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Topical issues in CI pricing

Topical issues in CI pricing. Darshan Singh & Alex King. Issues. Recent views on CI guarantees How different reinsurers viewpoints have changed Impact of new definitions and new diseases Recent trends in key diseases & future medical advances

hermione-woodard
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Topical issues in CI pricing

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  1. Topical issues in CI pricing Darshan Singh & Alex King

  2. Issues • Recent views on CI guarantees • How different reinsurers viewpoints have changed • Impact of new definitions and new diseases • Recent trends in key diseases & future medical advances • Base level of morbidity including selection factors • Changes to the ABI claims matrix

  3. CI Guarantees…… a brief bit of history! • Pre 2003, CI market was very competitive • Most insurers offered both guaranteed & reviewable CI policies • Small margin between pricing of reviewable & guaranteed CI – most sales were guaranteed • Volumes were excellent – almost 1.2m policies sold in 2002, up almost 50% on prior year • Competition over number of definitions • Large proportion reinsured (90% common) often on nil-premium structures. Mostly with 2 reinsurers (GE & Swiss)

  4. CI guarantees – so what changed?! • Swiss Re withdrew from the market thus reducing capacity • Other reinsurers either increased prices or backed away from long-term guarantees – some offered 5 years! • Many insurers also withdrew guaranteed product (e.g. Zurich, AEGON, Pru) • The insurers that remained active increased prices by 50-60% in the first couple of months of 2003 • Prompted “fire sale” as belief grew that the future for guaranteed CI was bleak

  5. CI Guarantees – outcome? • Insurers reinsured less • Maximum benefits reduced – sometimes as low as £250k • Maximum term was capped at 25 years • Stand-alone CI was priced same as Accelerated (or withdrawn) • Volumes fell to around half the 2002 peak – 550k policies in 2006

  6. Guaranteed & Reviewable CI Pricing

  7. Guarantee Loading • Little difference pre-2003 between gtd & rev • Loadings increased due to reduced reinsurance capacity and uncertainty around prostate cancer, leukaemia, troponins & silent strokes • New ABI Definitions have helped to reduce uncertainty and lower the guarantee loadings • Lately very competitive reinsurance markets are driving down guarantee loadings

  8. Changing reinsurance landscape for guaranteed CI

  9. Issues • Recent views on CI guarantees • How different reinsurers viewpoints have changed • Impact of new definitions and new diseases • Recent trends in key diseases & future medical advances • Base level of morbidity including selection factors • Changes to the ABI claims matrix

  10. Impact of new definitions and diseases • Key changes to definition • Troponin hurdle for heart attacks • Future proofing of cancer • Introduction of permanent neurological deficit • New diseases added • Traumatic head injury

  11. Pricing issues around troponins • Increase in heart attack incidence: in 2001/02 with troponin testing starting to become widespread • UK coverage of troponin testing is not complete as yet: • 2006 chest pain survey1 showed 58% of hospitals having Troponin T capability and 44% having Troponin I (compared to 32% and 23% respectively in 2001) • Authors state: “Development of chest pain services in the UK is progressing in a disorganised way” • Only 90% of the heart attack claims we audited in 2007 had troponin measurements • Past experience needs to be adjusted for the impact of troponins • There may be future adverse trends as coverage becomes complete and claims practices bed down

  12. Pricing issues around troponins • Troponins can also be released: • During cardiac surgery • In endurance events • Septic shock • Pulmonary embolism • Scorpion venom • Potential for these to subsequently become claims – more so cardiac surgery • Depends on claims philosophy and enforcement of other pillars of the definition

  13. Future proofing of cancer Largely future proofed except that some terms could become obsolete in the future (shown in bold below); All cancers which are histologically classified as any of the following: • pre-malignant,; • non-invasive; • cancer in situ; • having either borderline malignancy; or • having low malignant potential A small risk – but a risk nonetheless

  14. Permanent neurological deficit with persisting clinical symptoms Symptoms of dysfunction in the nervous system that are present on clinical examination and expected to last throughout the insured person's life. Symptoms that are covered include…. [a big list that takes up two slides!]. The following are not covered: • An abnormality seen on brain or other scans without definite related clinical symptoms • Neurological signs occurring without symptomatic abnormality, e.g. brisk reflexes without other symptoms • Symptoms of psychological or psychiatric origin Where does the burden of proof lie on these? The Brain is a complex organ and there is no severity criterion in the definition

