SOA 2011 Annual Meeting & Exhibit Oct , Session 108 PD, The Convergence of Group and Individual Disability Insurance

Transcription

1 SOA 2011 Annual Meeting & Exhibit Oct , 2011 Session 108 PD, The Convergence of Group and Individual Disability Insurance Moderator: Daniel D. Skwire, FSA, MAAA Presenters: Anne G. Mitchell, FSA, MAAA Thomas K. Penn-David Primary Competency External Forces & Industry Knowledge

2 A Tale of Three Estuaries: Confluences of Group & Individual Disability Presented by: Tom Penn-David, FLMI/M, RHU to: Society of Antuaries, PD 108 October 18,2011 Contents SOA 2011: 108 PD - Disability Convergence 2 1

3 What are They? Worksite/Voluntary employer sponsored but employee paid generally modest amounts and benefit periods high GR ages Multi-life/LTD employer paid richer benefits - $40K plus monthly benefits Association offered to members of associations, either as discounts on IDI or sold using LTD platform with IDI underwriting, rates and billing SOA 2011: 108 PD - Disability Convergence Slide 3 How do they merge? Sales Group Agent vs Ind Agent Comp Level vs Heaped UW GI & Participation & Actively-at- Work vs Evidence of Insurability Issue Enroll vs Application Admin List Bill vs Individual i Claims largely similar SOA 2011: 108 PD - Disability Convergence Slide 4 2

4 Multi-Life/LTD Multi-Life IDI either stand-alone or in combination Several new entrants t in late 90s following Unum Stand-alone for sales to particularly targeted groups or companies example Intern programs Combination sales designed to meet specific needs, generally high income needs Several eral designs of combo sales Comp = individual w/discounts Prominent in LTD mkt in early 2000 s SOA 2011: 108 PD - Disability Convergence Slide 5 Multi-Life: Who & How Much? Unum, Met, Principal, Standard = Group & Ind Mass Mutual, Northwestern Mutual, Ameritas, Ohio National = Individual only Special cases MoOmaha, Berkshire/Guardian Sales = 35% of individual disability market Multi-Life All IDI Sales In Force Sales In Force Noncan 127,818 1,143,250 3,901,589 GR 7,931 87,184 1,068,975 Total 135,749 1,230, ,099 4,970,564 Source: LIMRA 2010 Survey SOA 2011: 108 PD - Disability Convergence Slide 6 3

5 Multi-Life Risk Management Comp vs Lapse Rate Guarantee Risk Selection Group Chassis? Ind Chassis? Level 15% vs first year comp 70% Limited (2-3) )year group rate guar vs noncan Aggregate risk selection vs individual medical and financial underwriting SOA 2011: 108 PD - Disability Convergence Slide 7 Multi-Life Case Designs Basic LTD Carve-Out Buy-Up Reverse Buy-Up SOA 2011: 108 PD - Disability Convergence Slide 8 4

6 Interesting Multi-Life Cases Citigroup design UBS & back-door integration Source: Citigroup Salary Continuation And Long Term Disability Benefits January 1, 2003 UPMC execs to $35K specialty docs carved out SOA 2011: 108 PD - Disability Convergence Slide 9 Worksite/Voluntary - What it Is The terms worksite and voluntary are used interchangeably and are defined as individual or group life and health products, sold at the worksite and paid for by the employee through payroll deduction - Lowerre/Brazell, National Underwriter, 7/27/2010 Originally mostly individual now interchangeable Products include life, disability, cancer/cii, limited medical, vision, dental, etc Disability #2 Key distinctions around enrollment process(in-house or 3 rd party) and sales process SOA 2011: 108 PD - Disability Convergence Slide 10 5

7 Worksite Who plays Individual AFLAC Unum/Colonial Allstate Worksite Transamerica WMD Mutual of Omaha Humana Spec Ben Group CIGNA Assurant Emp Ben Guardian Hartford ING EB Lincoln Others include Colorado Bankers/Dearborn, Combined, RSL, American Fidelity, United Teachers, OneAmerica Product chassis NOT related to characterization SOA 2011: 108 PD - Disability Convergence Slide 11 Worksite How much? Sources: LIMRA, Gen Re, Eastbridge LIMRA 2010: Eastbridge: 2009 Worksite disability sales = $1.1 billion (38% of sales = virgin) Gen Re: 2009 Voluntary Total Ind + Group ~ $1 billion sales, $3 B inforce? All data are $000 of premium Sources: LIMRA 2010 Survey, National Underwriter, Gen Re Australia SOA 2011: 108 PD - Disability Convergence Slide 12 6

8 Association the Dark Pool Typically sold on group chassis SI or full underwriting Step-rated or level premium Individual billing and lapses Issue limits range from $3,000 to $15,000 Separate from IDI association discounts SOA 2011: 108 PD - Disability Convergence Slide 13 Association the Players Difficult to find reliable size, player info Customers are mostly national and regional professional associations (AMA, ABA, etc) TPAs often control claims, admin Largest insurers are New York Life, Hartford, AIG, Aegon, UHC (old Commercial block) Group disability premium $700 million? IDI 2010 premium $99.5 million SOA 2011: 108 PD - Disability Convergence Slide 14 7

