PPS Integrated Report 2021 Notes to the Consolidated Financial Statements | 198 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2021 Insurance contracts – Long-term a. Frequency and severity of claims The most significant factors that could increase the overall frequency of mortality and morbidity claims are diseases (such as Aids), epidemics (such as Covid-19), economic conditions, abnormal weather conditions, quality of healthcare and widespread changes in lifestyle, such as eating, smoking and exercise habits, resulting in earlier or more claims than expected. The Group has comprehensive claims assessing processes and protocols in terms of which all claims received are assessed. Delegation of authority levels are applied to ensure that larger claims and repeat claims are assessed by senior assessors and management, and the forensics team if required, before being paid. The Group also conducts regular claims investigations to monitor experience. The Group manages these risks through its underwriting strategy. The underwriting strategy ensures that the risks accepted are in line with PPS’s risk appetite. Medical risk selection is included in the underwriting protocols. Premium loadings and benefit exclusions may be imposed which reflect the health and medical history of the applicant. The Group has maximum exposure limits in respect of any single life insured. Maximum exposures are determined relative to gross professional income to ensure that policyholders are not overinsured. These limits are increased annually in line with expected salary inflation for professionals. Policyholders are reminded each year of their benefits and asked to review these benefits to ensure they are not over insured relative to their income as this may impact on future claims. In some instances, maximum exposures are not increased annually where not appropriate. Where appropriate, reinsurance contracts are in place to limit the Group’s liability. There is a Board approved reinsurance strategy in place, which is regularly reviewed by the Group Actuarial Committee for its ongoing appropriateness. The table below presents the total insured benefits per month and the average benefit per month per individual life assured on the basic sickness and disability contract. Total insured Benefit monthly per month benefit per life Group R’m Rand 2021 8 293 79 323 2020 7 686 73 525 Insurance risk for contracts disclosed in this note is also affected by the contract holders’ right to terminate the contract completely. As a result, the amount of insurance risk is also subject to contract holder behaviour. On the assumption that contract holders will make decisions rationally, overall insurance risk can be assumed to be aggravated by such behaviour. For example, it is likely that contract holders whose health has deteriorated significantly will be less inclined to terminate contracts insuring death benefits than those contract holders remaining in good health. This results in an increasing trend of expected mortality, as the portfolio of insurance contracts reduces due to voluntary terminations. The Group has factored the impact of contract holders behaviour into the assumptions used to measure these liabilities (see note 13). 38. MANAGEMENT OF RISKS (continued) 38.2 Insurance product risk management (continued)
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