Critical Illness Evolution

1
Critical Illness Evolution
abcd

• Nigel Bradshaw
• Redmayne Consulting
• www.RedmayneConsulting.co.uk

2
Agenda

• Critical illness trends
• Healthcare working parties
• Can the critical illness product be changed, and
  if so how?
• Nigel Bradshaw, Redmayne Consulting
• Guaranteed critical illness
• Nigel Bradshaw, Redmayne Consulting

3
Agenda

• Critical illness trends
• Healthcare working parties
• Can the critical illness product be changed, and
  if so how?
• Nigel Bradshaw, Redmayne Consulting
• Guaranteed critical illness
• Nigel Bradshaw, Redmayne Consulting

4
Trends in Critical Illness

• CI A good story so far ?
• Overview of CI Trends research
• Simplistic Model of Disease Timeline
• Illustrate Possible Future Scenarios
• Implications Storm Clouds or Clear Skies ?

5
Trends in Critical Illness

• CI A good story so far ?
• Overview of CI Trends research
• Simplistic Model of Disease Timeline
• Illustrate Possible Future Scenarios
• Implications Storm Clouds or Clear Skies ?

6
Sales of New Individual Critical Illness
Policies1990 2001, plus 1st Half of 2002
7
CI Insured Experience

• Early signs seemed encouraging, but
• Warning signs now emerging
• Exposure still very select
• Shape and duration of initial selection unknown
• Unexpectedly long claim reporting delays
• Large, and difficult to rationalise, differences
  in experience between offices
• Overall experience higher than expected (and
  ultimate still unknown) ?
• Pricing uncertainty as high as ever !
• CMI reports on CI experience eagerly awaited !

8
Trends in Critical Illness

• CI A good story so far ?
• Overview of CI Trends research
• Simplistic Model of Disease Timeline
• Illustrate Possible Future Scenarios
• Implications Storm Clouds or Clear Skies ?

9
Critical Illness Trends Research Group

• Our Aims
• To examine underlying trends in the factors
  influencing UK Insured Critical Illness claim
  rates, and from these, to assess
• The historic trend in incidence and death rates
  for the major CIs
• Any pointers for future trends in Standalone CI,
  Mortality and hence Accelerated CI.
• Formed in March 2001

10
Group Members and our Current Focus

• Heart Attack MS
• Cancer Stroke TPD
• Actuaries
• Azim Dinani Scott Reid Sue Elliott
• Richard Morris Joanne Wells Hamish
  Galloway
• Neil Robjohns Daniel Ryan
• Medical Experts
• Professor Rubens Richard Croxson
• Consultant Oncologist Consultant
  Cardiologist
• Links
• Actuaries Panel on Medical Advances
• CMIB CI experience investigation
• ABI CI definitions group

11
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000 Men, aged 40 - 60
12
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000 Men, aged 40 - 60
13
Summary of Trends in Cancer Incidence and
MortalityAverage Change pa, for Males, aged 40
- 59, over 1971 - 97

• Size of Balls Indicates Relative Importance of
  Cancer Site, measured by Incidence Rates in 1997.

14
Summary of Trends in CI Incidence and
MortalityBest Est Avg Change pa, England
Wales, 1980-2000 Women, aged 40 - 60
15
Summary of Trends in CI Incidence and
MortalityBest Est Avg Change pa, England
Wales, 1980-2000 Women, aged 40 - 60
16
Simplistic Model of Disease TimelineTreatment -
Possible Outlook for Trends

• Expect improvements in mortality / morbidity, but
  after CI claim event
• May reduce CI rates where CI definitions have a
  credible, effective severity underpin
• If morbidity post CI-event is reduced, benefits
  become nearer to windfall status

17
Trends in Critical Illness

• CI A good story so far ?
• Overview of CI Trends research
• Simplistic Model of Disease Timeline
• Illustrate Possible Future Scenarios
• Implications Storm Clouds or Clear Skies ?

18
Smoker ProportionEngland and Wales, Adults, 1974
- 1998
19
Relative CI Rates by Deprivation
CategoryScotland, 1989 93, Ages 40 59, Males
20
Prostate Cancer Screening
21
Prostate Cancer Screening
22
Trends in Critical Illness

• CI A good story so far ?
• Overview of CI Trends research
• Simplistic Model of Disease Timeline
• Illustrate Possible Future Scenarios
• Implications Storm Clouds or Clear Skies ?

23
ImplicationsStorm Clouds or Clear Skies ?

• On individual CIs
• Claim Rate changes of 20 or more are easy to
  envisage
• Changes of 50 do not feel at all remote
• Changes of 100 ??
• On all CIs combined
• Claim Rate changes of 10 or more are easy to
  envisage
• Changes of 25 sadly do not feel remote enough
• How big a change should we conceive of at 1100
  or 11000 ?
• High uncertainty will require high levels of
  theoretical Risk Based Capital

24
Agenda

• Critical illness trends
• Healthcare working parties
• Can the critical illness product be changed, and
  if so how?
• Nigel Bradshaw, Redmayne Consulting
• Guaranteed critical illness
• Nigel Bradshaw, Redmayne Consulting

25
How can critical illness change?

• What can change
• and theory vs practice
• Drivers of change
• example of one driver ABI critical illness
  working party
• Example of change

26
How can critical illness change?

• What can change
• and theory vs practice
• Drivers of change
• example of one driver ABI critical illness
  working party
• Example of change

