Page 209 - Ebook health insurance IC27

Sashi Publications

Questions and Answers

Q1. What are the various types of risks which a health insurer is required to
manage including insurance risks ?

Ans. The Health Insurer manages various risks in addition to insurance risks. They are
as follows :

(a) Insurance Risk - In Health Insurance, each risk by itself is not very large, but
there still exists the risk of 'concentration' and reckless underwriting can create
trouble for the insurer. Reinsurance mitigates this risk.

(b) Investment Risk - This depends on mix of investment options chosen by the
insurer, as also the overall environment in the economy. Even if the insurer holds
good quality assets, holding long term debts can lead to liquidity risk. Complex
investment products may be very risky.

(c) Credit Risk - Like in any other business dealings there is risk of default by business
associates like providers, suppliers and reinsurers.

(d) Liquidity Risk - Even if an insurer is profitable, he can still have mismatch in cash
flows, and in its current assets and liabilities, reducing the insurer's ability to arrange
adequate cash to pay for the liabilities at a short notice.

(e) Business Environment Risk - The insurer may be exposed to changes in the
policy environment and the economic environment, which may affect it adversely.
Operational and other risks including risk of frauds, risk of not keeping up with
technology, risk of losing key human resources etc. These risks are not discrete,
they overlap and interplay, and thus require the top management's intervention and
regulatory oversight for effectiveness.

While self regulation is an option, the incentives to manage risk are different from
a regulator's perspective, and so an independent regulator is more effective.

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