9 What Next? Impacts of PPACA Which way employer paid benefits? Impact of MLRs on ancillary products Impacts of Economy ( Great Recession ) sales Impact on disability financial results New entrants to group disability market Impacts of U.S. Deficit Future taxability Future inflation and interest rates Questions: tompenn@ant-re.com SOA 2011: 108 PD - Disability Convergence Slide 15 8

10 The Convergence of Group and Individual Disability Insurance Session 108 Panel Discussion Presented by Anne Mitchell, FSA, MAAA Consulting Actuary SOA Annual Meeting October 18, 2011 Convergence of Group LTD and Individual DI Voluntary Long Term Disability: Group product sold to multiple employees of one employer Usually guarantee issue Age-banded rates unless case has proven high participation Employees pay 100% of premium Multi-life Individual Disability Income: Individual product sold to multiple employees of one employer Fully underwritten or guaranteed standard issue Discounted, unisex premiums Employer or employee paid 2 October 18,

11 Why Converge? Employer cost containment Gives employees access to lower cost coverage than they could get on their own Diverse workforce needs more choice Access to occupations other than physicians Supplements group benefits for highly paid employees More profitable business than individually id sold policies 3 October 18, 2011 Voluntary Group LTD Employee choice whether to purchase or not Sometimes additional employee choice of EP, BP and/or benefit amount Policy provisions are generally similar to traditional LTD 4 October 18,

12 Group LTD Participation Factors Twelve Companies, Contributory Plans Expected Participation Average Maximum Minimum 20% % % % % % % % % Normalized so Non-Contrib. = October 18, 2011 Multi-Life Individual DI Guaranteed standard issue available for*: Employer poye pad paid with minimum of 5 10 lives Voluntary with minimum of lives and 25% - 30% participation Full medical and financial underwriting for smaller cases or those not expected to meet participation *Source: 2011 Milliman IDI Market Survey 6 October 18,

13 IDEC Incidence Rates Actual-to-Expected (Amount) Total Individual ML - Normal U/W ML - GSI U/W Study period: Expected = 1985 CIDA 7 October 18, 2011 IDEC Incidence Rates Actual-to-Expected (Amount) Policy Year Individual ML - Normal U/W ML - GSI U/W Study period: Expected = 1985 CIDA 8 October 18,

14 IDEC Incidence Rates 1.2 Actual-to-Expected (Amount) Individual ML - Normal U/W ML - GSI U/W 0 Med. Cl. 1 Cl. 2 Cl. 3-4 IDEC Occupation Class Study period: Expected = 1985 CIDA 9 October 18, 2011 Participation Drives Profitability This is true, regardless of the underlying insurance platform Spreads the excess morbidity caused by anti-selection Unhealthy people are more likely to sign up for coverage than healthier people Competition continues to drive minimum required participation levels down 10 October 18,

15 Case Underwriting Drives Participation Employee Demographics Underlying LTD Plan / Need for Coverage Employer Support 11 October 18, 2011 Underwriting Drives Participation Two IDI Cases Company A Company B - 5,500 financial advisors - 3,600 advertising ee s - Earning at least $75,000 - Earning $40k - $200k - Losing group LTD - 35 subsidiaries - Average age: 44 - LTD: 60% to $2,000 with - Average benefit: $4,078 buy-up 60% to $10,000 - Employer eager to offer the benefit - - Average age: 37 (1/4 < 30) Average benefit: $ October 18,

16 Underwriting Drives Participation Two IDI Cases Company A 46% participation $2.7 million premium Company B 5% participation $70,000 premium 13 October 18, 2011 Enrollment Also Drives Participation Ideal Enrollment Scenario: Employer allows access to all eligible employees Multiple types of access Employees are contacted pre-enrollment and more than once during enrollment Enrollment materials are customized, simple to understand and use Outline the need for coverage, explain benefits, used to enroll Enrollment period lasts no more than a few weeks 14 October 18,

17 Applications Received Voluntary IDI Plan October 18, 2011 Other Forms of Convergence Hybrid disability plans combining STD and LTD Catastrophic benefits in disability plans Critical Illness benefits in disability plans 16 October 18,

18 The Convergence of Group and Individual Disability Insurance SOA Annual Meeting Chicago, IL October 18, 2011 Daniel D. Skwire, FSA Milliman, Inc. 1 Recent Economic Trends 2 1

19 Recent Economic Trends 12% 10% 8% 6% 4% 2% 0% Unemployment Rate (September) % 10% 8% 6% 4% 2% 0% Residential Mortgage Delinquency Rate (2Q) % 4% 3% 2% 1% 0% Yield on 10-Year Treasury (October) ,000 1,500 1, S&P 500 Index (October) Milliman Medical Index Annual Increase in Healthcare Spending 2007/ / / / / 2010 Employer Portion 6.5% 6.0% 5.4% 8.0% 6.0% Employee Out-Of-Pocket 9.5% 10.5% 5.4% 6.6% 9.2% Employee Payroll Deduction Total Medical Cost (Employer & Employee) 12.8% 10.1% 14.7% 8.0% 9.3% 8.4% 7.6% 7.4% 7.8% 7.3% Source: Milliman 4 2

