Critical Illness Insurance International Overview What can we learn from highly developed CI markets?

Tele-underwriting & Tele-claims Tele-underwriting is becoming more common internationally and is used by about 80% of UK companies for CI benefits. Less medical evidence is required with teleunderwriting and it is quicker than waiting for a doctor s report. In about 80% of cases a decision can be made based on the tele-underwriting. Overall, the customer has a better experience and there is a material reduction in anti-selection and nondisclosure. SCOR Global Life has positioned itself as a market leader in the field of tele-underwriting. In 2009 the first global tele-interview survey was commissioned by SCOR Global Life and SelectX. The survey looked at tele-interview around the globe and the many benefits that this approach can bring as well as the lessons to be learned. Additionally, SCOR Global Life launched SCOR Telemed, to assist clients in performing tele-underwriting in the optimal manner. SCOR Telemed combines excellent risk management with an efficient application process. SCOR Global Life is also an advocate of tele-claims, a recent innovation which has been used in the UK mainly for CI and disability claims. The standard claims process where a claim form is sent to claimant often results in poor quality information due to poor question completion. In addition, a form is often seen as impersonal. Tele-claims is a process of obtaining claims information via a telephone call to the claimant. It is a faster and generally more thorough and methodical process which produces much more accurate and complete information. It is an interactive and personal process where the claimant can also ask questions. Tele-claims significantly reduces the need for the collection of medical claim evidence and also improves the insurer s ability to spot fraudulent claims. In addition, it improves the insurer s brand image by means of the personal touch. In Korea, where CI premium rates are usually guaranteed to age 80, the first multiple CI product has recently been introduced with a more prudent approach. It is only offered as accelerated CI. The conditions are split in three groups only and the benefits for subsequent claims are reduced. Scaled Benefits Partial or scaled benefits (also known as tiered benefits) are closely related to multiple benefits: the remaining portion of the sum insured stays available for a different claim or a worsening condition. The South African 4x4 grid is worth mentioning as four different severity stages of the four main conditions make up to 16 different payouts possible. With scaled CI products it is possible to extend the coverage by providing partial benefits to more common conditions, while keeping a high sum insured for the critical conditions. This allows products to remain affordable, especially where long-cover durations with guaranteed rates are common and a high trend risk exists for early detection e.g. by introduction of screening programs. Canada, as an example, has developed Early detection or Early prevention benefits focusing mostly on angioplasty and non-life-threatening cancers such as ductal carcinoma in situ or early stage prostate cancer. Focused products One of the key drivers behind successful sales of CI in any particular market lies in the distribution channel. Fully advised distributions allow for a more complex solution to be sold whilst a guided-type sale common to bancassurers or single-tie distributions will lead to simpler product and process solutions. The underwriting process for such products can be shortened as they do not take into account a wide range of illnesses. On the other hand, such products can be more exposed to anti-selection because of the targeted condition(s). Some insurance policies focus on single illnesses. products are the best example as together with heart attack and stroke they have the highest public recognition. They have been on the market for a very long time and still represent a significant part of the overall CI premium income in the USA and Japan. Experience in other countries also confirms these covers are not rivals to CI products but more like a cousin. The range of coverage of policies varies from an all cancer product, severe life-threatening cancers to single site cancers, such as breast cancer covers. April 2011 Newsletter Underwriting CI products Along with clear CI definitions, effective underwriting is one of the essential skills to successfully write CI. Although having a long waiting period (also called a moratorium) was thought to be an alternative to reduce the underwriting process, experience has shown that good underwriting trumps other methods to maximize CI profitability. Furthermore, simplified underwriting is too risky for high sums insured where antiselection can be more prevalent. Tele-underwriting Tele-underwriting is well placed to address the extra needs of CI risk selection. It has already shown very promising results not only in regard to the quality of the medical information collected but also in positive consumer feedback. Authors Stefan König Christian Cypris R&D Centre Disability and Critical Illness Damien Bartlett United Kingdom Karsten de Braaf Francis Lussier Canada Critical Illness Insurance International Overview