CARE OR CURE LOSS PREVENTION IN HEALTH INSURANCE + A PRESENTATION BY GEORGE E. THOMAS (TARIFF ADVISORY COMMITTEE, INDIA) AT THE INTERNATIONAL ACTUARIAL ASSOCIATION – HEALTH SECTION COLLOQUIUM 2004 DRESDEN, GERMANY 28 - April - 2004 1
CARE OR CURE THEMES FOR DISCUSSION LOSS PREVENTION / MINIMISATION & 1. HEALTH INSURERS LOSS PREVENTION – HOW ? 2. LOSS MINIMISATION – HOW ? 3. EXPLORING HEALTHCARE OPTIONS & 4. KNOWLEDGE SHARING 2
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS “…risk management may be defined as the minimisation of the adverse effects of risk at minimum cost through its identification, measurement, and control.” (‘Risk Management and Insurance’ by C. Arthur Williams & Richard M. Heins) Loss prevention/ loss minimisation measures of risk management - have improved non-life risks and yielded long term financial gains for insurers in many fields of non-life insurance. 3
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � Practised for various reasons in non-life insurance: � as risk management policy by industrial houses � to earn a financial incentive from the insurer � by insurer’s compulsion - policy conditions. � Practised for any reason, loss prevention improves the quality of a risk and reduces an insurer’s financial burden. � For this reason, historically, non-life insurers have taken the lead in promoting concepts of risk management - loss prevention/ loss minimisation. 4
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � Advantages – over a period of time, risk managers and insurers have made the world safer. � fire safety systems in factories and warehouses, legislations on workers’ safety � safety standards for handling and storage of hazardous material � safer handling of cargo at ports, improved road safety standards � created an awareness that insured should take due care whether the risk is insured or otherwise. 5
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � In health insurance, concepts of loss prevention and risk management have not gained significant ground � health policyholders as well as � insurers have been turning a blind eye on prevention of losses. � Underwriters have conventionally been dealing with illnesses as inevitable natural happenings based on a comfortable and very logical belief that � all health policyholders take care of their health � and the health of their near and dear ones. � Is this belief really justified ? 6
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � Though ironical, human beings are not always as logical, rational or methodical as they should be when it comes to managing their own health and the health of those under their care. � One often hears excuses for not taking care of one’s health; � excuses like not having the time, � being busy with day to day work, � hoping that things would never happen to them, � believing that whether careful or not whatever has to happen would happen, � being bad at one’s own matters and so on. 7
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � From a risk management point of view, this sort of irrational behavior of human beings � makes them bad risks - easily susceptible to loss making conditions � mostly, not prepared for managing the situation and � with no contingency planning whatsoever (only when illness strikes, most insured realize that they are unprepared). � Thus, when an insured peril is in operation, many ‘health policyholders’ turn out to be � badly managed and poorly maintained risks � having no worthwhile loss minimisation strategies 8 in place
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � This state of affairs is tragic for the insured and turns out as bad business for insurers. � Any success in managing this situation would be � a boon to the insured, � a bonus for the insurer and indirectly, � a blessing for humanity at large. To get a more focused view of the situation, let us have a close look at the similarities between an industrial fire, an injury, a communicable disease and a non- communicable disease. (The examples cited are merely illustrative) 9
