AktuarMedThe underwriting system

for health insurance

AktuarDataGesellschaft für aktuarielle Datenbasen mbH

Cologne - Germany

®

AktuarDataGesellschaft für aktuarielle Datenbasen mbH

An der Kemperwiese 3aD-51069 Köln / CologneGermany

E-mail:Telephone:Fax:

Date: September 2004Authorized press representative: Herbert Fründt

This brochure invalidates all previous brochures.

Executive Directors: Professor Jürgen Weyer, Herbert FründtCommercial Register: Cologne HRB 27200

i n fo @A k t u a r D a t a . d e+49 (221) 96 84 79 - 60+49 (221) 96 84 79 - 68

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Computerized underwriting

Objective and transparent

• Additional possible AktuarMed®applications.............................................. Page 8

• A success story:The history of AktuarMed®

.............................................. Page 9

• Suitable for all requirements:AktuarMed's technical design............................................ Page 10

• A high degree of user-friendliness:AktuarMed® is simplicity itself............................................ Page 11

• AktuarMed® at a glance............................................ Page 12

• AktuarMed®:The underwriting system for healthinsurance............................................... Page 2

• Claims-adjusted underwriting:What sets AktuarMed® apart fromconventional underwriting systems?............................................... Page 4

• Objective underwriting andstandard pricing procedures:What advantages are to be gainedby using expert systems in healthinsurance?............................................... Page 6

• AktuarMed's adaptability:Can the knowledge which is containedin AktuarMed® be deployed by allhealth insurance companies?............................................... Page 7

Computerized underwriting represents a revolutionary improvement over conventional underwritingmethods. With AktuarMed® and its complex database, however, this is taken one step further. Theadvantages and operating principles of AktuarMed® are detailed below:

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AktuarMed®

The underwriting systemfor health insurance

What characterizes AktuarMed®?

AktuarMed® is a unique underwriting systemdesigned for the field of health insurance.AktuarMed®’s basic philosophy is founded onclaims-adjusted risk assessments. The riskloadings which are assigned by AktuarMed® aresuitable for the purpose of largely offsetting theadditional benefits which are anticipated as aconsequence of previous illnesses. This enablesa health insurer using AktuarMed® to performcalculations on a cost covering and profit-oriented basis. This applies to both newapplications and product changes.

Underwriting for all products

AktuarMed® is suitable for examining all typesof health insurance products and including theirspecifications in the risk calculation process.

Transparency due to differentiationof risk loadings

AktuarMed® divides the risk loadings intodifferent illness groups, thus featuring a highdegree of transparency. At the point of sale thisinformation, which is currently unique amongexpert systems, provides an excellent basis forjustifying loadings to clients.

Knowledge base foundation

AktuarMed's knowledge base is founded onthe evaluation and comparison of the followingtypes of data:

• Anamnestic databases• Master policy data• Benefit databases

Various health insurance companies provided alltheir current and previous relevant data for thepurpose of identifying and quantifying the risk ofincreased claims depending on case history(anamnesis) and personal circumstances. Thecorresponding data analysis is performed bycomplex multivariate statistical calculations,neural networks and hybrid methods.

The following prerequisites wereinstrumental in facilitating thedevelopment of AktuarMed®:

• Digital anamnestic database• Mathematical expertise (in-depth

knowledge of multivariate mathematicalstatistics)

• Adequate evaluation technology for large databases

All these elements are readily available from theproduction company, RISK-CONSULTINGProf. Dr. Weyer GmbH, an affiliatedAktuarData GmbH company.

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Methodology of claims-adjusted loadings

Case history:Hypertension

Total benefits

• Review: Which case history? Which benefits?

Illness groups

Circulation

Heart

Kidneys

Brain

Eyes

Ears

Arthritis

Spinal column

• Example:

Claims-adjusted loading

AktuarMed® in practice

The AktuarMed® underwriting system iscurrently deployed by numerous national andinternational large, medium sized and smallhealth insurers. Following appropriatemodifications and taking into consideration therelevant health systems and typical nationalproducts, this underwriting system can be usedglobally in the local language. For the purpose ofdeployment in Asia, Africa and Latin America,infectious diseases which are rare in Europe arealso taken into account.

