New Trends in Income Protection Products

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Jennifer Cunningham
8 years ago
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1 of the International Actuarial Association New Trends in Income Protection Products Eitan Fish, FSA Swiss Re Israel

2 Israel Economy low inflation and unemployment large health budget and wide social safety net high insurance penetration strong regulatory & legal system Slide 2

3 Israeli Society desire not to be reliant on others low acceptability of being out of work living with war & terror military conscription Slide 3

4 Some generalizations about Israeli people strong work ethic, survivors, builders relatively robust health, low mortality innovative financially pro-active Slide 4

5 The Product Claim status = 75% occupationally disabled Monthly benefits paid until retirement age Premiums vary by age and occupation but not by gender, smoking, region Benefits are taxed as salary Slide 5

6 Definitions of Disability Own occupation & not working Own or similar occupation Any occupation Recent new products Own occ for two years, then own or similar Own or similar for two years, then any occ Slide 6

7 Marketing Agents drive the market DI is part of standard employee-benefits package retirement savings & pension annuity pre-retirement life & DI portable when policyholder changes jobs High penetration rate employers are required to provide a pension Slide 7

8 Experience Studies Maintenance of good stats Local, credible, insured-lives experience Incidence rates & claim termination rates Don t try to lift assumptions from another market! Statistics need to span fat and lean years of the cycle Slide 8

9 Incidence Rates: Israel vs UK Israel Unisex UK Unisex Slide 9

10 Claim Termination Rates: Israel vs UK Slide Claim termination rate Months since claim inception Israel age 40 UK age Claim termination rate Months since claim inception Israel age 40 UK age 40

11 Israel-Specific Pricing Issues High lapsation when people change jobs even though coverage is supposedly portable No statistical variation by gender Observable variation by smoking status Disabled life mortality very high since healthier lives return to work very fast Slide 11

12 Occupational Loadings The Problem Insufficient occupational loadings Blue collar occupations often rated as white Occ loadings have increased lately cross-subsidies with white collar still exist Slide 12

13 Occupational Loadings A Solution Grade down the occupational loadings by age This is borne out by experience Due to older workers motivation 600% 500% Slide % 300% 200% 100% 0% Class 4 Class 3 Class 2 Class 1

14 Underwriting Issues Need to understand the applicant s real work duties manager is not good enough building contractor Pensions plans use simplified underwriting but they exclude pre-existing conditions good experience Exclusions vs. medical loadings Slide 14

15 War and Terror - Limited Rider Numerous exclusions Military & police duty Nuclear, biological, chemical weapons Events lasting more than 48 hours Cap on monthly benefits Offset against governmental benefits for victims Slide 15

16 Product Issues ADW-based coverage Slide 16 Partial Return to Work with Rehabilitation

17 Ancillary Benefits Partial disability TPD benefit LTC benefit Retroactive payment for waiting period Waiver of waiting period in certain cases Slide 17

18 Pregnancy Pregnancy excluded in first policy year Only physical complications are covered Cap on mother s age Slide 18

19 Eitan Fish, FSA Swiss Re Israel Slide 19

20 Appendix Claims Issues Replacement Ratios Group Disability Slide 20

21 Claim Issues Slippage from physical disabilities to less physical claim starts with diagnosible impairment turns into mental & nervous or back-pain etc. solution: one-year limitation on M&N claims solution: back pain must be physically diagnosible Slide 21 Claims in unpleasant occupations need to be monitored Good claims experience seen with pure white collar Rehabilitation efforts

22 Replacement Ratio Attempt to keep RR below 75% to maintain incentive to return to work Gov t pays work accident monthly benefit based on medical disability tables not taxed So for work accidents, RR can be well above 100% Solution: offset governmental benefits but this is not market practice Slide 22

23 Group Disability Group DI must allow for individual conversion Applies to job cuts, plant closures, etc. Anti-selection at take-up stage Slide 23

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