, NHI introduced IC-card which contains important


��

��

��

��

clinical and personal information on its holder. It will function as acommunication tool between the NHI and providers and, once fullyimplemented, will also make it possible to electronically transfer medicalrecords among providers. This sharing of clinical information may helpreduce the waste of duplicative services and curb “doctor shopping”activities.

All these approaches are of limited value, all things being considered,since they are reactive, and of short-term nature. In particular, theyignore that social insurance programs can easily fall victim to theTragedy of the Commons, in which commonly owned properties facethe risk of depletion from overuse by individuals seeking to maximizetheir own well-being without regard for the common good. An approachto solve NHI’s problems as described below is to transfer all funds(contributed to NHI) to each patient’s (individual retirement) account.

New Pension Regulations

The new pension regulations as passed by the Legislative on June 11,2004 for implementation effecive July 1, 2005. Although a dual systemconsisting of “individual account scheme” and “annuity scheme” ispromulgated under the new pension regulations, most, if not all,Taiwanese employees will be covered under individual account scheme.Each month employers must contribute six percent of employees’monthly salary into their individual accounts under this scheme. Thoseemployees who choose individual account scheme may contribute sixpercent of their monthly salary tax free to their own accounts. Clearly,this individual account scheme is very similar, if not identical, to allthose individual retirement accounts (IRAs) of, say, Singapore’s CentralProvident Fund, Malaysia’s Mandatory Provident Fund, and HongKong’s Compulsory Provident Fund.

Bases on our observation of evolutions of IRAs internationally, weexpect Taiwan’s individual account scheme will be undergoing similarevolution. For example, most countries vary employer and employeecontributions according to macro-economic conditions. Also, mostcountries subdivide the IRA into, say, ordinary account, medicalaccount, long-term care account and emergent account with amandatory minimum amount (which changes over time) specified forthe ordinary account (the bona fide retirement account).

The Integrated Strategy For Solving NHI Problems

NHI, after only ten years operation, has encountered numerous seriousand difficult problems for which the government’s solutions have provenof limited value at most. Many academic papers have offered ideas tosolve the problems but they have either failed to attract NHI’s attentionor have proven of very short-term or limited value once adopted byNHI. This is because none of the ideas and approaches have dealtwith the Tragedy of the Commons directly. In other words, all the ideasand approaches have encountered the same difficulty that free marketmechanism does not work in the health care industry without beingable to overcome it.

Our approach to solve NHI problems is to make free market mechanismwork in the health care industry. To do so, we merge NHI into Taiwan’snew pension system so the within each individual account we create amedical into which all the original NHI premiums are deposited. Eachindividual account may evolve and become subdivided into ordinaryretirement subaccount, long-term care sub-account, emergent sub-account, and medical sub-account. It is this medical sub-account we

put in all the NHI’s original premiums (from employees, employers,and the government). Conceptually, we can further illustrate thisintegrated approach in the following graph:

Under this integrated approach, all the medical expenses incurred byeach individual, whether small or large, from doctor’s visit, hospitalstay, all the way to major surgery, must be paid from that individual’sMedical . Just like all other sub-accounts, this Medical sub-account iscumulative in that if an individual is so healthy as to stay away fromusing medical services, he will be accumulating the fund in his Medicalsub-account. At the very least, medical service consumers’ behaviorwill thus be fundamentally changed; they will no longer utilize medicalservices deemed unnecessary! The accumulated balance in theMedical sub-account once reaches a certain amount, the excess maybe withdrawn or deposited into other sub-accounts.

Knowing that each patient is spending his own money from his Medicalsub-account to pay for his medial services received, all medicalproviders’ behavior will thus be fundamentally changed too. Medicalproviders know all too well now under our integrated approach thatpatients are no longer taking advantage of the Tragedy of the Commonsprevailing under a social insurance program.

To do well in this new environment, providers must offer much bettermedical services in order to attract and keep the patients. In fact, thebest providers could easily charge the highest fees and still attractenough patients. The worst providers could be wiped out of the market.It is clear that free market mechanism will be working in the healthcare market in Taiwan under this approach.

In order to cope with potential health disasters, Medical sub-accountholders could use their funds to buy such health insurance as Hospital& Surgical, Major Medical, Dread Diseases, Cancer Insurance, etc.Since these health insurance policies are privately owned, commerciallyavailable, they will not affect the workings of free market mechanismin the health care industry. In fact, they will provide ever better protectionwhile making free market work better in the health care industry.

Conclusion

Our integrated approach to solve Taiwan’s NHI problems is to empowerconsumers/patients so as to fundamentally change medical providers’behavior. In doing so, consumers/ patients will no longer take advantageof the Tragedy of the Commons enabling free market mechanism towork in the health care industry. Since Internet has provided amplehealth information, information asymmetry in the health care industryhas been greatly lessened. This in turn enhances the power ofconsumers/patients and increases competition in the supply of medicalcare. We believe that health care is too important NOT to be exposedto the market and only through free market mechanism can we makehealth care affordable at great quality.


��

��

��

��I nd ian Actuar ia l P ro fess ionServ ing the Cause o f Pub l i c In te res t

��

��

��

With the Indian Non-Life Insurance Industry on the verge ofdetarrification what’s inevitable is the importance of Actuaries in theindustry. Enough has been said about that. What else?

Shrinking margins, higher claims disbursement, and increasingcompetition in recent years in the global insurance markets; more than1500 General Insurance companies and 1300 health insurancecompanies in the US alone; hefty cost of actuarial expertise in thewest; 4000, and a still increasing number of aspiring actuaries in Indiaand ASI’s admirably growing initiatives on mutual recognitions withactuarial societies worldwide - the Actuarial profession in India is allset to scale new heights.

But, is clearing exams sufficient for actuarial students to meet therecruiters expectations? Gone are the days when there was an acuteshortage of actuarial students and a few exams were sufficient to getthrough a job opening. Not to infer that exam focus is not important,but more is needed.

An increasing number of junior actuarial students are frustrated aboutthe fact that they are not able to find a job.“Why can’t I get a job? I have cleared threeexams!”

Unfortunately, 3-exam clearance is becominga commodity for employers and is often notsufficient to get a job.

If you find yourself in this situation, here area few traits that would add to your actuarialexpertise and improve your chances oflanding your first job in the actuarial field.

Excellent Analytical Skills: No matter howproficient you are in remembering complexprobability distribution functions, theirmoments, and generating functions; nomatter how instantly you recollect what theChapman-Kolmogorov equation is whatactually matters is the application. Given areal life situation, how good are you in usingyour knowledge is what finally matters. In reallife, you would just open your books and pickout the probability density if that is what youneed – the application part is finding out whichdensity for which situation.

Good Communication Skills: Theoretically,technical expertise should speak of what youcan do. But, unless you are able tocommunicate it, how will the world know what

%�&��'��(��!��&��)��

� ��*�+Akash Gupta

& Robert Johnsen, FASI

Robert JohnsenManaging ActuaryGE Insurance Solutions,[email protected]

Akash & Robert interviewing Surabhi

you are capable of?

Further, English is the international insurance language. The lack ofability to express yourself in English is often a reason for declining aperson for a job. This is unfortunate because students who are otherwisevery talented get rejected for this very reason. Written and spokenEnglish skills, therefore, are essential and a must-have.

IT Skills: There was a time when IT skills where a nice addition toyour resume. Today, it is almost a mandate to have some IT exposureand a perfect combo if you have proper expertise. But remember, ifyou had a course where someone explained C++ to you and you neveractually did any programming yourself, then the learning is limited.You need to have hands-on experience before claiming to “know” theskill.

