Claims amount per capita financing

Abstract

Claims amount per capita financing (capcf) is a sort of limitation. It is implemented to compensate the risks of comparable tariffs so that there is no negative financial impact on the admitting portfolio after a reclassification (i.e. change of tariff). Capcf is defined as the financing of a part of the calculated claims of the tariff for a well-defined community of insured persons. The required financial resources are taken from the provision for performancerelated premium refunds.

The following requirements on capcf have to be fulfilled:

• The calculated claims amount per capita have to be sufficiently assessed;
• there is no temporal limit to the capcf;
• there is no financing for new business.

Capcf may not be affected by portfolio changes. Therefore, the value of capcf has to be appropriately allocated to each insured person of the concerned risk community. This implies that the risk resulting from new business has to be calculated as adequately as the risk of the existing portfolio. New business may not be subsidized by financed parts of the claims amount per capita. Proof of the lower risk of the new business is required.

As capcf is a form of limitation, it affects parts of premium development and adjustment.

First of all, capcf has an impact on premium development: The financed part of the expected claims reduces the loss that will be considered in the premium calculation. This leads to a permanent premium reduction. But the present value of the capcf is not part of the individual ageing reserve that is financed by premiums and individual remissions of the insured person. In the case of premium adjustment this present value cannot be set off against the individual premium of an insured person. Rather, the financed parts lead indirectly to a premium reduction for the entire collective. In contrast, the conventional form of limitation leads to an individual reduction of the premium.

Next, the influences of capcf on the triggering factors have to be analyzed: The triggering factor is usually defined as the ratio of required and calculated claims. But in case of capcf, the calculatedm claims in the denominator of the triggering factor that will be considered in the premium calculation have to be increased by the financed part paid by the insurer. The financed part of the claims amount per capita is comparable to a risk premium as it compensates higher risks that result from a reclassification.#

Finally, capcf has also an impact on future premium adjustments: Considering the supervisory regulation of health insurance, the accumulated data is used to determine the new calculated total claims amount per capita. This still contains the already financed part of the claims amount per capita which has to be subsequently subtracted.

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 „Kopfschadenfinanzierung (Claims amount per capita financing)“ 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.