Health and care systems, financing and regulation
This domain tests whether you can place a health product inside a funding system - tax-funded, social insurance or voluntary private - and then apply the regulatory constraints that follow. SA1 questions usually give a market scenario and ask for consequences, not a description of the NHS.
Funding models and risk pooling
- Tax-funded (England): risk is pooled nationally and rationed by waiting times and clinical thresholds. PMI therefore sells waiting-list avoidance and choice, so demand is driven by NHS waiting lists rather than by underlying morbidity.
- Social insurance (Germany, Netherlands): mandatory, community-rated, with morbidity-based risk equalisation between insurers. The equalisation formula, not underwriting, sets the competitive economics.
- Voluntary private and cash plans: experience or community rated, exposed to adverse selection and the 'death spiral' as healthy lives opt out.
Regulation to name
- PRA prudential: Solvency UK (best estimate liabilities, risk margin, SCR, TMTP), ORSA, change-in-business reporting.
- FCA conduct: Consumer Duty (products and services, price and value, consumer understanding, consumer support), financial promotions, vulnerable customers.
- Data and discrimination: UK GDPR, Equality Act 2010, and the Concordat and Moratorium on Genetics - insurers do not use predictive genetic results below £500,000 life cover, £300,000 critical illness and £30,000 income protection.
- Health and Care Act 2022: statutory integrated care systems in England from July 2022.
Worked example
An insurer covers 4,000 lives: 3,000 younger members with expected claim cost £250 and 1,000 older members at £1,800. A single community rate is (3,000 × £250 + 1,000 × £1,800) / 4,000 = £637.50. If each group is charged its own cost (£250 and £1,800), a competitor can undercut the young at £300 and still profit, so the young migrate. The remaining 1,000 lives need £1,800 each - a 182% increase. Hence risk equalisation or compulsory participation.
Traps
Treating a PMI premium as a proxy for the cost of healthcare; mixing PRA and FCA remits; assuming risk equalisation is purely age-based; forgetting that Consumer Duty reaches closed books and distribution as well as new products.