If you have recently landed your first actuarial job, here are few thingsthat the employer would be looking for.

Akash interviewing Surabhi

��

��

Akash GuptaReinsurance-Pricing Analyst,GE Insurance Solutions,[email protected]


��

��

��

��I nd ian Actuar ia l P ro fess ionServ ing the Cause o f Pub l i c In te res t��

��

��

��

Sincerity on Work Front and Exam Focus: First and foremost, sincereexecution of a given job responsibilities is minimal requirement on thepart of any employee. The best way to demonstrate that you are readyfor the next level is to ace your current responsibilities. Moreover, foran actuarial student cum employee, what’s equally important is theundeviating exam focus. Unwavering efforts towards attainment of theactuarial designation and demonstration of skills acquired are keys togrowth.

Long-term Vision: The initial phase of almost all technical jobs is notthe very high-end stuff. But, only by understanding a process in detailscan one become an expert. It is the same for the actuarial field.

The initial phase of an actuarial career begins with the basics. If youthought that you were going to use your high-end statistical knowledgefrom day one, you will probably be disappointed.

What’s vital is to have a long-term vision with the organization and afair amount of patience. Your hard work will surely reap returns.Establishing your credibility with the organization is the key to move to

the next level.

Most experienced students would probably be able to switch jobs andearn a little more. Frequent job shifts may be a good strategy in theshort term, but you have got to realize that it takes time to buildexpertise. Two years in a company will not make you an expert. If youfeel that way, there is most likely something you have missed. Justscratching the surface is not who we are. We are experts in the deepcomplexities of the business.

Remember, it is the job of any employer to select and promote thebest candidate for an open position. If you could not make it through -Don’t take it personally. Request feedback to improve yourself.Unsuccessful interviews are just point estimates in your long andexciting career as an actuary. They are not permanent thumps downfor any future actuarial openings.

Get back in the game, be persistent and improve your market value byclearing exams and following some of the advice above. Good luck.

Purpose:

The purpose of the Health Insurance Boardis to promote the Professions’ involvement inHealth Insurance issues of public interest andto promote the use of actuarial skills in thehealth-sector. In achieving this purpose theprocess will include:

1. Promoting and facilitating exchange ofviews, advice, research and practicalinformation among actuaries involved withpublic and private health issues such aspolicy and programme design, researchand planning etc.,

2. Developing educational standards andproviding education particularly withreference to the subject at the SpecialistTechnical and Application level of healthand care

3. Engaging in activities that promote the useand activities of health actuaries withinand outside the profession, support formalASI activities with the health content andinteract with Health Committees of theother Actuarial Bodies, Government andthe Regulator.

4. Contribute to the development of publicpolicy

5. Identifying the areas where guidancenotes are warranted and to take actionin accordance with Due Process.

The Constitution of the Board is as under:

1. P A Balasubramanian - Chairperson

2. D Sai Srinivas - Member,Secy. to the Board

3. Venkatesh Chakravarty - Member

4. Herbert Meister - Member

5. Alok Gupta - Member

6. Richard Kipp - Member

6. Edgar Balbin - Member

Monish Bawaskar of ASI Secretariat willwork as Executive Assistant to the Board.

As part of the activities on actuarial educationin Health Insurance, ASI has decided toconduct a programme on “Health Insurance– Actuarial & Underwriting Workshop” jointlyorganized by ASI, Milliman, Bearing Pointand NIA. The details of the programmeincluding outside faculty to conduct theprogramme are being worked out. Theprogramme is likely to be scheduled in early2006. More details will follow after theprogramme is finalized.H

ealt

hIn

sura

nce

Bo

ard

P. A. BalasubramanianChairperson,Health Insurance Board, [email protected]


��

��

��


��

��

��

��

Background

The Indian constitution lays the principal responsibility for public health at thedoors of the individual state governments. The central Government providesabout 15 per cent of the funding needs –mostly for national health programmes.Given the paltry state of finances, it is not that surprising that public health

�� #�� ,��

��#��#��" ��"��Walter de Oude, FFA; FASI

& Rajagopalan Krishnamurthy

Currently, less than 15 per cent of the Indian population has some kind ofhealth insurance cover. This includes those covered under the CentralGovernment Health Scheme (4 million beneficiaries), the Railways HealthScheme (1.2 million) and the Employees’ State Insurance Scheme (0.3 million).

The robust growth of the Indian economy at more than 6 per cent every year,together with a rapid rise in personal incomes, has led to this gap in healthcarespending being increasingly met by private health expenditure. On average,every family spends up to 10 per cent of annual household consumptiontowards healthcare needs.

Health insurance

Health insurance remains vastly under-developed in India. The regulationsonly permit general insurance companies to offer stand-alone health insuranceproducts, while life insurers are allowed to offer riders such as critical illnesscover attached to basic life policies – although subject to certain restrictions.Health cover premiums, however, account for less than 1 per cent for lifeinsurers and 10 per cent for general insurers of total premiums.

Health insurance premium collections in 2004/2005 amounted to Rs 2,000 crore(Rs 1 crore is equivalent to around US$250,000) which, in comparison with thetotal healthcare spend at around Rs 60,000 crore, pales into insignificance. Thehealth insurance market is dominated by the four public sector general insurancecompanies that have launched what is popularly known as the ‘mediclaim’ policy– an indemnity benefit arrangement covering in-hospital expenses. While theyhold about 80 per cent of the health insurance market, they face increasingconsumer dissatisfaction and serious issues on product profitability.

RajagopalanKrishnamurthyHead of distributionconsultingWatson Wyatt, India;[email protected]

Walter de OudeSenior ConsultantWatson Wyatt,[email protected]

expenditure is far below the requirement for thehuge population of 1,030 million – about 16 percent of the world total.

The family planning and healthcare initiatives ofthe Government have however been effective inreducing birth rates and improving mortality ratesfrom historic levels. The crude birth rate declinedto 25 per thousand in 2002 from 39.9 perthousand in 1951 and the infant mortality rateregistered a dramatic decline in two decadesfrom 134 per thousand live births in 1981 to 66per thousand live births in 1999. Life expectancyat birth has increased by about 35 years, from31 years in 1947 to 66 years in 2002, a vast anddramatic improvement.

As Figure 1 shows, Government expenditure onhealthcare in India is far below that of otherdeveloping countries. According to the WorldHealth Organisation Report published in 2002,India ranked thirteenth from the bottom in termsof public spending on health.

The role of private health expenditure

Although India’s public spending is low, overallhealth spending is improved due to higher privatespending. In 2002, private spending on healthwas estimated to be 4.8 per cent of GDP, overthree times public spending. As a result, India’soverall expenditure on health in 2002 was 6.1per cent of GDP and, as Figure 2 shows,compares well with other developing countries.

Figure 3 shows the market share of private and public sector non-life insurancecompanies in terms of new business premiums from the health segment.

The combined new business health premiums of the four public sectorcompanies accounted for 82 per cent of the total new business health insurancepremiums collected by the non-life insurance industry in the 2004/2005 financialyear. The private sector companies increased their combined market share inthe health segment to around 18 per cent in 2004/2005 financial year fromaround 10 per cent in the previous year.

The state owned companies have had little focus upon this developing line ofbusiness on a systematic and profitable basis. They have mainly attemptedto market health insurance cover on a discounted basis to employer groups

��


��

��

��


as an accommodation, primarily to gain access to the profitable lines of theemployers’ insurance portfolio, such as property cover, which are subject tostate regulated tariffs that are generally considered to contain significantmargins. The success of this strategy means that group health insuranceconstitutes about 35 per cent of the total health insurance business.

