Environmental risk and insurance - Dissertation Example

Purpose: With the current rise in health care expenses, which are daily being fueled by new technologies, treatments and increasing utilization, theresult has been to create new potentially damaging risks (Pion, 23). This continued rise of the health care costs and ongoing changes in reinsurance underwriting capacity and pricing are making future benefits and cost projections all the more difficult for employers. There is no exception to any company as roughly half of the approximated insurers that were formerly underwriting medical stop-loss coverage have dropped out of the business in the past few years. Major losses in the healthcare over the past couple of years, coupled with less competition, have created additional pressure on insurer pricing and margins (Pion, 24). It is very urgent that all the people concerned with the pricing of the insurances look into all the major reactions and effects to the people they are going to sell the insurance to (Michelle). The underwriters have the basic requirement of being the ones to set the pace for the others in the same line of business and also offer advice on the different ways in which the employers can counter the rising costs of healthcare. The main issue is what the future holds for all the people in terms of funding for the health benefits and also what risks people are meant to face should the continued crisis persist. There is a need for the underwriters in the insurance centers to come up with ways in which they are going to save the common man and how they are going to handle the policies in terms of regulating the prices to befit the current economic crisis and status. By being the sole holder of the final decision making process, they are meant to be the ones who regulate the prices. It is only fair that we get a view of how they see the healthcare costs and also advice us on the best policies to work with (Karl, 200). Literature review: The main cause of the rise in the insurance policies is the changing climatic conditions and also capital management problems. It is also being speculated that the cause for the increase in the pricing according to the underwriters is the increasing risk of litigation and also risk management. These conditions and many others put the insurance agencies in edges and hence have to increase their pricing to keep their businesses afloat. The recent years have seen significant losses not only sustained but also paid for in many cases that rose form the harsh climatic conditions. It has also been noted that extremely hard rates in catastrophe classes coincided with a very heavy loss experience. This shows that performance is attributable to events both inside and outside their control, and also the inherent levels of business risk in reinsurance (Donald, 193). As a regulator, we are keen to see this properly controlled. The aftermath of some of these catastrophic and risk management have really attributed to the significant losses in the insurance firms. There has been a reported decrease in the financing of premiums as different primary insurance companies are facing financial pressures. It is true that the capital bases of many companies have been put into major test given the fact that they are not allowed to come up the financing of the benefits themselves (Donald, 195). What most of the people in this sector are doing are buy-downs and reinsurance mechanisms to keep their companies afloat. It is clear that the underwriters are very much interested in coming up with policies that will see them go through hard financial times and also be able to counter the elevated risk charges. With the increased demand for reinsurance capacity, there is a noticed tendency of people to choose insurance partners and also the reassessment of credit risks. This implies that the current financial crunch has left many people thinking about their involvement in the healthcare insurance policies. This means that people have to be aware of the current events and the expected responses should any thing happen that deserves their keen attention. It is clear that the people in this industry are contemplating the risks of diversifying the credit facilitations and this implies that the people in the industry have to mitigate the exposure as they have done away with the third party credit ratings in sacrosanct. This has been seen to increase the affording opportunities for re-insurers to obtain shares on programs dominated by few large companies. Investors on the other hand view the insurance risk as a new means of diversifying portfolios as they believe it to be largely uncorrelated with the other risks they run, and the rates of return available during the hard part of the cycle are very attractive (Donald, 200). The re-emergence of the traditional insurer on the other hand has made the capital market offer new routes to risk transfer that might be unavailable at affordable prices. However, it has been noted that if those transfers are properly managed, increase capacity and/or reduce prices in the insurance market would be achieved to the ultimate benefit of the consumers. As ever the key for any insurance company is proper management. This alone will see the company flourish and reach great heights given the fact that the people in the industry are adamant to seeing the rise of the benefits go back to the way they ought to be. The employers are however enjoying the emerging options that are being treated under the resulting expansion roles of disease management and also intend to carve out coverage. These carve-out programs allow them to be able to transfer the financial obligations of a specific healthcare condition to a third party. This is mainly in the case of the high cost or unpredictable health conditions like organ transplants. The issue then shifts to the third party who is responsible for the incurred costs. He has to meet the resulting bills and the employer gets of given the fact that they are allowed to offer restrictions on reimbursements based on incurred and paid dates (Chester, p.200). According to the underwriters, the emergent issue here is the need to have clear cut ways in which they can counter the problems being experienced by the insurance companies. It is clear that the catastrophic losses are a major determinant of the way the