Page 275 - Ebook health insurance IC27

Sashi Publications

Arbitrage

Theinsurancecompany may bemotivatedby arbitrage in purchasing reinsurancecoverage
at a lower rate than they charge the insured for the underlying risk, which can be in the
area of risk associated with any form of the asset that is being issued or loaned against.
It can be a car, a mortgage, an insurance (personal, fire, business, etc.) and alike.

Reinsurer's expertise

The insurance company may want to avail of the expertise of a reinsurer, or the reinsurer's
ability to set an appropriate premium, in regard to a specific (specialised) risk.

Creating a manageable and profitable portfolio of insured risks

By choosing a particular type of reinsurance method, the insurance company may be
able to create a more balanced and homogenous portfolio of insured risks.

Managing cost of capital for an insurance company

By getting a suitable reinsurance, the insurance company may be able to substitute
"capital needed" as per the requirements of the regulator for premium written.

Health insurance and reinsurance models

There are three types of product in health insurance
1. Indemnity products- provides cost of hospitalisation
2. Critical illness cover - pays a lump sum amount to policyholder on contraction of

disease
3. Benefit covers - like hospital cash covers which pays a fixed amount for per day of

hospitalisation

Fixed benefit and indemnity health insurance covers would have similar pattern of claims
incidence.

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