Historically, the public sector companies have also not paid attention todeveloping proper underwriting criteria and they are not required to declarethe operating results of this product line separately. Despite years ofexperience, they have not built proper databases and do not carry outsystematic analysis of amongst other things, disease patterns, regionalvariations, age-related healthcare spending and/or claim distribution costs.

While TPAs attempt to prescribe uniform fees and standards of service toavoid costly duplication in diagnostic and other customer care aspects, theservice providers are resisting such moves and tend to form cartels. Theyhave also begun to adopt dual fee schedules: a higher rate for customerspreferring to get treatment under ‘cashless’ schemes administered throughthe TPAs and a lower one for direct settlement and possible reimbursementby the insurer. There are also suggestions of significant delays in settlementof bills by TPAs to healthcare providers.

Future scenario

Despite the above ‘teething’ problems, the Indian economy is showing signsof liberalization in many areas. Further, the Government and the insuranceregulator seem keen to encourage health insurance. The obvious solution isto encourage competition by lowering the entry barrier for new players and torecognise the potential of health insurance as a stand-alone business.

A working group, set up by the insurance regulator to suggest specificmeasures to improve the state of affairs in health insurance, has recentlysubmitted its report. One of its major recommendations is to license exclusivehealth insurance companies with a lower minimum capital requirement ofRs.250 million (about US$5 million), one-quarter of the minimum capitalrequired for life and non-life insurance companies.

The group also favoured the introduction of a risk-based capital model forhealthcare companies to encourage efficiency in capital allocation and a higherlevel of tax benefit for health insurance premium payment for individuals.

A key need to allow a higher equity holding for foreign firms is also beingrecognised, with the group favouring foreign ownership of health insurancecompanies of up to 51 per cent (compared to the current limit of 26 per centfor insurance companies). This would require an amendment to the InsuranceAct, which is a long process, unless the Government chooses to use itsemergency ordinance powers to intervene more rapidly.

At the same time, there are signs of cooperation between some of thehealthcare providers to subject themselves to a stricter price structure. Themajor TPAs have developed a database of the most common surgeries suchas heart, cataract, tonsilectomy, appendectomy and hysterectomy coveringthe average treatment cost across the primary, secondary and tertiary levelhospitals. Since there is no accreditation body in the country for hospitals, theNational Centre for Quality Management has agreed to work out a furtherclassification of hospitals from the data collected by the TPAs. The exercise iscarried out in a phased way and already about 200 hospitals have signedcontracts.

Health insurance provides the important benefit of risk pooling to consumers,particularly once insurers have achieved both scale and size. Such coordinatedmoves amongst healthcare players are therefore essential to spread the benefitof health insurance among the whole population.

A study by the Indian Planning Commission has, however, indicated that thelowest earning 20 per cent of the population spend about a fifth of that of thehighest earning 20 per cent of the population on healthcare, whereas thedifference in disposable incomes is far greater. Furthermore, the bulk of thehealthcare spending by the lower earners is met by raising borrowings orselling family assets.

Only a purposeful and time bound plan could therefore bring relief to everysegment of the population, enabling access to vital healthcare cover. As aresult, there is a significant opportunity in India for insurers if they canproactively contribute to Government initiatives to achieve better and morewidespread healthcare provision and funding.

[Acknowledgement : Healthcare Market Review October 2005 issue]

The health portfolio that had a loss ratio of about 78 per cent in 2003deteriorated to 98 per cent in the following year. These deteriorating lossratios, as well as the competition from new private players, are pressuringthese companies to more actively manage their portfolios.

Since public sector insurance firms regard health insurance as a loss leaderto gain footholds in other more profitable lines, they have also not investedadequately in their customer service proposition. An indication of the low levelof satisfaction is the large number of complaints from customers. Accordingto figures published by the 12 Insurance Ombudsmen in the country, 70 percent of customer complaints relate to health insurance, the most commonpoint of contention being clauses related to ‘pre-existing illnesses’.

The introduction of new private general insurance companies is, however,beginning to make some difference. Five of the new private non-life insurancecompanies sell stand-alone health insurance products. These new companieshave introduced a few innovations, such as direct tie-ups with healthcareproviders, providing ‘cashless’ settlement as an option, the provision of pre-and post-hospitalisation benefits and coverage for pre-existing illnesses.

Both state owned and private companies have also tied up with Third PartyAdministrators (TPAs) who are licensed by the insurance regulator. Currently,there are nine TPAs who handle the bulk of the business, with most servingmore than one insurance company. The regulations require a TPA to beexclusively engaged for the purpose, with minimum capital of Rs.10 million(about US$200,000). At least one director of a TPA should be a qualifiedmedical practitioner.

The use of TPAs has, however, given rise to some tension between thehealthcare providers and the health insurance companies. Due to the lack ofstandards and regulations in India to govern hospitals, nursing homes andother healthcare providers, there are substantial differences in the deliveryand cost of healthcare services across India and amongst service providers.

��

��

��

��


��

��

��

��

Health Insurance pricing is not always recognized as a complex actuarialdomain and the basics and principals are relatively unknown to people outsidethe healthcare community. This article should give an overview about thebasic principles of the health insurance premium calculation and the complexfactors influencing health insurance risk.At the outset it is necessary to familiarize the reader with two fundamentallydifferent calculation principles on which health insurance business can bebased:1. The principle of solidarity, which for example can mean that the premiumsdepend on the income of the insured persons, rather than purely on risk factorsinfluencing the probability of claim and claim size. In general, the total premiumfor a given class of insured people (e.g. income group), varies significantlyfrom the total claim this class has to expect. Applying the solidarity principleusually means that social factors (such as income, family status etc.) aremore significant in determining the premium than pure risk factors such ashealth status or age. Statutory health insurance is often based on this principle– frequently the premium is determined as percentage of income.2. The principle of equivalence, which means that over the entire period ofinsurance the total premium of a given category of equivalent risks, matchesthe total of claims, including expenses for underwriting and administration, forthat particular risk class. In this case it is necessary to calculate a risk premium,i.e. the premium is calculated strictly according to risk factors and categories.Private health insurance products are mainly calculated on the principle ofequivalence.Sometimes both principles are applied as a mixture: For example, “familydiscounts” granted for a typical private health insurance product provides forsome solidarity element, but these discounts may not reflect the actual risks;such product features may be introduced for marketing reasons.Given a clear definition of the insured events, i.e. defining the potential liability,it is the actuary’s job to determine relevant risk factors which have to be takeninto account in the premium calculation, e.g. the age of the insured person,sex, etc. Different approaches can be used in the calculation. Such approachesdepend on the statistics available, as well as of the characteristics of theproduct design. However, it is necessary to note that the risk factorconsiderations within the premium calculation are distinct from individual riskassessment in the underwriting process. By underwriting we mean a processby which risk factors of individuals or groups are compared with the premiumcalculation assumptions, and if necessary to load the individual or group

premium with a risk loading or even to excludecertain illnesses/events.The following roughly describes the importantsteps of private health insurance premiumcalculations. The first step of the premiumcalculation is the calculation of the risk premiumtaking into consideration the various risk factors.For the next step from the risk premium to thenet premium, we have to distinguish betweenindividual and group insurance business. In groupbusiness, the net premium is usually simply therisk premium with a safety loading. As concernsindividual business, we have basically threealternatives to calculate the net premium:- risk premium + safety loading (like in groupbusiness)