20 5 Personal Consumption Expenditures Food and Beverage 7.4% 7.7% 7.7% Clothing 3.8% 3.6% 3.5% Housing and Utilities 18.8% 19.0% 19.2% Furnishings 4.8% 4.4% 4.1% Healthcare 18.7% 19.3% 20.6% Transportation 11.1% 10.6% 9.7% Communication 2.3% 2.4% 2.4% Recreation 9.6% 9.5% 9.2% Education 2.1% 2.3% 2.5% Food Service 6.3% 6.3% 6.4% Finance and Insurance 8.1% 8.3% 7.8% Other 6.9% 6.7% 6.8% Total 100.0% 100.0% 100.0% Source: Bureau of Economic Analysis 6 3

21 Personal Consumption Expenditures Insurance as % Total Expenditures Life 0.87% 0.82% 0.76% Homeowners 0.07% 0.08% 0.08% Medical / Hospital 1.14% 1.02% 0.98% Income Loss 0.03% 0.03% 0.03% Worker s Comp 0.28% 0.25% 0.16% Motor Vehicle 0.61% 0.61% 0.59% Total Insurance 3.00% 2.81% 2.59% Source: Bureau of Economic Analysis 7 Personal Consumption Expenditures Distribution of Insurance Expenditures Life 29.0% 29.2% 2% 29.4% Homeowners 2.2% 2.8% 2.9% Medical / Hospital 38.0% 36.2% 37.7% Income Loss 0.9% 1.0% 1.0% Worker s Comp 9.5% 8.9% 6.4% Motor Vehicle 20.4% 21.9% 22.6% Total 100.0% 100.0% 100.0% Source: Bureau of Economic Analysis 8 4

22 Personal Consumption Expenditures Disability Insurance in Context Tobacco 0.777% 0.754% 0.921% Internet Access 0.345% 0.427% 0.525% Movie Tickets 0.113% 0.110% 0.116% Laundry/Dry Cleaning 0.091% 0.085% 0.078% Water Transportation 0.028% 0.027% 0.024% Income Loss Insurance 0.027% 0.028% 0.026% Non-USPS Deliveries 0.024% 0.024% 0.020% Food Consumed on Farms 0.004% 004% 0.004% 004% 0.003% 003% Source: Bureau of Economic Analysis 9 Disability Sales Trends 10 5

23 Voluntary Sales All Lines of Business $6,000 $5,000 $4,000 $3,500 $4,027 $4,366 $4,100 $4,715 $4,223 $5,038 $5,397 $5,225 $5,243 $3,000 $2,600 $3,100 $2,000 $2,000 $2,200 $1,000 Source: Eastbridge Consulting / AM Best Review 11 Disability Sales Trends Group LTD Sales Growth Rate 50% 40% 30% 20% 10% 0% -10% -20% Traditional Voluntary Source: Gen Re Market Survey 12 6

24 Disability Sales Trends Group STD Sales Growth Rate 50% 40% 30% 20% 10% 0% -10% -20% Traditional Voluntary Source: Gen Re Market Survey 13 Disability Sales Trends Individual DI Sales Growth Rate 50% 40% 30% 20% 10% 0% -10% -20% Individual Multilife Source: Milliman Market Study 14 7

25 Disability Sales Trends Voluntary / Multilife v. Traditional Sales Growth 50% 40% 30% 20% 10% 0% -10% -20% Individual or Group? 16 8

26 Individual or Group? Individual product is best for higher income or self-employed professionals seeking customized coverage and able to undergo medical underwriting. Group product best for large employers wanting standardized employer-paid coverage for full employee population. Solution is less clear when offering optional coverage to employees at their own expense. 17 Individual or Group? Common Myths Myth 1: Individual coverage is higher cost Not if equivalent benefits are offered and similar underwriting methods and commissions are used Myth 2: Group coverage is easier to underwrite Not if similar participation rates can be achieved for coverages with similar benefits Myth 3: Individual coverage is more flexible Not if cases have similar risk profiles and underwriting approaches 18 9

27 Individual or Group? Benefit Considerations Individual Group Basic Benefit Specified Amount % of Salary Usual Renewability Guaranteed Renewable Optionally Renewable Coverage for Salary Increases Manual Additions Automatic Portability Automatic Optional Benefit Offsets Regulatory Restrictions No Restrictions 19 Individual or Group? Pricing Considerations Individual id Group Loss Ratio Requirements Universal Some States Typical Renewable Loss Ratio 50-55% 60-65% Composite Rating Possible? No Yes Experience Rating Possible? No Yes Issue Age Rates Possible? Yes Yes Underwriter Discretion Possible? No Maybe 20 10

28 Individual or Group? Recent Trends Carriers used to specialize in one market or the other, or have separate divisions diii for idiid individual and group. Worksite market used to be primarily individual. Group carriers are increasingly pursuing worksite business with simple group policies, formal enrollment processes, etc. Individual DI carriers are seeking multilife business with discounts and/or underwriting guarantees. Worksite writers increasingly offer both group and individual products for use in a range of sales situations