Critical Illness Global Market Overview

Transcription

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2 Critical Illness Global Market Overview IAA Health Section Critical Illness Topic Team Presented by Sue Elliott (chair), Neil Hilary and Peter Temple 1 June 2006

3 SUMMARY Introduction Regions around the globe: Asia Pacific Australia Canada Ireland South Africa* United States United Kingdom* Discussion

4 Introduction

5 Purpose of Topic Teams Create an international community of actuaries (and others) who seek to gather, discuss and disseminate information to our members (not limited to actuaries) Communications tools Online Journal, website, periodic colliquia and meetings

6 Critical Illness Topic Team Members Sue Elliott United Kingdom (chair) Andres Webersinke Asia Pacific Richard Houde Canada Avi Bar Or Israel Jaime Jean Mexico Peter Davies New Zealand Audrey Kudryavtsev Russia Peter Temple South Africa Darrell Spell United States Hank George* United States (underwriter) * resigned, but provided some initial input

7 Critical Illness Regions around the globe

8 Asia Pacific Region Years in market # of companies Market size (approx) Target market China (approx) 15-20% of total premium Individual & institutions Hong Kong 15 Over 20 35% of life policies Individual India 3 13 (approx) Unknown Individual & institutions Korea 3 13 (approx) KRW 3 billion Individual Taiwan 8 to 20 7 (approx) Large Individual & institutions Source: SoA CI Seminar, September 2005, Baltimore

9 Asia Pacific Premium guarantees: - CI plans in Singapore, Malaysia and some other Asian marekts are sold with premium guarantees - however, the trend is shifting towards non-guaranteed rates for this rider benefit (especially in Malaysia and Singapore) Standardized definitions: - standardized in some markets such as Taiwan, Singapore and Malaysia - standard is better than in the UK (ie more detailed/stricter than the ABI standard) Claims surveys available in some markets Market is influenced by reinsurers and marketing departments of direct insurers Source: CI Topic Team

10 Australia 18 years in the market Approximately 14 companies Product features/characteristics: - basic and extended contracts available - covering between 4 and 40+ illnesses/events - cancer, by-pass, stroke and heart attack account for 85% of paid claims (IoA Australia) - single disease products not available - all provide lump sum benefits with minimum of $10,000 - mainly sold as options to term policies, but stand alone also available - two companies offer female products Market size: about 17% of the population Target: individual market Source: SoA CI Seminar, September 2005, Baltimore

11 Canada sales (# policies) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Source: Munich Re, CRC 2006

12 Canada sales demographics Average age around 38 75% of buyers are between 35 and 54 Half of sales are to females Over 80% of sales are non-smokers Source: Munich Re, CRC 2006

13 Canada buying pattern Average annual premiums around $1,100 Average size benefit amount around $91,000 Coverage for about 24 conditions A majority of sales have return of premium feature Source: Munich Re, CRC 2006

14 Canada sales mix by plan Plan 2003 (%) 2004(%) Level pay Renewable term Permanent Other Source: Munich Re, CRC 2006

15 Canada overview of individual market 21 companies Coverage of 30+ conditions including partial benefits T10, T75 and T100 and other term products ROP on surrender, death and maturity Conversions or coverage switch Premium guarantees Moratorium on cancer and benign brain tumour Source: Munich Re, CRC 2006

16 Canada hot topics Return of premium features Premium rate guarantees Number of illnesses covered Standardized definitions Source: Munich Re, CRC 2006

17 Ireland The Society of Actuaries in Ireland 1994 invesitgation Production of 1 st published IC94 table to aid in reserve reporting IC94 was: - both male and female, no select period, aggregate smoker - based largely on UK population data - adjusted for Irish experience and to convert to insured - allowance added to Total & Permanent Disability Source: SoA CI Seminar, September 2005, Baltimore

18 Dread disease in South Africa

19 Evolution In South Africa: - first product in conditions - further 8 ( core ) and then further 21 ( extended ) definitions - now differing severity level critical illness coverage - some are not diseases or illnesses but surgeries or states of health Currently more than 50 conditions covered Changes due to medical advances