� ��-� ��)��

�� Herbert Meister, FGAA; FASI

- level premium (including a reserve for increasing risks due to age)- solidarity premiumWhy can it be useful to have a reserve? Generally young people generatevery much lower healthcare costs than older ones. For example, experiencein India has shown that claims of a60 year old insured are 2.3 times higherthan those of a 30 year old insured. To avoid having older insureds payexorbitant premiums, it is possible to have young insured pay an ageing reservefor future liabilities as an addition to their risk premium, which is then used tomoderate future premiums when the insured surpasses a certain age. By thismethod of level premium calculation, the premium can be kept theoreticallyconstant on an as if basis (during the lifetime of the insured person). Althoughwe are talking of a level premium, we cannot guarantee a constant premiumover the lifetime, because of increasing costs of medical treatment, advancedmedical technology, new treatment procedures, new diseases that changelife expectancy etc.Usually a level premium is only used in individual health insurance, becausein group business the life-long character of the group is not very determinable,since the composition of the group is often changing.In principle, premiums are calculated in accordance with risk factors; however,from a marketing point of view, it is sometimes advisable to cross-subsidizehigh risk factor categories with lower risk factor categories. In this case wewould quote a solidarity premium.Example: The coverage of maternity claims. The premium for men between20 and 40 is usually made higher to compensate the maternity costs of womenin this age group. If done so, it is essential that the underwriting processensures that the actual gender mix be close to the assumed mix of crosssubsidized risks, in order to avoid anti-selection. In our example, it wouldmean to pay attention that the number of insured men and women between20 and 40 years is balanced and matching with the assumptions made.In group business, the homogeneity of the group is a very important factor.Furthermore, the underwriting and administration costs for group policies arelower than in individual business. This should be considered when it comes tothe calculation of the gross premium, which consists in general of the netpremium plus the costs for underwriting and administration and profit loading.To calculate the insurance premium based on the equivalency principle, it isnecessary to estimate the risk the insured represents. So criteria must beidentified to enable us to estimate which costs the individual insured or thecommunity of insureds will occur in the next year. These criteria are called

Herbert MeisterSenior UnderwiterDivisional Unit HealthMunich Re, [email protected]

��

Chart 1: Risk Factor Age


��

��

��

risk factors. Risk factors such as age and sex influence the claims frequencyand the size of the costs of claims.The diagram shown highlights the impact of the risk factor “age”. It shows thedevelopment of inpatient costs (without maternity costs) in India dependingon age:Another important risk factor can be the occupation of the insured persons.There are some professions with a very much higher health risk than othersas the table below proofs:Table 1

Profession Claim per capita in relation to the claims percapita of the whole portfolio of insured’sbetween the age 55-64

Office employees 101Teachers 99Pharmacists 80Shop owners 96Sportsmen 117House wives 121

Please note: Such claims figures are very specific for each country, becausethey depend on the work ethic and other social factors of the respective country.The figures above are from Germany.In large countries like India, the medical supply and the cost of medicaltreatment substantially differ by region. The table below shows certain regionaldifferences in India:

Table 2

Region of Claim per capita in relation to the claims percapita of the whole portfolio of insuredsbetween the ages 55-64

Metro 1.3

Non-Metros 0.9

Other risk factors can consist of the following:

- medical history of insureds can be roughly categorized as a standardrisk category or increased risk category A,B,C, etc., the higher thecategory the more severe is the expected impact on the healthinsurance risk

- habits like smoking, drinking, nutrition- activities such as sports and occupational activities- socio-economic class can go along with different habits to consult

doctors, different medical knowledge level and different possibilitiesto get medical treatment

- climate and living conditions vary significantly in a large countrylike India; considering these differences, it is expected that diseasesare more or less frequent depending on climate and living conditions

The impact of risk factors on the premium calculation can generally beclassified as the following:

Table 3

risk factors impactsex highage highoccupation middlemedical history middle – highactivities lowhabits lowsocio-economic class lowregion middleclimate and living conditions low - middle

In group business, we have to consider some particular risk factors:

- the size of the group: not only does the group size as such play animportant rule but so does the size of classes of insureds within thegroup. If the portfolio is not large enough -we speak in this contextof ”critical size”- individual group rating becomes impossible.

- the composition of the group in terms of age distribution, distributionof gender, etc.

- the branch of the group (industry, trade, services, etc.) andcomposition of occupations.

There are many additional factors influencing the risk premium in a morecomplex and not easy measurable way, like:

The type of cover and the nature of benefits determine the extent of having ahigh or low possibility of a claim, e.g. does the product invite anti-selection ornot? For instance, it makes a difference in pricing if an outpatient benefit isoffered as a stand-alone coverage or only in combination with comprehensiveinpatient coverage. The level of cover is generally determined by limits anddeductibles and/or coinsurance. Any such feature is recuces the exposure.Selection/Anti-selection is characterized by the question of how quickly andwith what purpose an insured can substantially benefit from the policy. Theunderwriting process is crucial to avoid anti-selection and is basically supportedby a proper design of the policy terms and conditions and the right combinationof benefits. For example, in the case of products with maternity coverage, it isnecessary to avoid insuring persons only for the period of maternity. The riskof moral hazard is higher than in many other domains of personal insurance -especially higher than in life insurance- since insureds can claim several timesduring the term of insurance and there is the additional complication of theinvolvement of third parties like medical providers. A general assessment ofpossible moral hazard must be considered in the calculation factors, i.e.assumptions for premium loading independent of having the capability toenforce claims control. The style of policy and claims underwriting plays animportant rule when it comes to pricing. It is important in how far medicalunderwriting is to be introduced to the whole or just parts of the portfolio, likeonly to insureds above the age of 45. The efficiency of claims underwritingdepends a lot on the medical provider sector, which type of contractualrelationship exists between provider and claims underwriter, and how themedical provider sector is regulated and supervised. General exclusions ofcertain diseases and events (like war and epidemics) as well as dangerousactivities (like mountain climbing, parachuting, etc.) are in principle not insurableunder one year policy contracts and are therefore often generally excluded.Incentive features like no-claims bonus can reduce the risk of moral hazardand have usually a positive effect on the selection of risks for both new andrenewed business. By this measure, the relation between premium and claimsis improved. However, when it comes to pricing it must be considered as asurplus cost-factor. Medical inflation is the overall and foreseeable increasein medical costs during a certain period of time. Medical inflation must beconsidered in the calculation of the premium, this premium being paid to coverfuture health care expenses in the forthcoming policy period. Jurisdiction canbe a limiting factor in the definition of products and hence it can have impacton the pricing, e.g. some countries do not allow (or only hardly allow) that theinsurance company terminate a health insurance policy, or permit premiumadjustment only under certain circumstances. By classifying the impact ofthese additional risk factors on the premium calculation, we obtain the tablebelow:


��

��

��

�

Table 4

risk factors impacttype of cover highlevel of cover, limits highselection/anti-selection middlemoral hazard middleform of underwriting highgeneral exclusions high

Venue : Hotel Ramee Guest Line, 462, A B Nair Road, Near HareRama Hare Krishna Temple, Juhu, Mumbai 400 049Tel Nos. 5690 5555/5693 5555Mobile:- 9820729938

Date / s 23(Friday) – 24(Saturday), December 2005

Venue Hotel Ramee Guestline, Juhu Beach,Mumbai 400 049

Contact point Gururaj Nayak in ASI office [email protected]

Programme Non-residential

However, we have got competitive rates from Hotel

Ramee Guestline at Rs.3600/- + Tax which wouldincludes complementary breakfast, Dinner andairport pick-up and drop. For booking, please giveus advance intimation.