Favourable rating on the basis ofAktuarMed®

If a health insurer is subjected to rating, the use

of AktuarMed® regularly results in a favourableoutcome.Thus, for example, ASSEKURATA AssekuranzRating-Agentur GmbH writes: "According toASSEKURATA, the [company’s] underwritingpractices are rated very highly. They involve thedeployment of a very efficient computer-aidedexpert system which is able to evaluate medicalterms (diagnoses, synonyms, forms of treatmentand abbreviations) on a computerized basis. Inaddition, the system recognizes correlationsbetween different illness patterns and takes theminto account when assessing the overall risk. Withthe aid of this system [the company] is able toprocess in excess of 90% of incomingapplications within a very short period of timewithout neglecting any of the appropriateunderwriting aspects."

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Claims-adjusted underwritingWhat sets AktuarMed® apart from

conventional underwriting systems?

Individual risk loadings

A number of underwriting systems are currentlyavailable, though these are pure IT systems withno risk content, meaning that they are essentiallynothing more than an empty shell. Before thesesystems can be utilized, the users themselvesneed to stipulate risk loadings and riskassessment rules. They merely serve thepurpose of standardizing risk loadings. In thesesystems, the individual applicants are placedinto a small number of set groups, despite thefact that the number of combinations of risk-relevant data is far greater. For this reason,these systems require clients to pay the sameloading despite the different risks which areinvolved. However, it is particularly the casethat these systems fail to examine sufficientlywhether or not the stipulated rules and riskloadings reflect the economic reality.

In contrast, the revolutionary innovation ofAktuarMed® is that it is not an empty shellbereft of content, but rather a complex"database" which is rendered accessible bymeans of a user interface. AktuarMed® cancalculate individualized risks, thus producing awide range of modified risk loadings.

Individualized risk loadings are differentiatedaccording to case history (anamneses), product,age, sex, weight, size and body mass index(BMI) which are calculated on this basis. Sinceit analyses a large pool of data, AktuarMed® isable to perform long term evaluations ofanticipated benefit payments.

In this connection, AktuarMed® establishescross-links from a wide variety of medicalfields and takes them into account for forecastpurposes. When a physician examines apatient, this primarily encompasses the distresswhich the latter is currently suffering. Whereasphysicians frequently make the mistake ofequating personal distress with resulting healthcosts, AktuarMed® focuses on the issue whichis of interest to the health insurer, namely,benefit payments.

Realistic benefit assessment

Extensive studies conducted on the basis ofAXA Krankenversicherung AG's benefitpayments and anamnestic databasesdemonstrate that the standard assessment of therisks which previous illnesses involve fromprimarily medical aspects deviate from the riskloadings which are actually required, and insome cases considerably so. In particular, aclaims-adjusted risk assessment demonstratesthat illnesses which, though apparently harmless,develop along chronic lines, are often seriouslyunderestimated in underwriting practice.

The extent of a loading must be based logicallyupon the actual additional benefit paymentswhich were received in the past by insureds whohave suffered from the same previous illnesses.To this end, AXA Krankenversicherung AG'sbenefit payments and anamnestic databasesencompassing numerous observation years wereevaluated digitally on the basis of individualsettlements.

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Multivariate analysis

Using discrimination methods and scoringprocedures, expensive diagnoses (previousillnesses) were identified and scored for everybenefit sector. These methods and proceduresfunction along multivariate lines and – with ahigh degree of accuracy – identify not only therisk relevance of individual anamneses, butalso interactions between various casehistories or additional risk parameters(causality and correlation).

All statistically relevant anamneses are assessed by AktuarMed® solely on the basisof the payments recorded in the benefit database.

Claims-adjusted global assessment

From the information which is furnished byapplicants, AktuarMed® calculates risks on afuture-oriented (prospective) andcomprehensive basis. AktuarMed® producesa claims-adjusted global assessment groundedon database information. The systeminvariably reaches a decision.

Ongoing development andadaptation to actual changes

Since the knowledge base underlying thedifferentiated calculations is continuouslyreviewed and updated, AktuarMed®

facilitates up-to-the-minute risk calculations.

A previous illness in connection with othermedical disorders or given certain ages mayrequire a completely different risk loadingthan would be the case under differentcircumstances.

