Adrian C T Mak

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DISABILITY CLAIMS R I S I N G

• Adrian C T Mak
• GeneralCologne Life Re Australia

Prepared for
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USA disability insurance
Source Milliman Robertson Disability Newsletter
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IP a high risk and low reward product
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Premium rate revisions often lag experience
Source GeneralCologne Re Australia, Individual
disability income premium rate survey, July 2002
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Agenda

• Introduction to the drivers of disability claims
  cost
• Background to the 1997-2001 investigation
• Highlight of results
• Current levels
• Trends
• Conclusion
• Discussion

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Underwriting
Claims Management
Benefit Type
Claim Type
Product
Occupation Classes
Work Ethic
Claimant
Sex
Occupation
Disability Claims
Replace -ment Ratio
Policy Definitions
Political/ Legal
Age
Income
Economy
Smoker Status
Cause
Offsets
Smoker
External Factors
Benefit Period
Deferment Period
Company Functions
Sales Distribution
Actuarial Pricing
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Disability claim cost drivers
Claim termination
New claim incidence
benefit paid
Claim length
Claim cost
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The 1997-2001 investigation

• Claims incurred during 1 January 1997 to 31
  December 2001
• 6 individual disability insurers, 94 of the New
  Zealand market
• 4,153 number of new claims
• 439,397 policy years exposed
• Scope is agreed value and indemnity products only
  
• Not group salary continuance or mortgage
  insurance
• Gross of reinsurance claims
• Expected results on 100 of IAD89-93 and 85CIDA

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Snapshot of the data
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Incidence and duration drive claim costs
change in experience from 1995-99 to 1997-01
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Claim length driving 30 day waiting period
change in experience from 1995-99 to 1997-01
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Incidence driving 90 day waiting period
change in experience from 1995-99 to 1997-01
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White collar blue
change in male experience from 1995-99 to
1997-01
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White collar blue
change in male, 30 day wait, experience from
1995-99 to 1997-01
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White collar blue
change in male, 90 day wait, experience from
1995-99 to 1997-01
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Current costs of claim
A/E claim cost based on IAD89-93
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Current levels of claim incidence
A/E incidence rates based on IAD89-93
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Reversal of trends
A/E incidence rates for 30 day deferment period
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More opposites
A/E incidence rates for 90 day deferment period
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Occupational incidence rate relativities
A/E incidence rates (IAD89-93)
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Occupational claim length relativities
A/E length of claim (IAD89-93)
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Occupational claim cost relativities
A/E claim cost (IAD89-93)
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Causes of claim
Male
Female
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Average length of claim
Analysis of new claims that have been closed
during the investigation period
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Higher female incidence and cost
Excess female morbidity (IAD89-93)
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Females remain longer on claim
Ratio of female A/E to male A/E (using male IAD
expected) termination
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Higher smoker incidence and cost
Excess male smoker morbidity (IAD89-93)
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First year selection in claim incidence
Ratio of select to ultimate experience (85CIDA)
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Termination rates for 30 day deferment period
A/E termination rates (IAD89-93), male, 30 day
deferment period
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Termination rates for 90 day deferment period
A/E termination rates (IAD89-93), male, 90 day
deferment period
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Long term termination rates improved
A/E termination rates (IAD89-93), males, 30 day
deferment period
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Long term termination rates improved
A/E termination rates (IAD89-93), female, 30 day
deferment period
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Long term termination rates deteriorated
A/E termination rates (IAD89-93), male, 90 day
deferment period
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Long term termination rates deteriorated
A/E termination rates (IAD89-93), female, 90 day
deferment period
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Claim offsets steadily reducing over time
Ratio of paid to insured claim amounts in
1997-2001
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Claim offsets steadily reducing over time
Ratio of paid to insured claim amounts in
1997-2001
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Indemnity products have longer claims
A/E termination rates (85CIDA), male, 30 day
deferment period
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Higher claim frequency under agreed value
A/E incidence rates (85CIDA), male, 30 90 day
deferment period
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Agreed value products do cost more
A/E experience (85CIDA), male, 30 day deferment
period
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Features of the data
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Disability Insurers Report Card
Company A/E to industry, male, class B, 30 day
deferment period
Office
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Disability Insurers Report Card
Company A/E to industry, male, all deferment
periods
Office
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360 degrees of separation

• Product
• Agreed Value, Indemnity
• Benefit period
• Basic, Deluxe versions
• Definition of disability
• Definition of income
• Price
• Sales vs profit objective
• Arbitrage opportunities

• Corporate
• Size of portfolio
• Underwriting
• Claims management
• Customers
• Self employed
• Employees
• Distribution
• Direct
• Adviser

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More adverse claims experience

• Policy definition of total disability and partial
  disability benefit formula
• Education, skills and training of underwriters
  and claims teams
• Occupation class upgrades
• Commercial underwriting decisions
• Customers greater awareness of cover and the
  right to claim
• Changing work ethic and social attitudes to
  insurance

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Other claim cost variables

• Partial disability claims
• Specific occupations within occupation classes
• Does size of policy matter?
• Does benefit period make a difference?
• Is experience better for employees versus
  self-employed?
• Actual versus expected claim length by disability
  cause
• Are the newer products really better managed?

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(No Transcript)
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DISABILITY CLAIMS R I S I N G

• Discussion
• Questions and Answers

Prepared for