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CIA Annual Meeting Assemblée annuelle de l’ICA. June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario. Individual & Group Style Pricing. CIA Annual Meeting Ÿ Assemblée annuelle de l’ICA. Living Benefits Session GRP/IND-5. Presenter: Alethea Lyn, FSA

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Cia annual meeting assembl e annuelle de l ica

CIA Annual MeetingAssemblée annuelle de l’ICA

June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006

Ottawa, Ontario

Individual & Group Style Pricing


Living benefits session grp ind 5

CIA Annual Meeting ŸAssemblée annuelle de l’ICA

Living BenefitsSession GRP/IND-5

Presenter: Alethea Lyn, FSA

Pricing Actuary, Individual Living Benefits

The Great-West Life Assurance Company


Cia annual meeting assembl e annuelle de l ica1
CIA Annual Meeting ŸAssemblée annuelle de l’ICA

OUTLINE OF PRESENTATION

Review of individual Living Benefits product features and market.

Recent trends in the marketplace.

Challenges in pricing and marketing individual Living Benefits products.

Future direction for Living Benefits products.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

INDIVIDUAL LIVING BENEFIT PRODUCT FEATURES

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

INDIVIDUAL LIVING BENEFIT PRODUCT FEATURES contd.

Session GRP/IND-5


Canadian living benefits market new business annualized premium source limra surveys
CANADIAN LIVING BENEFITS MARKETNew Business Annualized PremiumSource : LIMRA Surveys


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

INDIVIDUAL LIVING BENEFIT MARKET

Source: December 2005 LIMRA Reports.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

INDIVIDUAL LIVING BENEFIT MARKET TRENDS

Source: December 2005 LIMRA Reports.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

CHALLENGES IN PRICING INDIVIDUAL LIVING BENEFITS PRODUCTS

Morbidity.

Lapses.

Interest.

Expenses.

Capital.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

PRICING CHALLENGE #1: MORBIDITY

Individual Critical Illness

No credible company or industry incidence experience: Rely on Canadian population data adjusted for insurance.

Changes in medical procedures and technology: May result in adjustments to incidence rates (and definition revisions).

Individual Disability Insurance

Credible incidence and termination experience may be lost for breakdowns by pricing component.

Outdated industry experience study (1985 CIDA tables).

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

PRICING CHALLENGE #2: LAPSES

Individual Critical Illness

No credible company lapse experience: Rely on experience from individual life and disability products, adjusted for the nature of the critical illness product.

Lapse-supported product: Higher lapse rates will improve profitability.

Return of premium on surrender rider: Very sensitive to lapse assumption.

Individual Disability Insurance

Credible lapse experience may be lost for breakdowns by pricing component.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

PRICING CHALLENGE #3: INTEREST

Individual Living Benefits Products

Low interest rate environment: Lower interest rates will reduce profitability and increase pressure on premium rates.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

PRICING CHALLENGE #4: EXPENSES

Individual Living Benefits Products

Difficult to determine whether the allocation of expenses for breakdowns by pricing component are appropriate.

Individual Critical Illness

Partial recovery of overhead: The critical illness product has not yet reached critical mass and may not currently be able to recover all overhead expenses allocated to the line of business.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

PRICING CHALLENGE #5: CAPITAL

Individual Critical Illness

Life or Accident and Sickness product.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

CHALLENGES IN MARKETING INDIVIDUAL LIVING BENEFITS PRODUCTS

Lack of broker education: disability and critical illness insurance complement each other.

Acceptance by the public: need to educate public on the need for Living Benefits products.

Complicated products: product features; underwriting process; claims approval process.

Expensive: client needs vs. limited client dollars.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

FUTURE DIRECTION FOR LIVING BENEFITS PRODUCTS

Desirable Product Features

Simplify product features.

Reduce price.

Shorten underwriting process.

Potential Future Enhancements

Simplified issue products.

Guaranteed standard issue.

Group insurance.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

SIMPLIFIED ISSUE PRODUCTS

Product Design

Simplified underwriting process.

Eliminate product guarantees.

Basic insurance coverage.

Lower benefit amounts.

Limit issue age ranges.

Pre-existing condition exclusion.

Levelize compensation structure.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

SIMPLIFIED ISSUE PRODUCTS

Pricing Considerations

Morbidity: simplified individual underwriting vs. insurance coverage limitations.

Lapses: impact of occupation class on lapse rates.

Interest.

Expenses: lower underwriting expenses and compensation.

Capital: may recognize some capital relief by removing product guarantees.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

GUARANTEED STANDARD ISSUE

Product Design

Issue standard individual policies to select groups.

Eliminate product guarantees.

Minimum group size.

Participation Rates: mandatory vs. voluntary.

Limit benefit amounts based on group characteristics.

Limit issue ages.

Actively at work requirement.

Pre-existing condition exclusion.

Premium discounts and first year compensation cuts.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

GUARANTEED STANDARD ISSUE

Pricing Considerations

Morbidity: group underwriting with pre-existing condition exclusion; anti-selection when employee leaves group.

Lapses: impact of occupation class on lapse rates; employee behaviour on leaving group.

Interest.

Premium Discounts: offset by first year compensation cuts.

Expenses: lower underwriting expenses.

Capital: may recognize some capital relief by removing product guarantees.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

GROUP INSURANCE

Product Design

Issue annually renewable coverage to groups.

Minimum group size.

Participation Rates: mandatory vs. voluntary.

Basic insurance coverage.

Limit benefit amounts based on group characteristics.

Limit issue ages.

Actively at work requirement.

Pre-existing condition exclusion.

Level compensation structure.

Session GRP/IND-5


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CIA Annual Meeting ŸAssemblée annuelle de l’ICA

GROUP INSURANCE

Pricing Considerations

Morbidity: group underwriting with pre-existing condition exclusion.

Lapses.

Interest.

Expenses: lower expenses than individual insurance.

Capital: will recognize capital relief because there are no product guarantees.

Session GRP/IND-5


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