Topical issues in CI pricing

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Topical issues in CI pricing

• Darshan Singh Alex King

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Issues

• Recent views on CI guarantees
• How different reinsurers viewpoints have changed
• Impact of new definitions and new diseases
• Recent trends in key diseases future medical
  advances
• Base level of morbidity including selection
  factors
• Changes to the ABI claims matrix

3
CI Guarantees a brief bit of history!

• Pre 2003, CI market was very competitive
• Most insurers offered both guaranteed
  reviewable CI policies
• Small margin between pricing of reviewable
  guaranteed CI most sales were guaranteed
• Volumes were excellent almost 1.2m policies
  sold in 2002, up almost 50 on prior year
• Competition over number of definitions
• Large proportion reinsured (90 common) often on
  nil-premium structures. Mostly with 2 reinsurers
  (GE Swiss)

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CI guarantees so what changed?!

• Swiss Re withdrew from the market thus reducing
  capacity
• Other reinsurers either increased prices or
  backed away from long-term guarantees some
  offered 5 years!
• Many insurers also withdrew guaranteed product
  (e.g. Zurich, AEGON, Pru)
• The insurers that remained active increased
  prices by 50-60 in the first couple of months of
  2003
• Prompted fire sale as belief grew that the
  future for guaranteed CI was bleak

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CI Guarantees outcome?

• Insurers reinsured less
• Maximum benefits reduced sometimes as low as
  250k
• Maximum term was capped at 25 years
• Stand-alone CI was priced same as Accelerated (or
  withdrawn)
• Volumes fell to around half the 2002 peak 550k
  policies in 2006

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Guaranteed Reviewable CI Pricing
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Guarantee Loading

• Little difference pre-2003 between gtd rev
• Loadings increased due to reduced reinsurance
  capacity and uncertainty around prostate cancer,
  leukaemia, troponins silent strokes
• New ABI Definitions have helped to reduce
  uncertainty and lower the guarantee loadings
• Lately very competitive reinsurance markets are
  driving down guarantee loadings

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Changing reinsurance landscape for guaranteed CI
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Issues

• Recent views on CI guarantees
• How different reinsurers viewpoints have changed
• Impact of new definitions and new diseases
• Recent trends in key diseases future medical
  advances
• Base level of morbidity including selection
  factors
• Changes to the ABI claims matrix

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Impact of new definitions and diseases

• Key changes to definition
• Troponin hurdle for heart attacks
• Future proofing of cancer
• Introduction of permanent neurological deficit
• New diseases added
• Traumatic head injury

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Pricing issues around troponins

• Increase in heart attack incidence in 2001/02
  with troponin testing starting to become
  widespread
• UK coverage of troponin testing is not complete
  as yet
• 2006 chest pain survey1 showed 58 of hospitals
  having Troponin T capability and 44 having
  Troponin I (compared to 32 and 23 respectively
  in 2001)
• Authors state Development of chest pain
  services in the UK is progressing in a
  disorganised way
• Only 90 of the heart attack claims we audited in
  2007 had troponin measurements
• Past experience needs to be adjusted for the
  impact of troponins
• There may be future adverse trends as coverage
  becomes complete and claims practices bed down

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Pricing issues around troponins

• Troponins can also be released
• During cardiac surgery
• In endurance events
• Septic shock
• Pulmonary embolism
• Scorpion venom
• Potential for these to subsequently become claims
  more so cardiac surgery
• Depends on claims philosophy and enforcement of
  other pillars of the definition

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Future proofing of cancer

• Largely future proofed except that some terms
  could become obsolete in the future (shown in
  bold below)
• All cancers which are histologically classified
  as any of the following
• pre-malignant,
• non-invasive
• cancer in situ
• having either borderline malignancy or
• having low malignant potential
• A small risk but a risk nonetheless

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Permanent neurological deficit with persisting
clinical symptoms

• Symptoms of dysfunction in the nervous system
  that are present on clinical examination and
  expected to last throughout the insured person's
  life.
• Symptoms that are covered include. a big list
  that takes up two slides!.
• The following are not covered
• An abnormality seen on brain or other scans
  without definite related clinical symptoms
• Neurological signs occurring without symptomatic
  abnormality, e.g. brisk reflexes without other
  symptoms
• Symptoms of psychological or psychiatric origin

Where does the burden of proof lie on these? The
Brain is a complex organ and there is no
severity criterion in the definition
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Permanent neurological deficit

• Offices have not had issues so far with the
  generic term
• Issue could arise in the future as medical
  science is able to track more deficits back to
  injuries to the brain

• Could the following be causes of claim in the
  future? Are we looking at the next TPD with many
  declined claims?
• Seeing flashing lights
• Vague cognitive impairment no longer the same
  person
• Inability to orgasm