  15. Permanent neurological deficit • Offices have not had issues so far with the generic term • Issue could arise in the future as medical science is able to track more deficits back to injuries to the brain • Could the following be causes of claim in the future? Are we looking at the next TPD with many declined claims? • Seeing flashing lights • Vague cognitive impairment – no longer the same person • Inability to orgasm

  16. My Jerry Springer Slide: Is the insurance industry equipped to deal with claims of this nature? Can you imagine a claims form for this?! • Reduced libido - about half of people with traumatic head injury experience a drop in sex drive2. The remainder experience increased libido, or no change at all. • Erectile problems - between 40 and 60 per cent of men have either temporary or permanent impotence following their injury2. • Inability to orgasm - up to 40 per cent of men and women report difficulties having an orgasm2

  17. Traumatic head injury – Not a complete overlap with stroke7 Diffuse Axonal Shearing

  18. Traumatic Head Injury Cost • The CI Trends Working Party will be commenting on this in their final version of “The Critical Paper” paper • Our view is that the cost will be higher for younger ages and males where most THI occurs • Thought needs to be given to whether it is included in Children’s CI cover • A rough estimate of the cost from HES data, taking into account overlap with TPD, is significant single digits • Companies have the option to not cover THI

  19. Issues • Recent views on CI guarantees • How different reinsurers viewpoints have changed • Impact of new definitions and new diseases • Base level of morbidity including selection factors • Recent trends in key diseases & future medical advances • Changes to the ABI claims matrix

  20. Base morbidity - relationships These are derived from our observations from quotes that we’ve done • Higher sums assured heavier experience => an amounts loading as opposed to a discount => too much NML drift? • Tied/Bancassurer business is on par with IFA business provided the same risk management practices apply • IFA experience more homogeneous than for mortality • Reviewable business worse than guaranteed • Experience is linked to sales volumes - better experience with higher volume: stronger risk management as offices believe they can pick and choose?

  21. Base morbidity - selection • The key risk in interpreting experience is what table to use? • Gen Re have produced a table incorporating a 3 year select effect: but the difference between duration 2 and 3+ is only about 1% • There is a clear selection effect: not only from CMI data but from quote data we’ve seen • However, data is not homogeneous: • Covers a variety of underwriting years • With changing risk management practices • And different definitions • The select effect may not therefore be as steep as derived from CMI or company data once adjustments are made for the above

  22. Issues • Recent views on CI guarantees • How different reinsurers viewpoints have changed • Impact of new definitions and new diseases • Base level of morbidity including selection factors • Recent trends in key diseases & future medical advances • Changes to the ABI claims matrix

  23. Trends in major CI conditions • Cancer • Heart Attack • Stroke

  24. Cancer Trends - Males Flat trend up to 2004. Melanoma increases balanced by others. 2005 jump in most cancers including melanoma and prostate

  25. Cancer Trends - Females Flat trend in 1998-2003 with jump in 2004-05. Recent increases due to melanomas and ovarian cancer. Cervical cancer has shown improvements to counteract some of this.

  26. Cancer trends: what the experts say • Many cancer registries are having a go at projecting future trends using age-cohort and age-period models • Scottish trend projected to be relatively flat with only a slight deterioration in the next 5 years9 • North West Cancer Intelligence Service projects a 1% p.a. deterioration for the next 15 years in the region • Thames Cancer Registry shows trends by individual cancer site10 • Researchers at KCL predict little change in age-standardised incidence rates in England12 • Irish trend extrapolated to be circa 0.9% p.a. deterioration11

  27. Breast cancer scanning Malignant breast cancer trends have been fairly flat over the last few years, so what impact has scanning had? Breast Cancer Trends in Stage Distribution Scanning appears to not have changed the distribution of cancer by stage. But it has picked up more carcinoma in situ, which is not covered

  28. Melanoma and Cheap Flights I’ve been slightly misleading as melanoma trends have been bad for some time – sun exposure many years ago can do the damage

  29. Heart attack trends • HES data has shortcomings so trends have been corroborated with Scottish data (which has different shortcomings!) • Scottish data shows continuing strong improvements at older ages… but a level trend at younger ages • English data shows a leveling off of rates at older ages and an increase in rates at younger ages

  30. Heart attack trends

  31. Heart attack trends • Flattening of improvements for postulated to be due to: • reductions in smoking cessation4,6, • increased obesity and diabetes4,6, • higher resting heart rates in young adults3 • Interestingly levels of physical activity have not changed much over the period suggesting that diet and lifestyle are more to blame4 • Troponins are not mentioned in the literature as cause for the increase

  32. BMI trends4 Worst trends for those aged 25-34 and35-44

  33. Emotional upset and heart attacks • 30 June ’98 semi-finals of the World Cup: England lost to Argentina. 25% more heart attacks on that day and in the 2 days following5 • Increase in admissions suggests that MI can be triggered by emotional upset, such as watching your football team lose an important match • With England not in Euro 2008 it should be a good year for heart attacks!