Dress Code Smart Casuals

Programme 23 12 2005

Schedule 09.15 a. m. to 05.15 p. m. followed by at 7.30 p. m.Pre-Dinner address, cocktail and Dinner

24 12 2005

09.15 a. m. to 01.30 p. m.

Participation fee Rs.5,000/- (Rs. Five thousand only)

Who are expected to attend

• Officials working in Group & Pensions businessof Life Insurers

• Officials working in Re-insurance Companies.

deductible/co-insurance highno-claims bonus highMedical inflation highjurisdiction low

The above shows that in order to be able to select the right pricing model fora certain product in a certain market, it is absolutely essential that the actuarynot only understands the basic calculation principles but also the various riskfactors and their potential impacts. As a next step, various pricing modelscould be introduced and discussed.

��.�� &�%��

��

�� $��%��/��0�� %1

• ASI members practicing in retirement and otherEmployee benefit areas.

• ASI members working in consultancy entities.• ASI members working in NIA, IRDA, EPFO and

other Government/Public Sector organisations.

• Academics interested in the subject ofRetirement Benefit Provisions

• Special invitees; actuaries and non-actuaries

Objectives The Objective of the Seminar in particular is;• To achieve greater level of commonality of

understanding in actuarial and other aspects ofactuaries’ work in Retirement Benefit areas.

• To deliberate on GNs under due processes

• To deliberate on GN 26: Actuarial Reportsrequired under AS 15 (Revised, 2005) and AS15 (Revised 2005) and firm up views on changesif any required in the same.

• To deliberate on issues relating to recentdevelopment in IAS 19 (Revised 2004)

• To deliberate on Professional conduct –compliance and monitoring issuesDiscussion on Group Insurance Products; Life,Non-Life and Health Insurance

CPD credit to 7 ½ hours to apply for retirement & other Employee ASI members benefit actuarial work and work of actuary in Life Insurance.

Registration Latest by 15 12 2005Participation is restricted to 40 persons.Registration on first-come-first served basis

��

· Seminar on Issues Relating to Detariffing of General Insurance Business on 14th December 2005 atHotel Ramee Guestline, Mumbai arranged by General Insurance Board

· Workshop on GN7 - Appointed Actuary (AA) and Principles for determining Margins for Adverse Deviation(MAD) in Life Insurance Liabilities on 14th December 2005 at Hotel Sea Princess, Mumbai arranged byLife Insurance Board

�� "�


��

��

��

1 Introduction

In Japan, aging of population is progressing rapidly, due to rising

longevity by the improvement of living condition and medical technology,

and birthrate decline by the change of lifestyle.

Therefore, public medical insurance system has been in an extremely

severe financial situation, and recently system reform for improvement

was implemented, which included the increase in the portion of

individually paid medical expense.

Against a background of such a social environment, people’s

uneasiness for public medical insurance system and consciousness

of the need to prepare for the future economic burdens, such as cost

of living / medical cost, are growing, which is followed by the expectation

for private medical insurance.

�� " ��/� � �2��$�#��

$� 3��4��Takahito Otomo,

Member of Institute of Actuaries of Japan

Takahito OtomoMitsui Sumitomo InsuranceCompany Limited,Tokyo, [email protected]

As for medical insurance, both life insurance companies and non-life

insurance companies are permitted to sell

this type of insurance product. Medical

insurance is therefore deemed to belong to

an sector called the “Third Sector”, as

distinct from the “First Sector” (the sector

specific to life insurance) and the “Second

Sector” (the sector specific to non-life

insurance).

However, regulations had long been in

existence to limit the variety of insurance

products actually sold in the Third Sector

Figure 1. Birthrate and average life expectancies

Sources: “Demographic Survey” results and “Life Tables” (Ministry of Health, Labourand Welfare)

Figure 2. Population composition by age group

Source: “Population Statistics of Japan” (National Institute of Population and SocialSecurity Research) (Note) Figures for 2005 and beyond are projections.

Figure 3. Main types of insurance

Figure 4. Number of new life insurance policies

Source: “Policies in Force by Type” (The Life Insurance Association of Japan)(Note) Medical insurance figures for fiscal 2001 and beyond combine medical insuranceand cancer insurance.

by life insurance companies and non-life insurance companies. But,

all regulations governing the sale of insurance products in the Third

Sector were abolished in 2001. After that, insurance companies have

been developing various kinds of products with their originality and

creativity, and the private medical insurance market is expanding greatly.

2 Characteristics of private medical insurance products

Private medical insurance mainly covers “hospitalization” and “surgery”.

��


��

��

��

�

Typical coverage can be summarized as follows:

Hospitalization - An insurance benefit is paid if a bodily injury or illness causesthe insured to be hospitalized.

- The insurance benefit is calculated as follows:[Amount of hospitalization benefit per day] × [Days ofhospital treatment]

- The hospitalization benefit is paid irrespective of the medicalexpenses actually incurred.

Surgery - An insurance benefit is paid if a bodily injury or illness causesthe insured to undergo one of the surgical operations listed inthe insurance policy.

- The insurance benefit is calculated as follows:[Hospitalization benefit above] × [Multiplying factor specifiedfor each surgical operation]

- A multiplying factor of 10, 20, or 40 is used according to the

nature of the surgical operation.

To add to the basic coverage above, each insurance company is

developing very well-thought-out products. Such products are

mainly characterized by the following three factors:

(1) Improved coverage

a. Increase in the maximum number of days of hospitalization

covered

- Previously, the period was usually 120 days. Longer

periods are currently offered. Examples include 365 days

(one year), 730 days (two years), and 1,095 days (three

years).

b. Reduction in the period of hospitalization without coverage

- Previously, the period was usually four days (in which

case, an insurance benefit only becomes payable when

hospitalization of five or more days is required) or seven

days. However, the period has been reduced to such an

extent that many of the products currently available cover

hospitalization irrespective of its duration.

c. Additional coverage for specific diseases

- Additional coverage is provided for specific diseases

including cancer or the three major killer diseases

(cancer, acute myocardial infarction, and cerebral

apoplexy). For example, an increased sum is paid as a

hospitalization benefit, or the usual limit on the number

of days of hospitalization covered is waived.

(2) Lower insurance premiums

a. Coverage limited to specific diseases

- Coverage is limited to specific diseases, such as cancer

only or the three major killer diseases.

b. Reduction in the maximum number of days of hospitalization

covered

- The maximum number of days covered in respect of a

single instance of hospitalization is reduced to 60.

c. No return of premium for cancellation

- Usually, if an insurance policy is cancelled at some point

during the policy period, an amount equivalent to the

pol icy reserves accumulated by the t ime of the

cancellation is refunded. An increasing number of

products do not offer such a refund, but instead charge

lower insurance premiums.

*Refer to the Appendix at the end of this paper for actuarial

details.

(3) Simplified underwriting methods

a. Non-medical application

- A type of insurance policy application where no medical

examination by a physician is required. The proposed

insured is asked to answer several questions on his or

her state of health and medical history. On the basis of

the answers provided, approval or disapproval is given.

If approval is given, underwriting conditions are set

accordingly.

- A large number of non-life insurance companies have

adopted this approach because they do not have many

physicians in their employ.

b. Guaranteed issue

- All applicants are allowed to buy an insurance policy

without having to undergo a medical examination by a

physician or to disclose their state of health.

- This type of insurance is intended to be sold to the middle-

aged and elderly, many of whom are prevented from

taking out common types of insurance.

- However, to ensure risk control the following adjustments

are made in terms of product design and undertaking

conditions:

(a) Insurance premiums are considerably higher than

those charged under common types of medical

insurance.

