Entitlements and other options in private health insurance

Abstract

The advisory note discusses basic issues concerning the pricing of entitlements and options. Additionally it provides specific assistance for pricing actuaries dealing with entitlements and options. Entitlements and other options are defined as the right of the policyholder to change contractual claims without the possibility for the insurer to subsequently add an additional risk premium, exclude benefits or demand a waiting period (options of risk). Usually this right requires compliance with certain preconditions.

In practice there are many different entitlements and options: options prescribed by law (options of risk), options contained in the standard policy conditions (options of risk), entitlement insurance (option of risk and age of entry where the premium is calculated using the age and state of health documented at the commencement of the policy), limited entitlement insurance (option of risk where the premium is calculated using the state of health documented at the commencement of the policy), option to pause the insurance cover (option of risk and supplementary financing the premiums that were not paid during the rest period) and medical insurance including the possibility to switch to an insurance cover of higher quality (option of risk). In the advisory note fundamental issues concerning insurance contracts with entitlements and options as well as the permitted calculation methods are described. In detail there is information concerning the calculation of entitlement insurance, issues connected to paused insurance contracts without a premium component for refilling the aging reserve, calculation of the risk difference resulting from limited entitlement insurance, and the calculation of the surcharge for medical insurance with the option to switch to an insurance cover of higher quality.

The German Association of Actuaries (Deutsche Aktuarvereinigung or DAV) is the professional body representing actuaries and Appointed Actuaries in Germany. It creates the underlying conditions enabling its members to practice their profession properly and in a technically sound manner as well as engaging in constant dialogue with all relevant national and international institutions.

Professional standards of practice are DAV publications that – together with the rules of professional conduct – set out the fundamental principles for the correct practice of actuarial activities. Professional standards of practice are characterised by their

• treatment of specialist actuarial and professional issues,
• fundamental significance and practical relevance for actuaries,
• professional legitimisation through a implementation process that allows all actuaries to be involved in such implementation,
• correct application, with members being professionally safeguarded by a disciplinary process

The professional standard of practice „Anwartschaften und sonstige Optionen in der privaten Krankenversicherung (Entitlements and other options in private health insurance)“ is an advisory note. Advisory notes are professional standards that are to be taken into account in actuarial considerations, the application of which can be freely decided upon in individual cases, however, within the framework of the code of conduct, and which address specific questions.