What can we learn from highly developed CI markets? Introduction Critical Illness (CI) insurance pays a lump sum benefit if an insured suffers a serious covered condition. Since the development of CI insurance products in South Africa in 1983, this once relatively simple product has spread around the world and has matured into a wide spectrum of variations CI solutions differ from one market to another according to customers needs and to the insurance gaps between the private and statutory disability and health insurance environments. Development of international CI markets Conclusion The base approach: Simple and easy-going! Critical illness products vary in design, scope and marketing approach from one country to another. To be successful, a CI writer has to tailor any new idea or approach to the environment of the targeted market. SCOR Global Life is a risk-carrier with the experience and knowledge to become a valued business partner. We can provide a team of market specialists, product experts and medical underwriters to meet clients CI needs. With worldwide expertise, SCOR Global Life is well positioned to assist in the development and successful launch of new Critical Illness products. While simple compared to today s standards, the first South African Critical Illness product, had only 4 conditions -,, and Coronary Artery Bypass Graft but was considered very innovative at the time. The product concept spread rapidly throughout the world and other illnesses were added to the initial list. Editor Bérangère Mainguy Tel: +33 (0)1 46 98 70 00 life@scor.com SCOR Global Life SE Societas Europaea with a capital of 274,540,000 1, avenue du Général de Gaulle 92074 Paris La Défense Cedex France RCS Nanterre 433 935 558 www.scor.com 2011 - ISSN: 1961-7089 - All rights reserved. No part of this publication may be reproduced in any form without the prior permission of the publisher. SCOR has made all reasonable efforts to ensure that information provided through its publications is accurate at the time of inclusion and accepts no liability for inaccuracies or omissions. Today, the worldwide annual premium volume from CI is estimated at over 20 billion Euros (about 1% of Life premium), including pure cancer products that are still very popular in Japan. More than half the global CI premium originates in Asia, especially in South Korea, China, Malaysia and, where such products have experienced a parallel success story to that of the UK. Estimated Critical Illness and premium 2009 < 1.0 billion Euro 1.0-3.0 billion Euro > 3.0 billion Euro

Product trends to high complexity and diversity Transparency by definition standardization After crossing the South African border, Critical Illness insurance undertook a number of developments. The definitions of covered claim conditions developed in a similar way: initially according to specific country standards, and then later with influence from the simultaneous development of CI around the world. The product adapted to the local (Life) insurance and financial markets. In the UK, this initially resulted in the bulk of CI policies focusing on accelerated mortgage products. In Australia, the accelerated products also dominate but with a lower correlation to mortgages than in the UK. As CI s main purpose is income protection, it helped fill the gaps left by an underdeveloped disability market, compared with other European markets. In Canada, the standalone products quickly became more popular than the accelerated life versions. These products can offer a lifetime protection option. The return of premium on surrender and death, if no claim has been paid, is also an attractive marketing feature. The insured is covered in all situations. Other markets stayed closer to the original aim of the South African product: to pay the costs resulting from a critical illness. On top of this, both competition and consumer needs pressured companies to add additional conditions and options. Such conditions were usually of a critical nature as intended by the original concept, but had a low frequency that enabled the cost of such added conditions to be affordable. As time went on, CI products became more complex and harder to compare, often leading to customer confusion. In addition, the lack of insureds knowledge as to what exactly constituted their covered conditions led to misunderstandings and unpaid claims. The consequences were bad press and further mistrust from advisors and customers. That became the start of industry wide standardized claim conditions. Country No. of standardized conditions (2010) First regulated 37 38 23 33 25 4x4 grid 1990s 1995 1999 2004 2007 2009 Malaysia UK Israel China South Africa Main countries with regulated CI conditions Number of conditions = 5 Average new business process = 7 minutes Bank distribution with tele-interviewing definitions in 2008. They are not mandatory but are used by many insurers. Israel went one step further, issuing the minimum requirements directly from the Ministry of Finance. Standardization helps achieve better consumer awareness and trust in the CI product. In combination with appropriate communication, definition standardization helps product promotion. Product features and developments Multiple Benefits Matrix of multiple event exclusions You can t re-instate this If you ve suffered this Pru Protect Serious Illness Cover Number of conditions = 161 Severity based payouts. 