(b) The maximum limit of liability is kept at a lower level.

(c) No coverage is provided for any illness manifesting

itself during a certain period (for example, 90 days)

after the effective date of a policy.


��

��

��

�

(d) No coverage is provided for any illness manifesting

itself before the effective date of a policy.

3 Development of private medical insurance products and

management of the risks involved

This section mainly discusses tasks performed by actuaries in relation

to insurance companies’ development of medical insurance products

and management of the risks involved.

(1) Premium rate calculation

- Long policy periods entail an extremely important and

difficult issue, which is how best to incorporate “future

uncertainties” into premium rates.

- Earnings from medical insurance fluctuate because of

the following factors, which are hard to predict:

a. Advances in medical technology

- A higher survival rate leads to a longer treatment period,

which increases benefit payments.

- Technological advances enabling earlier detection of

cancer or other diseases bring about a greater number

of patients and a longer treatment period, thereby

increasing benefit payments.

b. Increase in average life expectancy

- If the expected mortality rate of insured persons is

incorporated into insurance premium calculations, an

increase in average life expectancy means a higher-than-

expected number of insured persons surviving. In this

situation, even if the hospitalization rate remains

unchanged, insurance benefit payments increase.

c. Changes in population structure

- If the aging of Japan’s population continues, the average

morbidity rate of the population as a whole rises,

increasing benefit payments.

- However, this does not pose much of a problem if premium

rates are graded by age group.

d. Unknown diseases

- No statistical data cover unknown diseases. Therefore,

an unknown disease with severe symptoms leads to

unexpected benefit payments.

Figure 6. Number of hospital beds and inpatient care rate (per 100,000people)

Source: “Medical Facility Survey” and “Patient Survey” results (Ministry of Health, Labourand Welfare)

Figure 7. Average number of days of hospital treatment

Source: “Patient Survey” results (Ministry of Health, Labour and Welfare)

Female

Source: Data collected by the National Cancer Center Hospital and published in “CancerStatistics in Japan 2003” (National Cancer Center)

Figure 5. Five-year survival rates of newly diagnosed and hospitalizedcancer patients

Male


��

��

��

�

e. State of affairs surrounding the public medical insurancesystem

- Japan has a national policy of regulating the number ofhospital beds. The policy limits the number of hospitalbeds available in each area.

- This means that even if the morbidity rate rises, only alimited number of beds are available. Additionally, medicalinsurance policies do not pay an insurance benefit unlesshospitalization is required. For these reasons, benefitpayments do not exceed a certain level.

- However, if the regulation mentioned above is relaxed orabolished at some future point, the number of inpatientsmay rise dramatically, leading to an increase in benefitpayments.

- In reality, a certain safety loading factor is applied to eachpremium rate to cater for the above-mentioned futureuncertainties.

(2) Policy reserves

- In Japan, the following types of policy reserves arerequired in respect of medical insurance:

a. Premium reserves

- Reserves held to cover benefit payments arising from risksthat are usually predictable.

b. Additional reserves

- Reserves held additionally in cases where the premiumreserves described in “a” above are deemed insufficientto cover future benefit payments. An example would be acase where one of the basic rates used for calculatingthe above-mentioned premium reserves is considered tohave changed.

c. Catastrophic loss reserves (or contingency reserves)

- Reserves held in addition to the reserves described in“a” and “b” above to cover benefit payments arising fromrisks beyond those that are usually predictable.

Figure 8. Conceptual diagram of policy reserves

(3) Follow-up assessment

- In Japan, no generally agreed rules exist to govern riskmanagement related to medical insurance. Basically,each insurance company is managing risks according toits own rules.

- Commonly used risk control methods include:

a. Paying from catastrophic loss reserves (or contingencyreserves)

b. Setting aside additional reserves

c. Changing insurance premiums charged under new policies

d. Changing the details of coverage provided by new policies(setting a period without coverage, excluding specific diseasesfrom coverage, etc.)

e. Changing the conditions for undertaking new policies(changing the maximum limit of liability etc.)

f. Changing the customer segments targeted by new policies(limiting by age, limiting sales channels, etc.)

g. Suspending new policy sales

- With long-term medical insurance, another option exists,namely that of exercising the right to change the basicrates applicable to existing policies.

- The use of this option relies on a provision included ininsurance policies, in advance. Under the provision, eachpolicyholder’s consent is obtained to allow the insurer tochange the applicable insurance premium during thepolicy period if the need arises. Typically, the cause ofthis change would be defined as a rise or fall in benefitpayments, or an increase in average life expectancy. Ifthe insurer wishes to actually change the insurancepremium, it does so with the approval of the competentauthorities.

- However, it should be noted that the right to change basicrates has never actually been exercised thus far.

4 Conclusions

- Private medical insurance involves uncertainties that may leadto future fluctuations in the degree of risk. Specifically, suchuncertainties arise from factors including external changes(those reflecting advances in medical technology, the state ofaffairs surrounding the public medical insurance system, andso forth) and the current lack of sufficient statistics.

- We actuaries must endeavor to hone our professional actuarialskills. Doing so is essential to product development and riskmanagement based on an accurate evaluation of the aboveuncertain risk factors, and to insurance companies’ profitabilityand financial soundness.


��

��

��

�

Earnings structure of a product incorporating a surrender ratio forpremium calculation purposes

1. Insurance premium

<Conditions> - Policy period: Whole of life- Hospitalization benefit: 10,000 yen per day- The maximum number of days covered in respect ofa single instance of hospitalization: 120days- Premium payment method: Annual payment- Insured’s gender: Male

<Symbols> xq : Expected mortality rate at age x

xw : Expected surrender ratio at age x

x� : Expected hospitalization rate at age x

xT : Average number of days of hospital treatment at

age x

iv

��

1

1

i : Assumed interest rate (= 1.5%)

� : Safety loading applied to premium (= 0.2)

Bx

Ax PP , : Premiums at entry age x

(Note) Statistics published by a public organizationwere used to calculate xq , x� and xT .

Premiums

Product A: Product not incorporating a surrender ratio (= with a returnof premium for cancellation)

Entry age (years old) 20 30 40 50 60A

xP 38,639 46,861 58,273 76,056 101,864

� �%1�xB

x wP 32,449 40,655 52,197 70,614 97,391

� �%3�xB

x wP 23,773 31,307 42,352 61,323 89,417

� �%5�xB

x wP 18,786 25,303 35,221 54,004 82,682

Years elapsed (years) 10 20 30 40 50

3.0�� 3,310 4,533 6,088 5,898 2,042

1.0�� 3,164 4,054 5,092 4,814 1,933

0�� 3,091 3,809 4,556 4,140 1,731

1.0�� 3,018 3,559 3,994 3,365 1,387

3.0�� 2,870 3,047 2,787 1,480 95

Figure 11. Effect of mortality rate variations on earnings

Figure 10. Effect of hospitalization rate variations on earnings


3.0�� -1,546 -1,904 -2,278 -2,070 -866

1.0�� 1,546 1,904 2,278 2,070 866

0�� 3,091 3,809 4,556 4,140 1,731

1.0�� 4,637 5,713 6,834 6,209 2,597

3.0�� 7,728 9,521 11,390 10,349 4,328

� ��

��

�

��

�

�

�

��

1

0

0

t

Axt

t

ttxtx

Axt

t

Ax

pv

TpvP

� � 11 0

1

0

��

�

�

Ax

t

kkx

Axt pqp

APPENDIX

Figure 9. Premium


��

��

��

�

Figure 11. Effect of mortality rate variations on earnings


%5��xw 6,306 6,925 5,714 3,292 854

%4��xw 4,873 5,791 5,563 3,865 1,238

%3��xw 3,091 3,809 4,556 4,140 1,731

%2��xw 912 681 2,135 3,683 2,301

%1��xw -1,717 -3,968 -2,526 1,725 2,828

Product B: Product incorporating a surrender ratio (= without a returnof premium for cancellation)

� ��

��

�

��

�

�

�

��

1

0

0

t

Bxt

t

ttxtx

Bxt

t

Bx

pv

TpvP

� � 11 0

1

0

��

�

��

Bx

t

kkxkx

Bxt pwqp

- The higher the expected surrender ratio, the lower the premiumbecomes.