underwriters will view the pricing of the premiums to come up with the required ways of solving the increasing the health care conditions. It is important to note that the people in the insurance company are in turmoil as the pricing is becoming an issue that is turning off many investors due to the prices they are not ready to meet. It is true that the people in this market are looking at different frameworks in which they are going to handle the consumer and also not hurt their company’s financial status. It is important to note that auditors are being used nowadays by the investors to try and understand the financial statements of the different companies and also come up generalizations on how they would like their transactions handled (Chester, 205). Since investors must trust the auditor in order for them to gain assurance from the audit report, it can be concluded hat the current process of regulation is based on a trust framework. However, given the current crisis in confidence resulting from recent accounting malpractices and credit crunches among the insurance companies, an institutional system based on trust may be revisited and given some attention. It is proposed that the alternative framework for auditing that would meet investors needs to eliminate information risk at the same time as transforming this trust framework. In this case, the need for financial statement audit leading to an audit opinion would be eliminated since regulators could require that public companies purchase insurance from insurance companies to underwrite their financial statements against material misstatement (Charles). The insurance company would hire an auditor to act as an underwriter to assess the risk of material misstatements in the financial statements. The auditor, who in his case will be acting in the capacity of an underwriter, would assess the risk to determine the amount of the insurance coverage and premium. With this, it is believed that the stock markets will be allowed to effectively accomplish the goal of eliminating or significantly reducing investors information risk, while restoring investors confidence and trust in financial reporting. The auditor has to come up with the set of services that vary between their application to the services offered by physicians and also to those that are provided by the hospitals themselves (Charles). This implies that the shifting of blames from one party to the other should be looked at to define the various premiums can be accorded some support. They must be well aware of the types of products that are being catered for under the different services offered by the companies. It is clear that excess loss coverage among the investors entails the coverage of catastrophic insurable risks that will help reduce the random fluctuation of the larger claims. It is noted that investors have to continue baring the burden though as the continued rise in health care has made capitation to increase significantly. Notably, more and more risks that are being directly experienced by the investors in the rise in the Medicare provision will entail the use of capitation to direct capitation to the providers. There is the perception of the capitations being beneficial to the managed care organization and not the provider organization. It is because of this perception that the investors look for options to this coverage to look for cheaper modules to investor (Aspden, 155). From the perspective of an underwriter, there is a need for increased capitations. This is mainly in the field of the physician. This field is divided into two fields of the specialty physician and the primary physician. Specialty services capitation will be expected to handle a specific category of services carried out and paid on par-member basis. This will include all the diagnostic and specific types of illnesses that they will handle in the course of their duty and this well includes the mental illnesses and also the organ transplants. The essence of all these groupings is the fact that they are supposed to handle all the unique needs of this job group and also become flexible given the fact that they are bound to change with time (Aspden, 167). This will include everything under his care and also include all the duties that are prescribed to him. It is noted that the people in this category may even include the fact that they are under the outpatient hospital services attended to by the physicians. There may be a need for home health premiums that cater for the needs of the physicians even when they are out of their work places. This ensures they are safe and can go on with their work as usual without the worry of loosing their benefits once they are affected by a disease or something of the sought (Sarah). The uniqueness of some of these products in the market is to be viewed cautiously to avoid regret when things do not work out as they are expected. The variability of risks in the types of medical coverages present in the different insurance companies. This implies that the physicians and all the other beneficiaries of the coverages have to be in constant check to determine what suits them best. The main idea of coverages is to handle whatever risk that appears in a manageable way. Looking at the commercial populations and sectors of these benefits, it is clear that the people in these companies have varied types of coverages given the simple fact that geographical settings create variances of the fact that the type of healthcare management is offered and in turn provide different ways in which they are going to priced as well as the type of product they are going to be accorded (Phillip, 130). The resulting variability is essential for company to manage how they will teach the consumer on the way they are going to handle consumer literacy. The most important thing is that those willing to buy the product will have to know the benefits they are supposed to acquire and also have to be aware of which product suits them best. Group medical carriers that might be looking at a losing business in a traditional group carrier market are in this category. There might be medical malpractice carriers that have been traditionally working with hospitals and physician groups and need to be enrolled in this category. Many people are looking at this market as an opportunity. There is dire need