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My Jerry Springer Slide

• Reduced libido - about half of people with
  traumatic head injury experience a drop in sex
  drive2. The remainder experience increased
  libido, or no change at all.
• Erectile problems - between 40 and 60 per cent of
  men have either temporary or permanent impotence
  following their injury2.
• Inability to orgasm - up to 40 per cent of men
  and women report difficulties having an orgasm2

Is the insurance industry equipped to deal with
claims of this nature? Can you imagine a claims
form for this?!
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Traumatic head injury Not a complete overlap
with stroke7
Diffuse Axonal Shearing
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Traumatic Head Injury Cost

• The CI Trends Working Party will be commenting on
  this in their final version of The Critical
  Paper paper
• Our view is that the cost will be higher for
  younger ages and males where most THI occurs
• Thought needs to be given to whether it is
  included in Childrens CI cover
• A rough estimate of the cost from HES data,
  taking into account overlap with TPD, is
  significant single digits
• Companies have the option to not cover THI

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Issues

• Recent views on CI guarantees
• How different reinsurers viewpoints have changed
• Impact of new definitions and new diseases
• Base level of morbidity including selection
  factors
• Recent trends in key diseases future medical
  advances
• Changes to the ABI claims matrix

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Base morbidity - relationships

• These are derived from our observations from
  quotes that weve done
• Higher sums assured heavier experience an
  amounts loading as opposed to a discount too
  much NML drift?
• Tied/Bancassurer business is on par with IFA
  business provided the same risk management
  practices apply
• IFA experience more homogeneous than for
  mortality
• Reviewable business worse than guaranteed
• Experience is linked to sales volumes - better
  experience with higher volume stronger risk
  management as offices believe they can pick and
  choose?

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Base morbidity - selection

• The key risk in interpreting experience is what
  table to use?
• Gen Re have produced a table incorporating a 3
  year select effect but the difference between
  duration 2 and 3 is only about 1
• There is a clear selection effect not only from
  CMI data but from quote data weve seen
• However, data is not homogeneous
• Covers a variety of underwriting years
• With changing risk management practices
• And different definitions
• The select effect may not therefore be as steep
  as derived from CMI or company data once
  adjustments are made for the above

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Issues

• Recent views on CI guarantees
• How different reinsurers viewpoints have changed
• Impact of new definitions and new diseases
• Base level of morbidity including selection
  factors
• Recent trends in key diseases future medical
  advances
• Changes to the ABI claims matrix

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Trends in major CI conditions

• Cancer
• Heart Attack
• Stroke

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Cancer Trends - Males
Flat trend up to 2004. Melanoma increases
balanced by others. 2005 jump in most cancers
including melanoma and prostate
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Cancer Trends - Females
Flat trend in 1998-2003 with jump in 2004-05.
Recent increases due to melanomas and ovarian
cancer. Cervical cancer has shown improvements to
counteract some of this.
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Cancer trends what the experts say

• Many cancer registries are having a go at
  projecting future trends using age-cohort and
  age-period models
• Scottish trend projected to be relatively flat
  with only a slight deterioration in the next 5
  years9
• North West Cancer Intelligence Service projects a
  1 p.a. deterioration for the next 15 years in
  the region
• Thames Cancer Registry shows trends by individual
  cancer site10
• Researchers at KCL predict little change in
  age-standardised incidence rates in England12
• Irish trend extrapolated to be circa 0.9 p.a.
  deterioration11

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Breast cancer scanning
Malignant breast cancer trends have been fairly
flat over the last few years, so what impact has
scanning had?
Breast Cancer Trends in Stage Distribution
Scanning appears to not have changed the
distribution of cancer by stage. But it has
picked up more carcinoma in situ, which is not
covered
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Melanoma and Cheap Flights
Ive been slightly misleading as melanoma trends
have been bad for some time sun exposure many
years ago can do the damage
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Heart attack trends

• HES data has shortcomings so trends have been
  corroborated with Scottish data (which has
  different shortcomings!)
• Scottish data shows continuing strong
  improvements at older ages but a level trend at
  younger ages
• English data shows a leveling off of rates at
  older ages and an increase in rates at younger
  ages

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Heart attack trends
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Heart attack trends

• Flattening of improvements for postulated to be
  due to
• reductions in smoking cessation4,6,
• increased obesity and diabetes4,6,
• higher resting heart rates in young adults3
• Interestingly levels of physical activity have
  not changed much over the period suggesting that
  diet and lifestyle are more to blame4
• Troponins are not mentioned in the literature as
  cause for the increase

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BMI trends4
Worst trends for those aged 25-34 and 35-44
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Emotional upset and heart attacks

• 30 June 98 semi-finals of the World Cup England
  lost to Argentina. 25 more heart attacks on that
  day and in the 2 days following5
• Increase in admissions suggests that MI can be
  triggered by emotional upset, such as watching
  your football team lose an important match
• With England not in Euro 2008 it should be a good
  year for heart attacks!

