The 2002 Healthcare Conference Surviving or Thriving

1
The 2002 Healthcare ConferenceSurviving or
Thriving ?
abcd

• 29 September-1 October 2002
• Scarman House, The University of Warwick,
  Coventry

2
Plenary 1bTrends in Critical Illness

• Overview of the work of the Critical Illness
  Trends Research Group
• Neil Robjohns
• Head of Pricing
• Munich Reinsurance (UK Life Branch)

3
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 ?

4
Sales of New Individual Critical Illness
Policies1990 2001, plus 1st Half of 2002
5
Sales of New Individual Critical Illness
Policies1994 2001, by Type of Cover
6
The CI Story So Far

• Strong Sales and Sales Growth
• Standardised Definitions
• Helped sales by improving consumer and IFA
  confidence in the cover provided
• But also a straightjacket and possible
  constraint and drag on product evolution

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
The CI Story So Far

• Strong Sales and Sales Growth
• Standardised Definitions
• Warning Signs in Emerging Experience ?
• High Prevalence of Premium Guarantees

9
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
?
?
10
The CI Story So Far

• Strong Sales and Sales Growth
• Standardised Definitions
• Warning Signs in Emerging Experience ?
• High Prevalence of Premium Guarantees
• Almost Universal Guarantees of CI Definitions
• Growing move away from premium guarantees and
  also moves in favour of significant cover
  re-design

11
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 ?

12
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

13
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

14
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Men, aged 40 - 60
15
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Men, aged 40 - 60
16
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.

17
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Men, aged 40 - 60
18
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Women, aged 40 - 60
19
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Women, aged 40 - 60
20
Summary of Trends in CI Incidence and
MortalityBest Estimate Avg Change pa, England
Wales, 1980-2000Women, aged 40 - 60
21
Critical Illness Trends Research GroupOverview

• Population Trends in England Wales
• Population Trends in Scotland
• Scottish data is far better than EW !!
• Further international comparisons
• Modelling Trends
• eg The impact of changes in smoking habits
• And so also a view of trends for separate insured
  smoker and non-smoker categories

22
Smoker ProportionEngland and Wales, Adults, 1974
- 1998
23
Summary of Trends in Cancer Incidence and
MortalityAverage Change pa, England Wales,
1980 to 2000Men, aged 40 - 60
24
Summary of Trends in Cancer Incidence and
MortalityAverage Change pa, England Wales,
1980 to 2000Women, aged 40 - 60
25
Critical Illness Trends Research GroupOverview

• Population Trends in England Wales
• Population Trends in Scotland
• Further international comparisons
• Modelling Trends
• eg The impact of changes in smoking habits
• Variations within the population
• eg by Deprivation Category (Scotland)

26
Relative CI Rates by Deprivation
CategoryScotland, 1989 93, Ages 40 59, Males
27
Relative CI Rates by Deprivation
CategoryScotland, 1989 93, Ages 40 59,
Females
28
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 ?

29
Simplistic Model of Disease Timeline
30
Simplistic Model of Disease TimelinePrevention
- Examples

• Standard of Living
• Government targets to reduce health inequalities
• Falling prevalence of smoking
• Slip, Slap, Slop !
• Early intervention (eg hypertension,
  angioplasty, stomach ulcers, )
• Genetics ??

31
Subsequent pages may have a background colour
that is a tint of that on the title page
32
Britain overtakes Germany...

33
Britain overtakes Germany...

• ... to head Europes
• Fat League

34
Obesity

• Obesity will become the norm
• Obesity will overtake smoking as Britains top
  preventable killer
• Obesity epidemic warning
• Diet changes have increased cancer risk
• Obesity leads to increased rates of heart
  disease, some cancers, diabetes, blindness,
  kidney failure,

35
Simplistic Model of Disease TimelinePrevention
- Examples

• Standard of Living
• Government targets to reduce health inequalities
• Falling prevalence of smoking
• Slip, Slap, Slop !
• Early intervention (eg hypertension,
  angioplasty, stomach ulcers, )
• Genetics ??
• But
• Obesity Epidemic

36
Simplistic Model of Disease TimelinePrevention
- Possible Outlook for Trends

• Generally positive,
• but beware obesity
• Likely steady trend,
• but possible leaps forward (eg Genetics ??)
• Positive impact of falling prevalence of smoking
  will run out of steam
• Reduced impact on insured lives ?
• Little impact on cancer ?