20 Product development: Grouping of Conditions & Separate Claims Selecting individual conditions or groups of conditions Multiple claims possible Offers greater flexibility Insurer exposed to risks on single diseases / body systems

21 Product development: Severity Levels Benefit payments are linked to severity levels - severity levels are determined by predefined objective medical definitions - multiple payments are allowed for single or multiple conditions - cover is selected for Severity levels A-D (100%, 75%, 50%, 25%) or A-G (100%-5%)

22 Severity Levels: Cancer Example Level Definition Benefit paid A B C D Stage 4: tumour extending beyond organ with nodes and/or distant metastases Stage 3: tumour within organ with re-gional lymph node spread Stage 2: tumour invading organ, no lymph node involvement Stage 1: primary tumour site with no spread within organ 100% 75% 50% 25% E Carcinoid syndrome or pre-leukemia syndrome 15% F Basal cell carcinoma >4 cm, squamous cell carcinoma >4 cm, prostate cancer T1N0M0 5%

23 Product development: Whole Family Benefit and Multiple Lives Product that covers family under principal policyholder policy: - female specific conditions - marriage & birth - child specific conditions - trauma Cradle to the grave Product that covers multiple lives: - up to 10 people - need not be a family - flexibility

24 Product development: Reinstatment options and Catch-all benefit Reinstatement: - option to increase life cover to previous level - option to reinstate dread cover (with exclusions) Catch-all included to cover events not on predefined list - occupational disability definition - failure of predefined number of ADL s - reaching predefined WPI level

25 United States product overview Stand alone (majority) Benefits reduced to 50% at age 65 Return of premium upon death Guaranteed renewable (premium guaranteed for two years) Waiting period 30 to 90 days for cancer; 0 to 30 days for all other conditions Survival period 0 days Core conditions cancer, heart attack, stroke, kidney failure, MOT

26 United States key issues The most significant issue facing the US market is customer acceptance There are also significant regulatory hurdles Data: - good news there is some good population data - bad news do not yet have good insured data - however able to estimate insured data from population data Source: CI Topic Team

27 United States views from an underwriter Primitive critical illness market Key issues: - getting insurers to consider developing the product - getting regulators to at least understand the product as distinct from the historic cancer insurance covers - increasing the number of reinsurers supporting the market - gearing up underwriters to underwrite the product in-house rather that outsource underwriting to specialists (like was done for LTC) - getting producers to take the time to understand the product and see how easy it is to sell - reassuring skittish carriers that poor UK experience in recent years does not mean the product is flawed intrinsically but rather that there are lessons to be learned - convincing health/medical, disability and LTC carriers to explore connectivity between their products and CI US industry activity: - annual SOA CI Conference - LOMA CI Study Group Source: CI Topic Team

28 Critical illness in the UK

29 United Kingdom individual CI sales One of the UK insurance industry s success stories Appeal: simplicity perceived need windfall element Currently profitable: robustness of definitions? potential impact of medical advances given that claims trigger is based on diagnosis New Polices ('000's) Heavily reinsured Source: Swiss Re Term & Health Watch

30 United Kingdom group CI revenue Premiums million Strong growth, from a low base Role within flex / voluntary schemes responsible for growth 10.9 Lives covered small relative 9.9 to individual market Group critical illness remains a small market relative to other employee benefits Source: GE Frankona Group Risk Survey

31 Current drivers of UK CI market Reducing reinsurance capacity and support Long-tem premium guarantees Change in capital and solvency requirements Potential impact of medical advances Robustness of definitions against legal challenges Changing consumer attitudes and expectations

32 Industry/regulatory response to drivers May 2005 Association of British Insurers ( ABI ) consultation paper on reviewable premium business August 2005 ABI consultation on the Critical Illness Statement of Best Practice April 2006 ABI release of updated Critical Illness Statement of Best Practice Financial Services Authority ( FSA ) Treating Customers Fairly ( TCF ) initiative

33 ABI consultation the fair treatment of reviewable premium business

34 Reviewable background & current state of play Financial Ombudsman s Service ( FOS ) concerns: - potential un-fairness of how review clauses are (or could be) operating in practice - do they comply with the Unfair Terms in Consumer Contracts Regulations ( UTCCR ) 1999? - fair and reasonable basis? FSA Treating Customers Fairly initiative FSA Statement of Good Practice ABI consultation on guidance on reviewable premium business