The calculated risk score was subsequentlyadjusted in line with the actual benefitexpenditure. A medical assessment was onlyconducted for rare illnesses with nostatistical basis.

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Objective underwriting andstandard pricing procedures

What advantages are to be gained by usingexpert systems in health insurance?

The general advantage of expert systems

• The general advantage of all expert systemsis standardized underwriter-independentrisk assessment.

However, conventional expert systems do notguarantee output quality. In particular, loadingsare frequently inadequate, as the specialists'decisions integrated into these "empty shells" areoften statistically inaccurate. In addition, in manycases, conventional systems are completelyunable to reach any decisions at all.

Additional benefits whichAktuarMed® entails

• Risk-commensurate earnings through theimposition of claims-adjusted loadings. Forthe most part, claims-adjusted risk loadingsoffset the excess risk which materializes uponthe inception of a policy due to previousillnesses

• In particular, claims-adjusted risk loadings aredifferentiated according to types of previousillness, sex, age, product and retention

• Avoidance of subsequent financial losses as aresult of incorrect assessments

• Transparent decisions for clients and salesdepartments as a result of the differentiationof risk loadings

• Reduction in the number of enquiries fromphysicians since they are almost exclusivelyrequired solely for the purpose of specifyingvague medical information provided by theapplicant

• Risk assessment standardization also in theevent of product changes

• Discernible reduction in administrative costs,

including those arising from the deploymentof less specialized personnel

• Significant reduction in the ratio of non-materialized business since processing isaccelerated and fewer applications come tonothing

• AktuarMed® encompasses all the knowledgewhich is necessary for underwriting purposes.This means that there is no need for thelaborious manual input of individual under-writing rules, and thus lower implementationcosts for companies

• Greater premium stability in the medium termsince good risks no longer subsidize bad risks

• Improved competitive position due to positiveratings

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AktuarMed® can be adapted for a wide rangeof companies. The following fine tuning optionsenable AktuarMed® to be adapted to the needsof any insurance company:

1. Products

• Inclusion of all schemes

• Full-value or supplementary insuranceproducts

• Tailored to national health care systems

2. Risk loading level (calibration)

• Best risks, portfolio average, etc.

3. Acceptance policy

• Benefit exclusion and restriction rules

• Lists for rejections, enquiries and minorillnesses

• Minimum risk loading determination

• Number of pre-existing conditionsnecessitating rejection

• Rules for applicants who wear spectacles

• Dental health rules

• Age-dependent BMI influence

• Corporate-specific underwriting rules

4. Additional risk policy stipulations

• Inclusion of corporate diagnosticdesignations as a complement to theWHO ICD code which is implemented asstandard practice

• Upgrading and downgrading rules in theevent of product changes

AktuarMed's adaptabilityCan the knowledge which is contained in AktuarMed®

be deployed by all health insurance companies?

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Additional possibleAktuarMed® applications

Possible additional functions

• Underwriting Life

• Underwriting Disability

• Underwriting Accident

• Additional input Occupation

• Additional input Leisure pursuits

• Laptop-based, context-sensitive case history questions at POS

• Product kits

AktuarMed® in the field

In addition to being utilized at head offices,AktuarMed® can also be deployed in the field(POS). In this case, AktuarMed® should belinked to the computer programs used by fieldstaff or brokers. This enables virtually allapplications to be fully priced (including

loadings) or rejected on the spot. Only in raremedically unclear cases is this proceduresuperseded by a "background investigation".The strategic advantage which the technicalpossibility of issuing policies on the spot entailsfor field staff is self-evident.

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A success storyThe history of AktuarMed®

How did AktuarMed® originate?

AktuarMed® originated in collaboration withAXA Krankenversicherung AG and wasdeveloped between 1994 and 2000 byRISK-CONSULTING Prof. Dr. Weyer GmbH,an affiliated company of AktuarData GmbH.AXA Krankenversicherung AG is one of the fewinsurance companies which has been collectingdigital anamnestic data for decades. Thedifferentiated statistical analysis of this dataproduced the knowledge contained byAktuarMed®. In this connection, the observationof benefit payments over a period of manyyears facilitated the development of accurateforecasts of future claims depending on pre-existing conditions.