6 tiers of payout for each category of medical condition (10%, 15%, 25%, 50%, 75% and 100%) Fully-advised distribution with complex application process Simple for customer to understand and apply for Less cover than normal CI Most comprehensive level of cover in market Consumer misunderstanding of product Most decisions are made at point of sales. 86% of applicants leave bank with cover Simplified underwriting increases price Tiered benefits ensures close match to customer needs High cost relative to rest of market Juvenile Critical Illness Another specialized aspect of Critical Illness products are children s covers. There are many variants of children s cover around the world starting from the children s rider in the UK to the orphan protection in China. Our focus is on Canada, where a wide spectrum of products can be found. The children s market generally has more emotional appeal than the adult one. In addition to the traditional needs covered by critical illness, the juvenile benefit is intended to support family members in a period of emotional stress brought on by a child s critical illness. Two types of protection are offered in the market. 1. Family rider Traditional CI Insurance ceases once a benefit has been paid, leaving the policyholder with no further coverage against death or a second critical illness. With the improvements in medical treatment over the past few decades, survival rates have increased substantially, leading to a higher demand for continuous coverage after a critical illness. Accelerated CI products addressed this issue by first offering reinstatement of the Life cover. Reinstatement of the CI cover was introduced later on. As certain CI events lead to a high probability of further similar CI events, reinstatement options normally exclude related conditions to such prior events. The matrix and grouping designs provided the means to cope with exclusions. The matrix design provides a full array of all excluded condition combinations and has proved popular in Australia. The family rider covers present and future children in the same contract. This rider is added to the parent s CI contract and cost of the protection varies between $10 and $15 per $1,000 of insurance amount regardless of the number and ages of the children. This differs from the UK approach where many companies include children s cover as a standard condition in their coverage without an option to opt out. This may explain the lower cost of children s coverage in UK, representing only around 1.5% of total CI claims. If a child is born to the policy owner while this benefit is in force, such child will automatically become insured under this protection. Some restrictions apply to a child born in the first ten months of the policy in order to remove anti-selection. Underwriting is done for all existing children at the inception of coverage. The 2 Extremes of Critical Illness UK Market Example HSBC Lifechoices (Trauma Choice) In most countries, the standardization is normally conducted by insurance organizations for their members. In some places like Malaysia, the standardized conditions apply to all companies as a requirement of industry membership. Other organizations, such as the Association of British Insurers in the UK, cover such a high percentage of market participants that agreed definitions become the de facto industry benchmark. Similarly, Canada has introduced benchmark In Israel and East Asia, the grouping design has become more mainstream, by putting all highly correlated conditions into the same group. Should a CI event affect one of them, all remaining conditions within the group will automatically be excluded. This approach is less precise than the matrix design in reflecting the correlation among the different conditions. Additional exclusions are therefore sometimes needed. Since the launch of the first reinstatement option a few years ago, the product design in South-East Asia has quickly progressed to offering coverage for multiple CI events. Grouping-based products are now offered by several insurance companies. Insurance policies can propose up to seven groups and four CI payments, with occasionally reinstated cover after longer waiting periods. The children s CI benefit normally terminates at the insured s 21st birthday or even at the 25th birthday if the insured is still a full-time student. Some companies offer a conversion privilege to an adult product. 2. Standalone product a success story in Canada This second type of protection is offered on a standalone basis. Most of the success surrounding children s CI insurance comes from this version. It offers the same wide variety of premium options and is a duplicate of the adult version but with specific additional illnesses like congenital heart disease, cerebral palsy, cystic fibrosis, muscular dystrophy, Type 1 diabetes, autism and Rett syndrome. Premiums are dependent on the age and gender of the child. Full underwriting is done on each child covered with suitable scrutiny given to the amounts of CI insurance on the parents and other siblings. All juvenile conditions generally cease at age 18 or 25. Past that age the insured remains covered by the adult conditions.