2. Earnings simulation

- Product B in “1” (with an entry age of 40 and an expected surrenderratio of 3%) was simulated as follows:

(1) Hospitalization rate variations

� � xx �� 1 x� � : Actual hospitalization rate

- Earnings fall if the hospitalization rate rises.

- Including a safety loading in the premium is effective to someextent in coping with an increase in the hospitalization rate.

(2) Mortality rate variations

� � xx qq �� 1 xq� : Actual mortality rate

- A decline in the mortality rate causes the number of survivinginsured persons to exceed the originally expected level. Therefore,earnings fall even if the hospitalization rate remains unchanged.

(3) Surrender ratio variations

xw� : Actual surrender ratio

- A decline in the surrender ratio causes the number of survivinginsured persons to exceed the originally expected level. Therefore,earnings fall even if the hospitalization rate remains unchanged.

DATES : 15th, 16th and 17th December, 2005

VENUE : Hotel Sea Princess, Juhu Beach,Mumbai 400 049Tel no.022-26611111

REPORTING : Latest by 9.30 a.m.on 15th December, 2005

PROGRAMME : Non-Residential Programme

TYPE However, we have got competitive ratesfrom Hotel Sea Princess at Rs.4350/- +Tax which would include complementarybreakfast and airport pick-up. Forbooking, please give us advanceintimation.

CDP Credit : 12 hours

PARTICIPATION Rs.10,000/-FEE (Indian Rupees Ten Thousand Only)

� �� &��)��

��

5��#��/��$��

PARTICIPANTS : The programme is open to all ASIMembers prominently;

1. Student Members who have passedall the examinations required forFellowship.

2. Appointed Actuaries as per therequirement of CoP

3. Affiliate Members who have atleastone year of India ResidentExperience.

4. Student Members who are left withone or two subjects.

REGISTRATION : With Ms. Shernaz Daruwala in ASIOffice at [email protected] by 30th November, 2005.

DRESS CODE : Smart Casuals

��


��

��

��

�

Re: 8th GCA Steering Committee – constitution of

Pursuant to the decision of the Executive Committee in its meeting held on 17 09 2005 to constitute8th GCA Steering Committee to oversea the conduct of 8th GCA, The Steering Committee and itsSub-committees are announced as under;

8th GCA Steering Committee

1. Dr. R Kannan, President - Chairperson2. G N Agarwal, Vice-President – Member3. K S Gopalakrishnan, Hon. Secretary and Chair, WCB, Member4. S Madhusudhanan, Hon. Treasurer & Jt. Hon. Secretary - Member5. K P Narasimhan, EC Member and Chair, EB – Member6. P A Balasubramanian, EC Member and Chair – PAB & HIB, Member7. N M Govardhan, EC Member and Chair, LIB – Member8. Liyaquat Khan, EC Member and Chair – IRB & PSB – Member9. R Hemamalini, EC Member – Member10. Dr. K Sriram, EC Member – Member11. Heerak Basu, EC Member – Member12. G L N Sarma, EC Member – Member13. D R Iyer, Chair, GIB - Member

Sub-Committees reporting to the Steering Committee;

Reception Sub-Committee

Function: To be responsible for invitation to and reception arrangements for within India and Overseasguests.

1. Dr. R Kannan, President – Chairperson2. Liyaquat Khan, EC Member and Chair, IRB - Vice-Chairperson3. Heerak Basu, EC Member and Secretary, IRB – Secretary4. G N Agarwal, EC Member – Member5. K S Gopalakrishnan, EC Member – Member6. S Madhusudhanan, EC Member – Member

(Dr.) R KannanPresident

OFFICE ORDER7. K P Narasimhan, EC Member – Member8. P A Balasubramanian, EC Member – Member9. N M Govardhan, EC Member – Member10. R Hemamalini, EC Member – Member11. Dr. K Sriram, EC Member – Member12. G L N Sarma, EC Member – Member

Sponsorship Sub-Committee

Function: Responsible for resourcing sponsorships

1. Dr. R Kannan, President – Chairperson2. Liyaquat Khan, Chair, IRB - Vice-Chairperson3. Heerak Basu, Secretary, IRB – Secretary4. G N Agarwal, – Member5. K S Gopalakrishnan – Member6. Venkatesh Chakravarti - Member7. Sandeep Ashthana – Member

Recognition, Award & Prizes (RAP) Sub-Committee

Function: Responsible for organizing the 10th March Dinner function for Recognition, Awards andPrizes.

1. Dr. R Kannan, President – Chairperson2. Liyaquat Khan, Chair, IRB - Vice-Chairperson3. Heerak Basu, Secretary, IRB – Secretary4. S P Subhedar – Member5. S Madhusudhanan – Member

The constitution of 8th GCA Programme Committee under Chairmanship of Chairperson – IRB asdecided by the EC, is being announced separately.

Dr. R Kannan

(Dr.) R KannanPresident

OFFICE ORDER

14 11 2005

Re: 8th GCA Programme Committee – constitution of

Pursuant to the decision of the Executive Committee in its meeting held on 17 09 2005 to constitute8th GCA Programme Committee under Chairmanship of Liyaquat Khan, Chairperson – InternationalRelations Board (IRB), to oversea the conduct of 8th GCA programmes, the Programme Committeeand its Sub-Committees are constituted, in consultation with Liyaquat Khan, as under;

8th GCA Programme Committee

1. Liyaquat Khan, Chairperson, IRB – Chairperson2. S P Subhedar, Member3. J S Salunkhe, Member4. V Rajagopalan, Member5. A Venkatasubramanian, Member6. Heerak Basu, Member, Secretary IRB – Secretary to the Committee7. A R Prabhu, Member8. G N Agarwal, Member9. K S Gopalakrishnan, Member10. S Madhusudhanan, Member11. S Rajesh, Member12. Nick Taket, Member13. Azim Mithani, Member14. Sanket Kawatkar, Member15. G L N Sarma, Member16. D Saisrinivas, Member

Sub-Committees reporting to the Programme Committee;

Paper Selection Sub-Committee

Function: To select Papers for publication and/or deliberations

1. S P Subhedar – Chairperson2. Dr. R Kannan, Member3. Heerak Basu, Member

Paper publications Sub-Committee

Function: Responsible for printing and publication of publication consisting of Papers selected bythe Papers selection Sub-Committee

1. K S Gopalakrishnan – Chairperson2. S Madhusudhanan - Member3. Varsha Joshi – Member

Sessions Sub-Committee

Function: Responsible structuring of Sessions and related matters

1. Dr. R Kannan, Chairperson2. Liyaquat Khan, Member3. V Rajagopalan, Member

Media & P R Sub-Committee

Function: To organize media contacts, publicity and address PR issues relating to the 8th GCA

1. Dr. R Kannan, Chairperson2. Liyaquat Khan, Member3. V Jagannanthan, Member4. Sitanshu Swain, Member

Special Papers Selection Sub-Committee

Function: To select Papers from 7th GCA for G C A Papers for i) G S Diwan Memorial Prizes and ii)Special Paper for President’s Award

1. K P Narasimhan, Chairperson2. Liyaquat Khan, Member3. N M Govardhan, Member4. P A Balasubramanian, Member5. A V Ganapathy, Member

Watson Wyatt Paper written from Students category Sub-Committee

Function: To select Paper/s for award instituted by Watson Wyatt IFC from students’ category outof 7th GCA Papers.