  34. Seriously…. • With the credit crunch this is something to watch… • A Cambridge study suggests that a system-wide banking crisis increases population heart disease mortality rates by 6.4% (95% CI: 2.5% to 10.2%, p < 0.01) in high income countries8 • The effect could be 4 times worse in lower income countries

  35. Scottish stroke incidence rates as % of 1997 150% 140% 130% 120% Males 0-44 110% Females 0-44 100% Males 45-64 90% Females 45-64 80% 70% 60% 50% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006p Stroke Trends

  36. Stroke trends commentary • Scottish data excludes incidence where a patient has had a stroke in the last 10 years. English data includes all strokes • Both show younger ages having lower improvement rates than older ages • Reasons are as per MI – obesity, smoking, general health • Is this cohort more unhealthy?

  37. Trends summary and future outlook • Trends for cancer relatively flat • Trends for MI increasing for younger ages and flat or reducing slightly for older ages • Stroke trends indeterminate • Off the shelf testing a big risk for underwriting and claims in the future • Tests for cancer • Family history • Genetics • Not just a problem for new policies but also anti-selective lapsation and earlier claims identification

  38. Issues • Recent views on CI guarantees • How different reinsurers viewpoints have changed • Impact of new definitions and new diseases • Base level of morbidity including selection factors • Recent trends in key diseases & future medical advances • Changes to the ABI claims matrix

  39. ABI TCF changes • Non-linked non-disclosure will now be paid in full • All ratings up to and including +50 will not be classed as deliberate or without care and will attract a proportionate or full payment • Requests for medical records need to be more fully justified

  40. ABI TCF– impact on claims costs • Circa 10% of claims are declined for non-disclosure in the first 5 years. Declinature rates for non-disclosure thereafter are minimal • 30-40% of these might no longer be investigated because of the need for more justification of medical evidence requests (+3-4%) • 10% might have resulted in exclusions not linked to claim so now paid in full (+1%) • There will be more proportionate payments as below a +50 rating (+1-2%) • Total impact on claims paid will be to increase claims in the first 5 years by 5-7%

  41. ABI TCF– impact on claims costs • Impact will depend on pre-changes claims philosophy and expected future philosophy • Will also depend on other risk management tools, specifically: • GPR sampling • Tele-underwriting • App form and online submission design • Expert underwriting • Channel/distribution management

  42. Other Topical Issues • PS 06/14: not much changes to %’s reinsured or structure • Additional illnesses: Mastectomy, CJD etc • Kiddie CIC: An increasingly common claim cause • Solvency II

  43. References • Development of acute chest pain services in the UK, Elizabeth Cross, Steven How, Steve Goodacre, Emerg Med J 2007;24:100–102 • http://www.disability.vic.gov.au/dsonline/dsarticles.nsf/pages/Traumatic_brain_injury_and_sexual_issues?opendocument/ • Secular trends in heart rate in young adults, 1949 to 2004: analyses of cross sectional studies, Black, Murray, Cardwell, Davey, Smith, McCarron, Heart 2006;92:468-473 • Health Survey for England, Department of Health • Admissions for myocardial infarction and World Cup football: database survey, Carrol et al, BMJ 2002;325:1439-1442 • Coronary heart disease trends in England and Wales from 1984 to 2004: concealed levelling of mortality rates among young adults, O’Flaherty et al, Heart 2008;94:178-181 • http://discovermagazine.com/2004/dec/lights-out/ • Can a bank crisis break your heart? David Stuckler et al, Globalization and Health 2008 • Cancer in Scotland: Sustaining Change, Cancer Incidence Projections for Scotland (2001-2020), The Scottish Government Statistics • Cancer in South East England 2005, Thames Cancer Registry • Trends in Irish cancer incidence 1994-2002 with predictions to 2020, National Cancer Registry • The future burden of cancer in England: incidence and numbers of new patients in 2020. Møller et al, British Journal of Cancer 2007

  44. Contact Darshan Singh, Head of Marketing Actuarial darshan.singh@scottishre.com Alex King, Head of Protection Marketing alex.king@scottishre.com Thanks to: Matthew Smith, Warren Copp, Paul Reddick, Dave Heeney, Paul Lewis, Steve Nuttall, Scott Reid, Ian Rowe

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