37
Simplistic Model of Disease TimelineDetection -
Examples

• Cancer Detection
• Dogs to sniff out cancer !
• Gene test hope for bowel cancer
• Colorectal screening cost-effective
• Breast Cancer Screening
• PSA / Prostate Cancer

38
Breast Cancer Screening
39
Prostate Cancer Screening
40
Prostate Cancer Screening
41
Prostate Cancer Screening
42
Simplistic Model of Disease TimelineDetection -
Examples

• Cancer Screening
• Medical / health value uncertain,
• but new tests very likely to be commercially
  available
• Troponin / redefining Acute MI
• MRI scans / Silent Strokes

43
Simplistic Model of Disease TimelineDetection -
Possible Outlook for Trends

• Almost all negative (earlier claims with less
  severity)
• but could prevent claim event occurring
• Probable step change / shocks
• Even if not developed into national screening
  programmes, unleashes clear scope for
  anti-selective behaviour by insureds
• CI definitions without a severity underpin are
  clearly vulnerable

44
CI Definitions

• Cancer
• Any malignant tumour characterised by the
  uncontrolled growth and spread of malignant cells
  and invasion of tissue. The term cancer includes
  but the following are excluded
  pre-malignant tumours early stage prostate
  cancers
• Heart Attack
• The death of a portion of heart muscle, due to
  inadequate blood supply, that has resulted in all
  of the following evidence of AMI Typical chest
  pain New ECG changes The characteristic rise
  of cardiac enzymes, troponins or other
  biochemical markers...
• Stroke
• A cerebrovascular incident resulting in permanent
  neurological damage. Transient ischaemic attacks
  are specifically excluded

45
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

46
Simplistic Model of Disease TimelineNon-Medical
Factors

• Interpretation of CI definitions
• Policyholder expectations
• Ombudsman
• Legal challenge
• Attitudes of society at large to ill-health

47
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 ?

48
ImplicationsStorm Clouds or Clear Skies ?

• Governments Health Policy is primarily aimed at
• Saving Lives
• Reducing health inequality
• Our Healthier Nation
• Target for Cancer
• To reduce the death rate from cancer in people
  under 75 years by at least a fifth by 2010 -
  saving up to 100,000 lives in total
• Target for Coronary Hear Disease / Strokes
• To reduce the death rate from coronary heart
  disease and stroke and related diseases in people
  under 75 years by at least two-fifths by 2010 -
  saving up to 200,000 lives in total

49
ImplicationsStorm Clouds or Clear Skies ?

• Outlook for mortality remains very positive
• But impact of medical advance on CI is far less
  clear
• Potential steady gains from prevention measures
• But likely step-increases from disease / event
  detection
• Possible gains from treatment mainly accrue to
  insureds under current definitions
• but key issue is high degree of UNCERTAINTY

50
ImplicationsStorm Clouds or Clear Skies ?

• Warning Signs from emerging CI experience
• Pricing / Reserving uncertainty over current
  claim levels is high
• Allowing for uncertainty over future trends adds
  an order of magnitude to pricing difficulty

51
ImplicationsStorm Clouds or Clear Skies ?

• At population level, trends over the last 20
  years have been relatively gentle.
• Even so, ballpark estimates of overall rate
  changes of /- 10 over a decade are
  indicated.
• Stronger opposing forces have almost balanced -
  this will not always be the case
• Trend is likely to differ for insured lives,
  segregated by smoker status
• Examples presented earlier indicate possible
  magnitude of local changes
• There are realistic chances of significant loss,
  or profit !

52
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 gtgt 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

53
ImplicationsStorm Clouds or Clear Skies ?

• Availability of long-term premium guarantees has
  reduced and the cost has increased
• Does the market need to go further ?
• eg limiting duration of CI definition lock-ins
• eg adding more effective severity underpins

54
Plenary 1bTrends in Critical Illness

• Overview of the work of the Critical Illness
  Trends Research Group
• Neil Robjohns