Risk Assessment in long term personal insurance

1. Risk Assessment in long term personal insurance Debbie Akers MA FIA Chief Underwriter Friends Provident

2. Agenda • Background • Statistical assessment of risk - pricing • Personalised assessment of risk - underwriting • Questions • Reports and examinations • Assessing the information • Non-standard risks.

3. Principles of insurance What sort of things can be insured? • Uncertain future events • Fairly low likelihood • Risk which can be quantified • Not open to manipulation

4. How does insurance work? • Pooling risk and sharing the cost • Segmentation of risk into smaller pools of equal risk • Each member contributes according to the risk they bring to that pool • Much insurance is based on indemnity • Putting the policyholder in the same position as before the claim event happened eg household, motor • Some insurance gives a wide choice of benefit size • Life, Disability (Income Protection), Critical Illness

5. Statistical assessment of risk: Industry data • Institute of Actuaries • Continuous Mortality Investigation (CMI) • Collects data from insurers on claims and the exposure to risk • Many types of insurance – many separate studies • Trends and projections • Published tables – for use by insurers • Update comparisons • Population data

6. Statistical assessment of risk :Pricing the cover- considerations • Relevant published tables • Own company experience • View on future trends • Details of the cover provided • Target Market – distribution / consumer • Degree of personalised risk assessment => Make suitable adjustments for pricing this particular product

7. Personalised assessment of risk: (Underwriting) Information from life to be insured: • Application form questions • Teleinterview ( possibly) Medical evidence: • Report from doctor • Paramedical screening ( nurse, pharmacy) • Medical examination • Tests

8. Personalised assessment of risk Application form questions (1) • Recreation and Travel • tobacco, • alcohol • recreational drugs • hazardous sports / pastimes • Travel abroad other than holidays • Occupational details • Family History • Before the age of 60, did either of your parents or any of your brothers or sisters suffer or die from heart disease, raised cholesterol, stroke, diabetes, cancer, multiple sclerosis, Huntington’s disease, polycystic kidney disease, polyposis of the colon, or any other hereditary disorder Please provide details of conditions, current age, age at onset, cause of death age at death continued…

9. Application form questions (2) • Health – have you ever had any of the following • Cancer, leukaemia, Hodgkin’s disease, lymphoma, brain or spinal tumour • Heart disease (incl heart attack,angina,heart defects for birth, heart surgery) • Stroke, brain haemorrhage or brain injury • Multiple sclerosis, optic neuritis, paralysis, epilepsy, dementia, cerebral palsy, other disorder of the central nervous system • Disease or disorder of the arteries • Diabetes • Mental illness that has required hospital treatment or referral to a psychiatrist • Have you ever tested positive for HIV, Hepatitis B or C or are you awaiting the results of such a test Please provide details of disorder, dates, duration of illness, treatment, results of investigations and tests and time off work. continued…

10. Application form questions (3) • Health – in the last 5 years have you had any of the following • A mole or freckle that has bled or changed in appearance or any lump or growth • Chest pain, irregular heart beat, raised blood pressure or raised cholesterol • Asthma, bronchitis or any other respiratory disorder • Numbness, loss of feeling or tingling of the limbs or face,loss of balance or co-ordination • Seizures,fits, fainting or blackouts • Any disorder of the eyes or ears or impaired hearing ( ignore sight problems corrected by glasses or contact lenses) • Arthritis, back pain, sciatica, neck, knee or wrist pain • Any other disorder of the joints, bones or muscles • Any disorder of the digestive system, liver, stomach, pancreas, or bowel (including ulcers, hepatitis, colitis,or Crohn’s disease) • Any blood disorder or anaemia • Thyroid disorder • Disorder of the kidney, bladder or genitourinary system • Treatment or a positive test for any disease which was transmitted sexually • Depression, anxiety, stress, fatigue or nervous breakdown • Medical investigation, scan or test or have you been advised to have such investigations? • Attendance at a hospital as an inpatient or outpatient • A surgical operation Please provide details of disorder, dates, duration of illness, treatment, results of investigations and tests and time off work. continued…

11. Application form questions (4) • Health – in the last 12 months • Have you had any medical consultation eg with a doctor, consultant, psychiatrist, hospital, clinic, osteopath etc • Have you ever been prescribed drugs, medicines or tablets or had any other form of medical treatment Please provide details of disorder, dates, duration of illness, treatment, results of investigations and tests and time off work. • Within the last 5 years have you been exposed to the risk of HIV infection

12. Medical evidence • Report from General Practitioner (GP) • Detailed, similar to application form • Nurse Screening Examination ( NSE) • Height, weight, blood pressure, urine, other • Medical examination by doctor (ME) • Tests • Routine • specific

13. Setting limits formedical evidence • Cost of evidence • Fee, and cost of arranging • Underwriter time assessing • Risk of client not proceeding – delay, hassle • Risk of advisers using another company • Benefit • Fuller disclosure so better assessment of risk • Extra premium / exclusions / declines • Fewer claims disputes

14. Medical evidence for Life Cover:according to sum assured £’000

15. Medical evidence for Critical illness:according to sum assured £’000

16. Assessing the medical evidence:The underwriter’s training includes • Insurance product background • Lifestyle and occupation risks • Medical risks: • Basic anatomy and physiology • Medical terminology • Common diseases and their significant features for underwriting • Investigations and treatments • Measures of severity • Common laboratory tests

17. Underwriting manuals • Information on a very wide range of impairments • Guidance for underwriters in making their decision • Based on medical research • Selective on which studies to use • Results converted for insurance use

18. Non-standard risks • A standard risk is known as ‘ordinary rates’ (OR) • Non standard terms: • Decline/postpone • Extra mortality /morbidity • eg ‘+50%’, ‘+200%’ • Level extra risk per 1000 benefit • eg 1 per mille, 3 per mille • Decline • Postpone • Exclusion of claims from specified cause Good practice to inform the customer of the reason for the non-standard terms

19. Agenda - reminder • Background • Statistical assessment of risk - pricing • Personalised assessment of risk - underwriting • Questions • Reports and examinations • Assessing the information • Non-standard risks.

20. Risk Assessment in long term personal insurance Debbie Akers MA FIA Chief Underwriter Friends Provident