The relevant data will also be regularly analysedin the future, thus ensuring that AktuarMed® willretain its continuity and topicality.

What is AktuarData GmbH?

AktuarData Gesellschaft für aktuarielle

Datenbasen mbH , which is based in Cologne, hasbeen in existence since February 1996. ItsExecutive Directors are Professor Jürgen Weyerand Herbert Fründt.

They are both qualified mathematicians andactuaries and boast many years' experience,particularly in the health insurance sector.

AktuarData GmbH possesses extensivedatabases from the field of health insurance. Thisdata can be utilized for epidemiological researchand risk analysis, tasks which are performed by itsaffiliated company, RISK-CONSULTING Prof.Dr. Weyer GmbH, which was founded in 1992.

Why do mathematicians address thesubject of underwriting in healthinsurance?

This is because mathematical skills and advancedmethods are essential for analysing thecorrelations which exist between an anamnesticconstellation and subsequent benefit payments.

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Suitable for all requirementsAktuarMed's technical design

The four AktuarMed® versions

1. The stand-alone version for PCs andnotebooks

2. The mainframe link version(company tailored)

3. The point-of-service version(upon request)

4. The internet version(upon request)

Which services does AktuarMed® provide for its users?

• Regular updates, e.g. featuring- Additional diagnoses

- New functions

- New statistical findings

(some of which entail a separate fee)

• A clearly structured user manual

• A dedicated hotline(upon the conclusion of a serviceagreement)

• Installation assistance(for a separate fee)

• Training, including on-the-spot training(for a separate fee)

Recommended system requirements:

• Microsoft Windows 2000 (SP 2) / Microsoft Windows XP Professional(Other operating systems on request)

• 800 MHz or higher processor recommended (system with one or two processors);Intel Pentium/Celeron processor, AMD K6/Athlon/Duron processor or a compatibleprocessor is recommended

• 512 MB of RAM or more recommended (a minimum of 256 MB of RAM is required,though the performance of some features might be limited)

• XGA (1024x768) or higher-resolution monitor with at least 256 colours, displaysetting of 96 DPI

• 300 MB of available hard disk space

• DVD or CD drive (only required for installation)

• Mouse or compatible pointing device

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AktuarMed's input masks are transparent, fast and easy to complete. AktuarMed® is practically selfexplanatory, meaning that little training is needed.

Virtually no specialist medical knowledge is required to be able to enter case history data, sinceAktuarMed® features many synonyms for specialist medical terms.

A high degree of user-friendlinessAktuarMed® is simplicity itself

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AktuarMed® at a glance

• Risk loadings in accordance with actualbenefit payments, claims adjustment, for

rare illnesses, computerized assessment in

accordance with conventional medical

principles

• Loadings / exclusions in accordance withclaims expectations

• Multivariate risk assessment

• Loadings dependent on anamnesis, product,age and, optionally, sex, BMI, occupation,

region and family case history, etc.

• Differentiated display of risk loadings,benefit exclusions and rejections

• Alternatives with and without benefitexclusions / restrictions

• Product-change module

• Previous illnesses pursuant to ICD codes(WHO), plus a thesaurus

• Search function:− Filter functions− Text fragments− Orthographical tolerance− Synonyms

• Control parameters in line with an insurancecompany's risk policy, i.e."tailored"

adaptation in accordance with a company's

requirements

• Risk assessment standardization

• Reduction in the number of enquiries tophysicians

• Transparency in respect of corporateloading strategies

• No cross-subsidizations, meaning fewerpremium adjustments in the medium term

and fewer cancellations

• Underwriting also possible using staffwith less medical knowledge

• Reduction in administrative expenditure

• Reduction in personnel and material costs

• Shorter processing times, less non-materialized business

• Regular updates

• Immediate responses and decisions

• Stable system behaviour (exception handler)

• PC version (stand-alone)

• Mainframe link(via interface – upon request)

• Definitive point-of-service underwritingprocedures (upon request)

• Internet link (via interface – upon request)

AktuarDataGesellschaft für aktuarielle Datenbasen mbH

An der Kemperwiese 3aD-51069 Köln / Cologne

GermanyE-mail:

Telephone:Fax:

info@AktuarData.de+49 (221) 96 84 79 - 60+49 (221) 96 84 79 - 68

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