to have some improvement on the risk management. This will be achieved by the mere fact that they have to create a motivating environment that makes these insurers ready to work on the improvement of this improvement (Sonia, 240). Tackling the challenges: Risk measurement is the starting point and this implies that a capital framework has to be set up. There are insurers and re-insurers that require the ways in which they can measure their own risks in a bid to calculate their finances to ensure that they are able to predict their survival ability of their company in the following financial year. Apparently, the need for a framework is well established in major companies that see their financial capabilities go up and increase their accredited services to the general public (Standard life Management). It is also the pride of every company to have its own measurement guidelines and this is referred to as individual capital adequacy. Individual analysis, combined with expert review from national boards ensure that the people in the firm are able to have individual capital guidance which will specify the level and quality of capital that is appropriate to the firm and also is needed by the company for utilization. With this in mind, the company will be protected from the changes in the market scene given the fact that they are bound to grow in the same way as the knowledge on the risks grow. It is clear that the people with this kind of approach will hold more than the stipulated regulatory minimum and use the minimum regulatory capital figure to ensure that they have set a baseline to work with. Another sector is the catastrophe building that is meant to improve on the premium prices in the market. There is a growing need to cover all types of catastrophes as most of them do not go to an extent of covering these issues. It is important to have a very elaborate way of dealing with these types of needs (Stuart). Currently, most of the insurers do not handle these types of occurrences and this means that they need to offer more as there is a need to be considerate of all the accidents that could affect the health of a person. It is clear that all the insurance companies are not supposed to neglect the people that have suffered these catastrophic events. Some of the firms that do offer however, have been found to be costly as there is no competition in offering these services. It is through this that these firms have been found to have made fortunes when these events do occur implying that those affected are not given a fair chance in dealing with the management of these costs. The deductions are massive and this is not profitable to them at all. Another issue is the introduction of certainty in the market. The firms have to acquire a common way of dealing with clients on the deal and details bases and not using the deal now and details later policy which did not guarantee the client of the required information about their transactions. It is clear that they have to know what their exposures have amounted to. This is clear way of encouraging more and more people to buy the premiums and have their healthcare catered for by the insurance companies (Willis Re). Another way to handle the increasing healthcare costs is by issuing out subsidies to individuals and in turn be allowed to make decisions on the type of coverages they would like to purchase. This will ensure that all citizens will be taken care of in the meantime and assist them to use this opportunities to have their healthcare taken care of. Conclusion: The only way that the healthcare premiums can be reduced is by looking at what causes the increase and working the other way round. The underwriters have the sole responsibility of making the final decisions and therefore need to be aware of the current financial and social status of the people to enable them have clear ways in which they can offer their services at reasonable prices even for the low-income earners. It is through research into this field that they are going to know what kind of assistance they are supposed to offer to all the groups and also have them know that they require to be rational (Willis Re). There is still the need of having effective oversight on the risk management to ensure that the top management comes up with policies that will help in skills and knowledge to sustain sufficient understanding of the risk management processes. It is through this that we are going to be assured of the processes being legit as well as applicable to the practical world. Works cited Aspden, P., Shipping law faces Europe: European policy, London: Maklu, 1995, p.150 200 Charles, C, New Risks, Tighter Reinsurance Terms Pose Risk for Self-Funded Plans, November 2003, as viewed on 23rd May, 2009, http://www.evergreenre.com/news/national_underwriter.pdf Chester, A. Zagaski, Environmental risk and insurance, Michigan: CRC Press, 1991, p.250-300 Donald, L. W, Mandated health care: issues and strategies, California: University of California 2008, p.193-200 Karl, B. Holtzschue, Holtzschue on real estate contracts, Michigan: Practicing Law Institute, 2006, p.200-275 Michelle M, Emerging trends and experience: Life settlement Market, 2008 as viewed on 23rd May, 2009 http://www.transamericareinsurance.com/media/media_associateArticle.aspx?id 328 Phillip A., The Guide to National Professional Certification Programs, California: HRD Press, 1997, p.130-150 Pion, Environment & planning, New York: Pion Ltd., 2002, p.23-43 Sarah W, Challenges and the regulator’s response: Re-insurance, June 2007 as viewed on 23rd May, 2009, http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2007/0618_sw.sml Sonia, L., Rodney R. White, a guide to environmental risk assessment and financial products: Environmental finance, Washington: John Wiley and Sons, 2002, p.240-267 Standard life Management limited, Company Healthcare Underwriting Rules, as viewed on 23rd May, 2009 http://www.adviserzone.com/standardlifehealthcare/slh_company_underwriting rules.php Stuart, W. et al, Developing relationships with underwriters, October, 2003 accessed on 23rd May, 2009 from http://www.actuaries.org.uk/__data/assets/pdf_file/0019/31195/Wrenn.pdf Willis Re, Capital rules, as viewed on 23rd May, 2009 http://www.willis.com/Documents/Publications/Industries/Reinsurance/Willis_R 1st_View_1_January_2009.pdf Read More