LOSS MAKING SITUATIONS - SOME SIMILARITIES CARE OR CURE HOST / VEHICLE OF LOSS AGENT/ INTERACTION/ SCOPE OF LOSS MAKING RISK INTERACTION FLAW IN THE PREVENTION/ CONTROL OPERATION CONDITION SYSTEM ACTIVITY OF HAZARD Worker training, Lighted Fire from the Installation of Smoke Textile Cigarette end cigarette Carelessness detectors, Automatic FIRE Factory thrown in the spreads to of worker sprinklers, Fire alarm, CO 2 wrong place cotton fluff flooding systems . Increasing awareness of Managing Over speeding traffic rules, Enforcing SKULL mechanical & skidding of Crash Human FRACTURE road discipline, use of energy Motor Cycle Helmet. Creating awareness on Vulnerable breeding places of to infection mosquitoes – clearing MALARIA Human by Mosquito Bite cesspools of stagnant water, Fumigation & other Plasmodium repellents, Protective skin sp. creams. Vaccination . Creating awareness about effect of excessive use of Body can not Wrong life Habitual & alcohol, periodic health CIRRHOSIS tolerate high style and weak Human excessive use of check-ups, Forming mutual OF LIVER alcohol liver and of help groups like ‘alcoholics alcohol 10 exposure the patient anonymous’. Promoting a better life style
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS � Here, losses were caused by the operation of certain perils - the insured is affected and the financial burden is passed on to the insurer. � In the textile factory case, the insured’s risk managers will have their risk management and loss minimisation strategies. � In the three other cases, the insured does not have a proper strategy in place. � IT IS ONLY REASONABLE THAT THE HEALTH INSURER, WHO ULTIMATELY HAS TO BEAR THE COST, PLANS STRATEGIES FOR THE INSURED. � Moreover, the insurer being in a better position by way of knowledge, technology, professional expertise, infrastructure and financial strength can tackle the situation better. 11
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS SUMMARY OF THE DISCUSSION SO FAR: Fact No: 1 - If properly maintained, human beings remain healthier and less prone to diseases for a longer time. Fact No: 2 - Loss prevention/ loss minimisation measures have improved risks and yielded long-term gains for insurers in many fields of non-life insurance. Fact No: 3 - Health policyholders subjected to loss prevention/ loss minimisation measures, become better risks & bring good returns for insurers in the long run. Fact No: 4 - It would be preferable for health insurers to take the initiative and get loss prevention / loss 12 minimisation strategies in place for insured.
CARE OR CURE THEME –1: LOSS PREVENTION / MINIMISATION & HEALTH INSURERS AS INSURERS, LET US ACCEPT THIS POSITION, FOCUS ON THE NEEDS OF THE SMALL FRATERNITY OF POLICYHOLDERS PLACED IN OUR HANDS AND ENDORSE OUR COMMITMENT TO DO OUR BEST IN PROMOTING GOOD HEALTH FOR HUMANITY. NOW, HOW DO WE TRANSLATE OUR COMMITMENT INTO ACTION ? 13
CARE OR CURE HAZARD OPERABILITY MODEL IMP MITIGATION PRO UNL POS RO LIK BAB IKE SIBL BAB ELY LY LE E LE PREVENTION 1 2 3 4 5 LIKELIHOOD -1 -2 -3 -4 -5 LIGHT -1 S -2 -4 -6 -8 -10 SERIOUS -2 E V E -3 -6 -9 -12 -15 -3 MAJOR R I T CATASTROPHIC -4 -8 -12 -16 -20 -4 Y -5 -10 -15 -20 -25 MULTI- -5 CATASTROPHIC
CARE OR CURE LEGEND: HAZARD OPERABILITY MODEL NON- Evacuate area / zone / -25 to -20 Red OPERABLE country -16 to -10 INTOLERABLE Do not take this risk Pink Evaluate risk thoroughly - 9 to - 5 UNDESIRABLE Orange before insuring Proceed carefully - plan - 4 to - 2 Blue ACCEPTABLE risk improvement -1 NEGLIGIBLE Safe to proceed Green
CARE OR CURE FURTHER THEMES FOR DISCUSSION � How can these ideas be translated into action? � How can health policyholders be helped in managing their health better? � A three-pronged approach on the following themes would be required for this purpose, may be at a global level : (i) [ THEME – 2] Loss Prevention – How ? (ii) [ THEME – 3] Loss Minimisation – How ? (iii) [ THEME – 4] Exploring Healthcare Options and Knowledge Sharing 16
CARE OR CURE THEME - 2 : LOSS PREVENTION – HOW ? “Prevention is better than cure”. What can health insurers do to prevent or reduce occurences of diseases ? Education: The individual’s perception of health improves with education. � Standards of personal hygiene/ literacy levels are not uniform all over the world. � Doctors practising in rural areas report the benefits of � simple practices like washing one’s hands before eating & � washing vegetables before cooking. � Awareness of the ill effects of pollution. � Organized effort in prevention – should start with education. � Insurers can start from schools, families, villages, places of worship or work places. � Services of teachers, doctors, social workers can be used. � Insurers can organize task forces for this purpose. 17
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