1. P A Balasubramanian, Chairperson2. Richard Holloway, Member3. Liyaquat Khan, Member

Dr. R Kannan

14 11 2005

��


��

��

��

�

the Actuary India wishes many more years of healthy life tothe following fellow members whose Birthday fall in December 2005.

��

[the Actuary India will be publishing Birthday greetings for Fellow memberswho have attained 60 years of age.]

� ��

��

Shilpa Mainekar,E-mail your solutions [email protected]

��

There was this actuary who was searching for his friend’s home with his email address.

[Courtesy: Venkatachari Jagannathan]

IYER, RAMAKRISHNA DEVARAJA

JAMBUSARIA, N.N.

MODI, C.S.

MULGUND, S.P.

NARAYANAN, S.V.

SABHARWAL, Y.P

Puzzle No 41:

On a certain day, a parking lot accommodated 999 cars, no twoof which have the same three-digit license number. The carsstart leaving after 5 p.m.What is the probability that the license numbers of the first fourcars to leave the parking lot are in increasing order of magnitude?

Puzzle No 42:

The algebra teacher wrote on the blackboard a quadratic equationof the form x^2 – A*x + B = 0. In copying this, a careless studenterroneously transposed the two digits of B as well as the plusand minus signs. However, one of the roots was the same. Whatwas this root?(Assume both A and B are integers).Note: Above puzzles are contributed by Mr.U.J.Nerurkar

Correct solutions were received from:

Answers to Puzzles:

Puzzle No 37:Number of apples eaten:Alonso – 1,Bertrand – 2,George – 3,Kurt – 5.

Puzzle No 38:Chance that the dropped coin was a dime : 4/9.

Puzzle No 37:1. Parshva Shah2. Savita Gandhi3. Nikhil Gupta

Puzzle No 38:1. Parshva Shah2. Nikhil Gupta3. P.Chandrasekhar

On Science and NatureScience is always at its most arid when sequestered. It reaches greater and greater heights of refinement on greater andgreater trivialities. The lifeblood of science comes from outside itself.

Frank Redington MA; FIA [1906-1984]

��

��

Log and update yourself on the latest events of actuarial world

��

Gautam [email protected]

� Institute of Actuaries, UKStrategy Review of Actuarial Profession in UKAs a result of the Morris Review, technical actuarial standards infuture will be set by a new independent Board for Actuarial Standardsunder the Financial Reporting Council who will also oversee theProfession’s broader regulatory responsibilities. This creates theneed, and opportunity, to review the role of the Professional Body inthe post-Morris world. The key issues faced by the Profession are :- Restoring confidence in the Profession- Increasing the market share of talent leaving University- Increasing the value added by actuaries and their influence- Leveraging global capabilitieshttp://www.actuaries.org.uk/files/pdf/news/strategyreview20050915.pdf

GN47: Stochastic modelling for life insurance reserving andcapital assessment

http://www.actuaries.org.uk/Display_Page.cgi?url=/life_insurance/lb_news_0510_gn47.html

Stochastic models are likely to be used intwo distinct ways for the purposes coveredby this GN. The first is to obtain a ‘market-consistent’ value of a liability. The second isto establish an amount of assets that willenable the firm to meet its liabilities to adesired probability level. The key issues facedby the Profession are :http://www.actuaries.org.uk/files/pdf/news/strategyreview20050915.pdf

��

Date: 14th Nov, 2005

Actuarial Society of India (www.actuariesindia.org)

� 2nd Global Symposium on Pensions - 18-19, November2005http://www.actuariesindia.org 2nd%20Global%20Symposium %20on%20Pension_Nov.%202005.pdf

� 2nd Current Issues in Retirement Benefits (CIRB) Seminar -23-24, Dec. 2005, Mumbaihttp://www.actuariesindia.org/ASI_PSB_2nd%20CIRB_23-24%20Dec05.pdf

� Paper on Indian Actuarial Profession - Lesley Traverso,Managing Director, DW Simpson (Asia Pacific) Pty Ltdhttp://www.actuariesindia.org/13th%20EAACBali_Paper%20on%20Indian%20Actuarial%20Profession.pdf

� Guidance NotesGN7 - Appointed Actuary and Principles for determiningMargins for Adverse Deviations (MAD) in Life Insuranceliabilities (Ver. 1.0/ 05 03 05)GN13 - Investigations of Retirement Benefit Schemes : TheActuarial Valuations required under FAS 87, FAS 88 AND FAS132 (Ver. 1.0/01 04 2005)GN14 - Illustration of Defined Contribution Pension SchemeBenefits (Ver. 1.0/01 04 2005)GN18 - Retirement Benefit Schemes - Actuarial Reports (Ver.1.0/01 04 2005)GN20 - Actuarial Practice for Social Security Programmes(Ver. 1.0/01 04 2005)GN9 - Continuing Professional Development (CPD) and theActuary (Ver. 1.0/01 04 2005)http://www.actuariesindia.org/graphics/guidance.jpg

� Education Related News� Prizes for Scoring Highest Marks in June 2005

Examination Diethttp://www.actuariesindia.org/news/Prizes_highest%20mks_June%202005%20exam.PDF

� List of candidates who have cleared 3 subjects inJune 2005 Examination Diethttp://www.actuariesindia.org/news/LC_3Subj_Jun05.PDF

� Academic Excellence award for scoring highest marksin June 2005 Examination Dieth t t p : / / w w w . a c t u a r i e s i n d i a . o r g / n e w s /A c a d e m i c % 2 0 E x c e l l e n c e % 2 0Awards_June%202005%20Exam.PDF

� Annual Subscription notice (Year 2005 - 06)http://www.actuariesindia.org/Dates/annual%20subscription-2005-06.PDF Examinations syllabus 2005http://www.actuariesindia.org/graphics/syllabus.jpg

� June 2005 exam papers and indicative solutionshttp://www.actuariesindia.org/June05/June%202005.html

� Examination Time Table for 2005http://www.actuariesindia.org/news/ASI_Examination%20Timetable_Nov%202005.doc

Regular features• Indian Actuarial Journal

http://www.actuariesindia.org/souvenir/IAJ.zip• The Actuary India magazine – January 2005 to November 2005

issueshttp://www.actuariesindia.org/souvenir/souvenir.html

• Index of feature articles published in the Actuary India magazine� Titlewise

http://www.actuariesindia.org/souvenir/Titlewise_feature%20article%20index.htm

� Author wisehttp://www.actuariesindia.org/souvenir/Authorwise_feature%20article%20index.htm

• Index of papers presented in the conference – GCA wise list ofpapers presented in the previous conferences. Now upto 7th

GCA. The 7th GCA papers have also been uploaded.http://www.actuariesindia.org/publication/Papersof_GCA.xlshttp://www.actuariesindia.org/6gcapaper.html

• Published Mortality TablesIndian Assured Lives Mortality (1994 -96) (modified) Ult.[effective 01/01/2005]http://www.actuariesindia.org/publication/mort_eff_05.html


��

��

��

�

Actuary Magazine

Documents

Transcript of Actuary Magazine