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Adrian C T Mak GeneralCologne Life Re Australia

D ISABILITY C LAIMS R I S I N G. Adrian C T Mak GeneralCologne Life Re Australia. Prepared for. USA disability insurance. Source: Milliman & Robertson Disability Newsletter. IP: a high risk and low reward product. Premium rate revisions often lag experience.

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Adrian C T Mak GeneralCologne Life Re Australia

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  1. DISABILITYCLAIMS R I S I N G Adrian C T Mak GeneralCologne Life Re Australia Prepared for

  2. USA disability insurance Source: Milliman & Robertson Disability Newsletter Individual Disability Income Insurance in New Zealand

  3. IP: a high risk and low reward product Individual Disability Income Insurance in New Zealand

  4. Premium rate revisions often lag experience Source: GeneralCologne Re Australia, Individual disability income premium rate survey, July 2002 Individual Disability Income Insurance in New Zealand

  5. Agenda • Introduction to the drivers of disability claims cost • Background to the 1997-2001 investigation • Highlight of results • Current levels • Trends • Conclusion • Discussion Individual Disability Income Insurance in New Zealand

  6. Underwriting Claims Management Benefit Type Claim Type Occupation Classes Product Work Ethic Claimant Sex Occupation Disability Claims Replace -ment Ratio Political/ Legal Policy Definitions Age Income Economy Smoker Status Offsets Cause Smoker External Factors Deferment Period Benefit Period Company Functions Sales & Distribution Actuarial & Pricing

  7. Disability claim cost drivers Claim termination New claim incidence % benefit paid Claim length Claim cost Individual Disability Income Insurance in New Zealand

  8. The 1997-2001 investigation • Claims incurred during 1 January 1997 to 31 December 2001 • 6 individual disability insurers, 94% of the New Zealand market • 4,153 number of new claims • 439,397 policy years exposed • Scope is agreed value and indemnity products only • Not group salary continuance or mortgage insurance • Gross of reinsurance claims • Expected results on 100% of IAD89-93 and 85CIDA Individual Disability Income Insurance in New Zealand

  9. Snapshot of the data Individual Disability Income Insurance in New Zealand

  10. Incidence and duration drive claim costs % change in experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  11. Claim length driving 30 day waiting period % change in experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  12. Incidence driving 90 day waiting period % change in experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  13. White collar blue % change in male experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  14. White collar blue % change in male, 30 day wait, experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  15. White collar blue % change in male, 90 day wait, experience from 1995-99 to 1997-01 Individual Disability Income Insurance in New Zealand

  16. Current costs of claim A/E claim cost based on IAD89-93 Individual Disability Income Insurance in New Zealand

  17. Current levels of claim incidence A/E incidence rates based on IAD89-93 Individual Disability Income Insurance in New Zealand

  18. Reversal of trends A/E incidence rates for 30 day deferment period Individual Disability Income Insurance in New Zealand

  19. More opposites A/E incidence rates for 90 day deferment period Individual Disability Income Insurance in New Zealand

  20. Occupational incidence rate relativities A/E incidence rates (IAD89-93) Individual Disability Income Insurance in New Zealand

  21. Occupational claim length relativities A/E length of claim (IAD89-93) Individual Disability Income Insurance in New Zealand

  22. Occupational claim cost relativities A/E claim cost (IAD89-93) Individual Disability Income Insurance in New Zealand

  23. Causes of claim Female Male Individual Disability Income Insurance in New Zealand

  24. Average length of claim Analysis of new claims that have been closed during the investigation period Individual Disability Income Insurance in New Zealand

  25. Higher female incidence and cost Excess female morbidity (IAD89-93) Individual Disability Income Insurance in New Zealand

  26. Females remain longer on claim Ratio of female A/E to male A/E (using male IAD expected) termination Individual Disability Income Insurance in New Zealand

  27. Higher smoker incidence and cost Excess male smoker morbidity (IAD89-93) Individual Disability Income Insurance in New Zealand

  28. First year selection in claim incidence Ratio of select to ultimate experience (85CIDA) Individual Disability Income Insurance in New Zealand

  29. Termination rates for 30 day deferment period A/E termination rates (IAD89-93), male, 30 day deferment period Individual Disability Income Insurance in New Zealand

  30. Termination rates for 90 day deferment period A/E termination rates (IAD89-93), male, 90 day deferment period Individual Disability Income Insurance in New Zealand

  31. Long term termination rates improved A/E termination rates (IAD89-93), males, 30 day deferment period Individual Disability Income Insurance in New Zealand

  32. Long term termination rates improved A/E termination rates (IAD89-93), female, 30 day deferment period Individual Disability Income Insurance in New Zealand

  33. Long term termination rates deteriorated A/E termination rates (IAD89-93), male, 90 day deferment period Individual Disability Income Insurance in New Zealand

  34. Long term termination rates deteriorated A/E termination rates (IAD89-93), female, 90 day deferment period Individual Disability Income Insurance in New Zealand

  35. Claim offsets steadily reducing over time Ratio of paid to insured claim amounts in 1997-2001 Individual Disability Income Insurance in New Zealand

  36. Claim offsets steadily reducing over time Ratio of paid to insured claim amounts in 1997-2001 Individual Disability Income Insurance in New Zealand

  37. Indemnity products have longer claims A/E termination rates (85CIDA), male, 30 day deferment period Individual Disability Income Insurance in New Zealand

  38. Higher claim frequency under agreed value A/E incidence rates (85CIDA), male, 30 & 90 day deferment period Individual Disability Income Insurance in New Zealand

  39. Agreed value products do cost more A/E experience (85CIDA), male, 30 day deferment period Individual Disability Income Insurance in New Zealand

  40. Features of the data Individual Disability Income Insurance in New Zealand

  41. Disability Insurers Report Card Company A/E to industry, male, class B, 30 day deferment period Office Individual Disability Income Insurance in New Zealand

  42. Disability Insurers Report Card Company A/E to industry, male, all deferment periods Office Individual Disability Income Insurance in New Zealand

  43. Product Agreed Value, Indemnity Benefit period Basic, Deluxe versions Definition of disability Definition of income Price Sales vs profit objective Arbitrage opportunities Corporate Size of portfolio Underwriting Claims management Customers Self employed Employees Distribution Direct Adviser 360 degrees of separation Individual Disability Income Insurance in New Zealand

  44. More adverse claims experience • Policy definition of total disability and partial disability benefit formula • Education, skills and training of underwriters and claims teams • Occupation class upgrades • Commercial underwriting decisions • Customers’ greater awareness of cover and the right to claim • Changing work ethic and social attitudes to insurance Individual Disability Income Insurance in New Zealand

  45. Other claim cost variables • Partial disability claims • Specific occupations within occupation classes • Does size of policy matter? • Does benefit period make a difference? • Is experience better for employees versus self-employed? • Actual versus expected claim length by disability cause • Are the newer products really better managed? Individual Disability Income Insurance in New Zealand

  46. DISABILITYCLAIMS R I S I N G Discussion Questions and Answers Prepared for

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