SA1 Health and Care Insurance - Specialist Advanced Content
SA1 is the specialist-advanced health and care paper. The examiners do not test whether you can define "deductible"; they test whether you can design, price, reserve and govern a health portfolio in the Indian market, and explain the financial and consumer-protection consequences to a board or a regulator.
Products and how they shape risk
Health business covers indemnity (individual, family floater, group mediclaim, hospital cash), benefit-triggered covers (critical illness, personal accident, disability, long-term care) and government or mass schemes. Indemnity products expose the insurer to provider behaviour - moral hazard, supply-induced demand and medical inflation - whereas fixed-benefit products expose it to morbidity incidence and definition risk (diagnostic criteria, survival periods). Distribution matters: group business has lower acquisition cost but withdrawal and anti-selection risk; retail business carries underwriting, waiting periods and pre-existing-condition loadings.
Pricing, reserving and capital
Price = expected claim cost per life (incidence × average severity) + expenses + risk and profit margin + cost of capital, adjusted for medical inflation and mix. Reserve for outstanding claims including IBNR, hold an unexpired risk reserve for the unearned exposure, and test for premium deficiency at each valuation. Reinsurance and capital protect against pandemic or metro-concentration events.
Regulation and conduct
IRDAI product filing (use-and-file), standard products, portability, the moratorium period, cashless authorisation timelines and guaranteed renewability are examinable because each constraint changes pricing and reserving.
Worked example
50,000 lives, hospitalisation incidence 6%, average claim ₹45,000: expected claim cost = 0.06 × 45,000 = ₹2,700 per life. Expenses are 22% of gross premium and the required margin 8%, so gross premium = 2,700 / (1 − 0.30) = ₹3,857. With 12% medical inflation and 3% utilisation growth, next year's claim cost is 2,700 × 1.12 × 1.03 = ₹3,115, needing ₹4,450 at the same loadings - a 15% rate increase before any mix change.
Traps
Using paid rather than incurred claims (omitting IBNR); comparing loss ratios on different bases (policy-year versus calendar-year); ignoring the unexpired risk reserve; treating the claim settlement ratio as a profitability measure; assuming medical inflation equals CPI; quoting a rate change without separating price, volume and mix effects.