35 FSA Fairness of terms in consumer contracts Statement of Good Practice May 2005 Sets out what the FSA considers to be good practice for two specific types of contracts: - contracts with an interest rate variation clause - contracts with a premium review clause Published guidelines indicating that providers must improve clarity about when and why they will review premium rates for protection products Whey/why valid reasons or events outside the control of insurers Valid reasons need to be clearly and unambiguously defined

36 ABI Advice on treatment of reviewble premiums Published later in May 2005 to coincide with the FSA guidelines Consultation closed on 15 July 2005 ABI sought legal advice which was: There is no fundamental reason why long term insurance contracts with reviewable premiums breach the UTCCR's provided that the basis of the premium reviews is set out in the sales literature and policy documentation and that the method of calculation is applied in a fair and reasonable manner. Included an example review intended to provide companies with practical advice on how to comply with the UTCCR's and apply the FSA Statement of Good Practice

37 Primary targets for improvement Clarity at the point of sale Clarity about the criteria for review Explanation of how the criteria are applied to calculate premiums Introduction of an explicit fair and reasonable requirement in applying the specified basis of calculation

38 Initial feedback on ABI consultation paper A welcome step forward to address the concerns regarding the treatment of reviewable premium business Initial concerns regarding the potential for a substantial increase in paper provided to the consumer at point of sale (ie exhaustive list of assumptions that could potentially change) Material provided to the consumer should: - be simple and understandable - not overwhelm the consumer with data and formulae

39 ABI consultation review of the CI Statement of Best Practice ( SOBP )

40 A brief history of the CI SOBP 1998 Office of Fair Trading published critique of protection products 1999 ABI project King delivers original CI SOBP May, 2002 first full review delivers new heart attack definition (introducing the use of troponin tests to detect heart attack) and a prostate cancer exclusion (covering severe only) August, 2005 recent review April, 2006 updated CI SOBP released

41 Aims of the statement Security provides consumers with the safeguard that appropriate minimum standards of cover are used across the industry, ensures that cover remains affordable and continues to meet customer needs Comparability makes it easier to compare CI insurance from different insurers Clarity helps improve the understanding about what each product does and does not cover

42 Scope of the statement Key features Generic terms Model wordings for core conditions (7) Model wordings for additional conditions (13) Model exclusions Review process (every 3 years): - effective April revised May consultation August updated released April 2006

43 Aims of the consultation Improving clarity Future proofing Introducing two levels of cancer cover Other cosmetic changes to the SOBP

44 Improving clarity Product name: - Specified critical illness cover OR introduce a definition of CI: Critical illness insurance pays out on meeting the definition of a critical illness listed in your policy. Other conditions are not covered. Illness headings (eg): - Cancer malignant and invasive (with exclusions) - Heart Attack with ECG changes and specified clinical symptoms

45 Future proofing This does not mean the definitions are reviewable The aim is to keep the level of cover at current level but protect against future medical advances More medical terminology/jargon - communication issues The most important part to the consultation - impacts on pricing, reserving, guarantee loadings and capital requirements

46 ABI updated CI Statement of Best Practice

47 Outcome of the consultation New ABI Critical Illness insurance initiative will improve consumer understanding Launched 12 April 2006 following detailed consultation and consumer research Richard Walsh, the ABI's Head of Health and Protection insurance, said: The new Statement of Best Practice will mean customers have a much clearer explanation of what their product does and does not cover when they buy it and if they need to make a claim. This should also lead to fewer declined claims.

48 Outcome of the consultation (continued) Introduced a new standard description of critical illness: Life and critical illness cover pays out a lump sum if you either die or are diagnosed with a critical illness that meets our policy definition. We only cover the critical illnesses we define in our policy and no others. Better descriptions of the illnesses covered (eg more descriptive headings): Blindness permanent and irreversible Cancer excluding less advanced cases Coronary artery by-pass grafts with surgery to divide the breastbone Heart attack of specified severity

49 Discussion