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Seriously.

• With the credit crunch this is something to
  watch
• A Cambridge study suggests that a system-wide
  banking crisis increases population heart disease
  mortality rates by 6.4 (95 CI 2.5 to 10.2, p
  
• The effect could be 4 times worse in lower income
  countries

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Stroke Trends
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Stroke trends commentary

• Scottish data excludes incidence where a patient
  has had a stroke in the last 10 years. English
  data includes all strokes
• Both show younger ages having lower improvement
  rates than older ages
• Reasons are as per MI obesity, smoking, general
  health
• Is this cohort more unhealthy?

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Trends summary and future outlook

• Trends for cancer relatively flat
• Trends for MI increasing for younger ages and
  flat or reducing slightly for older ages
• Stroke trends indeterminate
• Off the shelf testing a big risk for underwriting
  and claims in the future
• Tests for cancer
• Family history
• Genetics
• Not just a problem for new policies but also
  anti-selective lapsation and earlier claims
  identification

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Issues

• Recent views on CI guarantees
• How different reinsurers viewpoints have changed
• Impact of new definitions and new diseases
• Base level of morbidity including selection
  factors
• Recent trends in key diseases future medical
  advances
• Changes to the ABI claims matrix

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ABI TCF changes

• Non-linked non-disclosure will now be paid in
  full
• All ratings up to and including 50 will not be
  classed as deliberate or without care and will
  attract a proportionate or full payment
• Requests for medical records need to be more
  fully justified

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ABI TCF impact on claims costs

• Circa 10 of claims are declined for
  non-disclosure in the first 5 years. Declinature
  rates for non-disclosure thereafter are minimal
• 30-40 of these might no longer be investigated
  because of the need for more justification of
  medical evidence requests (3-4)
• 10 might have resulted in exclusions not linked
  to claim so now paid in full (1)
• There will be more proportionate payments as
  below a 50 rating (1-2)
• Total impact on claims paid will be to increase
  claims in the first 5 years by 5-7

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ABI TCF impact on claims costs

• Impact will depend on pre-changes claims
  philosophy and expected future philosophy
• Will also depend on other risk management tools,
  specifically
• GPR sampling
• Tele-underwriting
• App form and online submission design
• Expert underwriting
• Channel/distribution management

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Other Topical Issues

• PS 06/14 not much changes to s reinsured or
  structure
• Additional illnesses Mastectomy, CJD etc
• Kiddie CIC An increasingly common claim cause
• Solvency II

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References

• Development of acute chest pain services in the
  UK, Elizabeth Cross, Steven How, Steve Goodacre,
  Emerg Med J 200724100102
• http//www.disability.vic.gov.au/dsonline/dsarticl
  es.nsf/pages/Traumatic_brain_injury_and_sexual_iss
  ues?opendocument/
• Secular trends in heart rate in young adults,
  1949 to 2004 analyses of cross sectional
  studies, Black, Murray, Cardwell, Davey, Smith,
  McCarron, Heart 200692468-473
• Health Survey for England, Department of Health
• Admissions for myocardial infarction and World
  Cup football database survey, Carrol et al, BMJ
  20023251439-1442
• Coronary heart disease trends in England and
  Wales from 1984 to 2004 concealed levelling of
  mortality rates among young adults, OFlaherty et
  al, Heart 200894178-181
• http//discovermagazine.com/2004/dec/lights-out/
• Can a bank crisis break your heart? David
  Stuckler et al, Globalization and Health 2008
• Cancer in Scotland Sustaining Change, Cancer
  Incidence Projections for Scotland (2001-2020),
  The Scottish Government Statistics
• Cancer in South East England 2005, Thames Cancer
  Registry
• Trends in Irish cancer incidence 1994-2002 with
  predictions to 2020, National Cancer Registry
• The future burden of cancer in England incidence
  and numbers of new patients in 2020. Møller et
  al, British Journal of Cancer 2007

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Contact

• Darshan Singh, Head of Marketing Actuarial
• darshan.singh_at_scottishre.com
• Alex King, Head of Protection Marketing
• alex.king_at_scottishre.com
• Thanks to Matthew Smith, Warren Copp, Paul
  Reddick, Dave Heeney, Paul Lewis, Steve Nuttall,
  Scott Reid, Ian Rowe