27
What changes could take place?

• Definitions
• Other terms, e.g. guaranteed / reviewable
• Underwriting
• Rates
• Targeting / marketing changes
• Revised product

28
Theory

• Reviewable rates
• We will review your premium regularly and any
  increase or decrease in premium will normally
  take place on the policy anniversary
• Self Assurance Technical Guide
• PMI hospital covered
• We constantly review the services provided and
  the charges made by the hospitals on our list.
  As a result, hospitals may be added or deleted
  from time to time
• LG HealthCare Key Hospital List
• Launching new products
• Elixia 1 2 3 is a ground breaking new product
  that breathes new life into the critical illness
  market. Those 'in the know' believe that
  traditional product designs are fundamentally
  flawed.
• UnumProvident web site

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Practice

• Internal
• Systems
• Priorities
• Costs
• Pricing data
• Volatility, trend and shock data
• Distribution
• Understandable?
• Acceptable?
• Sellable?
• Comparable?

• Market
• Industry rules
• Competitor practice
• External
• Attractiveness
• Price
• Moral
• Anti-selective lapsing
• Legal
• Enforceable
• Ombudsman

30
How can critical illness change?

• What can change
• and theory vs practice
• Drivers of change
• example of one driver ABI critical illness
  working party
• Example of change

31
What drives what changes?

• Established mechanisms for change
• e.g. ABI critical illness working party
• Political power
• will be explored next
• Other external ability to implement change
• will consider new product development as an
  example
• Internal constraints
• and priorities
• Speed and urgency of need for change
• Wants, desires, trends and fads
• including whether company is a product innovator
  or follower

32
What changes could take place?

• Definitions
• Other terms, e.g. guaranteed / reviewable
• Underwriting
• Rates
• Targeting / marketing changes
• Revised product

33
Exhibit Critical Illness definition reviews

• For new policies
• ABI companies have to conform to their Statement
  of Best Practice
• use as a minimum the ABI definitions
• with a minimum illness range
• For existing policies
• ABI SOPP 1.16 Insurers do not have to apply
  revised definitions to existing in-force
  policies
• However practically or morally this is often
  unavoidable
• For renewable policies, inflation-linked
  increases and alterations
• Depends on policy and literature wording
• if everything is not crystal clear assume the
  worse!

34
ABI Statement of Best Practice

• Mandated for members of the ABI offering critical
  illness cover
• Covers
• description of Critical Illness Cover in Key
  Features
• The use of Generic Terms
• Model Wordings for Core and Additional Conditions
  and Exclusions
• Reviews of Existing Model Wordings (1.26)
• No changes should be recommended to any existing
  agreed wordings without both the following
• A clear issue that has resulted (or is expected
  to result) in industry-wide problems for
  customers and/or insurers.
• Agreement (with a clear rationale) that the
  proposed wording change will address the issue.

35
ABI Review Process (section 7)

• Full Reviews
• normally every 3 years
• scope key features format and all model wordings
• to take account of changes in
• medical science
• relevant events
• experience
• available research
• current market practices
• Intermediate Reviews
• when an issue is raised
• scope that issue only
• issues must be compelling
• legal
• regulatory

36
How can critical illness change?

• What can change
• and theory vs practice
• Drivers of change
• example of one driver ABI critical illness
  working party
• Example of change

37
All age national breast screening

• Driven by public outcry after the entire female
  cast of EastEnders and Coronation Street get
  breast cancer
• National disgrace The Times
• We demand action The Mail
• First pictures Daily Sport
• Increase in expected claims

38
Possible responses
39
What helps what
40
And what is practical to implement?
41
What does this and current examples show?

• Reactive change works within the mechanisms
  available
• The mechanisms may not be perfect
• though at least some exist
• The reactive change may not be the best change
  available
• Reactive change works best for new business
• Existing business may be further disadvantaged by
  the reactive change made
• A better approach might be proactive change to
  the product
• However the change mechanisms available work
  against this
• Actuaries need to be aware of the practical
  limits to freedom when
• designing new products
• pricing products

• calculating reserves
• producing embedded values

42
Agenda

• Critical illness trends
• Healthcare working parties
• Can the critical illness product be changed, and
  if so how?
• Nigel Bradshaw, Redmayne Consulting
• Guaranteed critical illness
• Nigel Bradshaw, Redmayne Consulting

43
Extract from Healthcare Conference
2001Healthcare Guarantees Current State of Play

TA
IP
CI
LTC
PMI
4 key sources of pricing error
Credibility
High
Med/Low
Low
Low
High
Appropriateness
High
Medium
Low
Low
High
Trends
Down
Up
??
?
Up
Shocks
Rare
Some
Many ?
?
Many ?
Robustness of Definitions
against medical advances
Good
Good ?
Poor ?
Poor ?
Poor ?
against social change
Good
Poor
Medium
Poor ?
Poor ?
Prevalence of Guarantees
100
30
60
Low
Low
Typical Charge for Guarantees
Nil
25
10
?
?
44
Guaranteed critical illnessCurrent state of play

• A number of reassurers have stopped writing
  guaranteed critical illness (5 years)
• Other reassurers continue
• limited capacity
• often existing clients only
• higher prices
• Most changes come in end of year
• Await reaction of direct market
• to higher guaranteed critical illness
• and limited availability
• Current default change looks like reviewable
  rates
• A lot of companies already offer this alternative
• However this is unlikely to be the long term
  solution

45
Critical Illness Evolution
abcd

• Nigel Bradshaw
• Redmayne Consulting
• www.RedmayneConsulting.co.uk