IFoA SA1 key terms

A pricing rule where all members of a defined pool pay the same premium regardless of their individual health status, age or claims history, with variation allowed only for broad factors such as family size or region.

Setting premiums by reference to the past claims cost of the specific group or individual being insured, so that groups with higher historic utilisation pay more in future periods.

The tendency for people who expect to need healthcare to buy more generous cover or stay in a pool, while low-risk people exit, driving up average cost when insurers cannot observe risk.

Behavioural change caused by insurance cover, such as increased utilisation or less preventive care, because the insured does not bear the full marginal cost of the treatment consumed.

A mechanism that transfers funds between insurers in a market to compensate those with higher-risk members, typically through a central pool funded by levies on insurers with lower-risk business.

A formula-based payment or premium correction that varies with measured morbidity characteristics of enrolled members, used to make capitation or community-rated premiums fairer across insurers and providers.

A fixed payment per enrolled person per period, made to a provider or insurer regardless of how much care that person actually uses, shifting utilisation risk onto the receiving party.

A single price covering a defined episode of care across multiple providers and settings, such as a joint replacement including surgery, hospital stay and rehabilitation, replacing item-by-item reimbursement.

Reimbursement in which the payer pays a separate amount for each service, test or procedure delivered, so provider income rises with volume and intensity of activity.

The situation where clinicians, acting as both adviser and supplier, recommend more care than a fully informed patient would choose, because the clinician benefits from the additional activity.

Provisions such as deductibles, coinsurance and copayments that require the insured to pay part of the cost of care, reducing moral hazard but potentially discouraging necessary treatment.

An amount of claims the insured must bear before the insurer pays anything, often applied per year, which removes small claims from the insurer and reduces administration cost.

A percentage share of each claim that the insured pays, so that costs above any deductible are split between insurer and insured in fixed proportions.

A fixed amount deducted from each claim payment, common in health cash plans and income protection, distinct from a deductible that must be exhausted before cover begins.

The incidence, prevalence and severity of illness or injury in a population, measured through rates of diagnosis, hospitalisation, disability or recovery used as the basis for health insurance pricing.

The number of new cases of a condition arising per unit of exposed population per unit of time, usually expressed per 1,000 or per 100,000 person-years.

The proportion of a population that has a condition at a given point in time, reflecting both past incidence and survival with the disease.

The probability per year that a previously healthy insured life suffers a critical illness event that triggers a lump-sum payment under the policy definition.

A critical illness payment that reduces the sum assured payable on later death, so the death benefit is paid early rather than in addition to the CI lump sum.

Critical illness insurance where the lump sum is paid in addition to any death benefit, so the policy carries both morbidity and mortality risk.

Insurance that replaces a proportion of earned income during sickness or disability, typically paying a monthly benefit after a deferred period and until recovery, retirement or the end of the benefit term.

The waiting time after the onset of sickness or disability before income protection benefits start, during which the insured relies on sick pay or savings.

A policy feature under which premiums are not collected while the insured is disabled or seriously ill, keeping cover in force without payment during claim.

The probability per unit of time that a person currently claiming or disabled returns to an active, non-claiming state, a key decrement in income protection and long-term care models.

A model representing a life moving between states such as healthy, ill, disabled and dead, with transition intensities estimated from data and used to price and reserve health business.

Claims that relate to treatment already given or events already occurred but which have not yet been notified to the insurer by the reporting date, requiring an estimate in reserves.

The reserve strengthening needed when claims already reported are expected to develop further, for example because case estimates are too low or reporting is delayed.

A table of cumulative or incremental claim amounts by accident period and development period, used to project ultimate cost through chain-ladder or similar techniques.

The portion of premium already received that relates to cover still to be provided after the valuation date, held as a liability and often tested for adequacy against expected future claims.

A shortfall arising when the expected future claims, expenses and profit margin on unexpired cover exceed the unearned premium held, requiring an immediate reserve strengthening.

The amount of capital a regulator requires an insurer to hold so that it can meet obligations with a specified high probability over a one-year horizon, covering underwriting, market, credit and operational risks.

The probability-weighted present value of future cash flows arising from in-force business, before any prudential margin, calculated on realistic assumptions about morbidity, lapses and expenses.

An additional amount held above the best estimate liability to compensate a hypothetical transferee for bearing non-hedgeable insurance risk, often calculated as a cost of capital.

An insurer's internal process for identifying, measuring and managing its own risks and assessing the capital needed, documented and submitted to the supervisor as part of governance.

The amount and type of risk an insurer is willing to accept in pursuit of its objectives, expressed through limits, tolerances and qualitative statements that guide decisions.

The process of dividing a firm's total required capital among business lines, products or risks, so that each unit is charged for the capital it consumes and performance can be compared.

The reduction in total capital or risk achieved because different risks are not perfectly correlated, so the aggregate requirement is less than the sum of the standalone amounts.

The proportion of policies that remain in force over time, the complement of lapse and surrender rates, which strongly affects profitability of long-term health business.

An arrangement in which a hospital or clinical group bears part of the financial consequence of the care it delivers, for example through shared savings, withhold or capitation arrangements.

The coordinated management of assets and liabilities so that cash flows, durations and sensitivities match, protecting solvency against interest rate, inflation and currency movements.

Structuring the asset portfolio so that its interest rate sensitivity matches that of the liabilities, reducing the impact of yield changes on the surplus.

The risk that future cash flows from maturing assets must be reinvested at lower yields than assumed, reducing the return available to meet long-dated claim payments.

The reasoned selection of assumptions and methods where data are limited or conflicting, which must be documented, communicated transparently and justified to peers, auditors and the regulator.

An attitude of questioning whether evidence and assumptions are complete and reliable, rather than accepting information at face value, particularly when advising on reserves or capital.