Question ID: 1863
Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
Topic: Solvency Capital Requirement (SCR)
Article: 161(2)
Status: Final
Date of submission: 20 Feb 2019
Question
Could you please clarify calculations of Health Catastrophe SCR?
Lets assume (simplified example), that insurance undertaking pays lump sum in case insured person brings a disability certificate from the state medical authority, and the insurance benefit des not depend on whether this certificate will be revoced or not any time in the future. The total sum insured for country L is 1 000 000. Could you please show, how this sum insured shuld be distributed by events?
- Death caused by an accident
- Permanent disability caused by an accident
- Disability that lasts 10 years caused by an accident
- Disability that lasts 12 months caused by an accident
- Medical treatment caused by an accident
My understanding would be, that this 1 000 000 should be allocated to "Permanent disability caused by an accident" and should not be treated in another events. I conclude this from CEIOPS-DOC-79/10 11, June 2010 document:
"„289. All policies which include one or more of the following product types should be included in the calculation. The product types defined are a representation of the type of benefits paid (so you can have many different products but overall the type of benefits paid under these products should fall into one of the 5 categories below).
Product types
• Accidental Deaths
• Permanent Total Disability
• Long Term Disability
• Short Term Disability
• Medical/Injuries
...
301. The CTF considers the product types above to be sufficiently granular that an undertaking should be able to allocate its business to one of them, provided it keeps appropriate records." and also from QIS5 answer
https://register.eiopa.europa.eu/Publications/QIS/CEIOPS-Q-and-A-document-20101104.pdf
„195 SCR
8.110 Question: Where a product covers more than one of these type of benefits how should it be treated? For example, should it be allocated to the different categories included therein?
15/10/2010 Answer: If a product cannot be allocated mainly to one product type in the list SCR 8.110, it should be split into the relevant product types from the list: e.g. if claims cost of product A are usually split 60% "accidental death", and 40% "permanent total disability", then product A should be split into two products: A' "accidental death", and A'' "permanent total disability". Undertakings are invited to report in the qualitative questionnaire of any impractibility in the approach specified in the QIS 5 TS .“
Background of the question
Article 161 (2 (d), 3(b)), Article 162 (2 (d), 4 (c), Annex XVI
EIOPA answer
In this particular example, the insurer covers the risk of disability both in case of permanent disability and in case of temporary disability.
The fact the benefit is the same in both cases does not imply lower risk.
In each claim, the accident will produce a permanent disability or a temporary disability, but not both at the same time.
As a result, the insurer has to pay the benefit both in case of permanent disability and in case of temporary disability.
Then, the insurer has to take into account the probability of both events to calculate the SCR.
To do so, the ratio of persons affected by each type of disability shall be considered.