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Experience Trends for Income Protection. International Congress of Actuaries Paris, France June 1, 2006. Experience Trends for Income Protection. Panelists Daniel Skwire Milliman, Inc. (U.S.A.) [email protected] Edward Fabrizio

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slide2
Experience Trends for Income Protection

International Congress of Actuaries

Paris, France

June 1, 2006

experience trends for income protection
Experience Trends for Income Protection

Panelists

Daniel Skwire

Milliman, Inc. (U.S.A.)

[email protected]

Edward Fabrizio

General Reinsurance Life Australia Ltd

[email protected]

Denis Garand

Denis Garand and Associates (Canada)

[email protected]

slide4
Experience Trends in the United States

(Individual Disability Insurance)

Daniel D. Skwire, FSA

Principal and Consulting Actuary

Milliman, Inc.

1985 commissioner s individual disability a table 1985 cida
Most recent published table for individual disability

Experience from 1970’s and early 1980’s

Required table for some reserve calculations

Expected basis for recent intercompany study

1985 Commissioner’s Individual Disability A Table(1985 CIDA)
characteristics of 1985 cida
Sex-distinct

Not smoker-distinct

Four occupation classes

Class 1: Executive and Professional

Class 2: Clerical and Office

Class 3: Light manual duties

Class 4: Heavy manual duties

Accident, sickness, and combined causes

Characteristics of 1985 CIDA
society of actuaries individual disability experience committee idec 1990 1999 intercompany study
Twelve contributing companies

About 64% of total inforce premium

Incidence Study: Claims incurred 1990-1999

Claim Termination Study: Claims paid 1990-1999

Results show Actual-to-Expected (A/E) Ratios relative to 1985 CIDA

Society of ActuariesIndividual Disability Experience Committee (IDEC)1990-1999 Intercompany Study
1990 1999 idec study claim termination rates
1985 CIDA known to have outdated claim termination rates

Regulators adopted 1985 CIDC table as temporary measure

1985 CIDC consists of adjustments to 1985 CIDA

Age of ClaimAdjustment

Months 1-6 36-44%

Months 7-12 50-75%

Months 13-18 80-102%

Months 19-24 105-120%

Year 3 137%

Year 4 120%

Year 5 120%

Year 6+ 100%

IDEC Study measures experience relative to 1985 CIDA

1990 – 1999 IDEC StudyClaim Termination Rates
1990 1999 idec study key conclusions
Medical occupations have distinct experience from Class 1

Lifetime benefit periods have poor experience

Incidence trends are favorable in aggregate, with lots of variation

Claim termination rates are generally lower (less favorable) than those in 1985 CIDA

1990-1999 IDEC StudyKey Conclusions
slide20
Australia & NZ

Disability Income Experience

Edward Fabrizio

Deputy General Manager and Chief Actuary

General Reinsurance Life Australia Ltd

australian nz market
Benefit is a monthly annuity style benefit whilst person remains disabled

Benefit based on income at time of underwriting (generally to max of 75% replacement) and is taxable

Majority (90%) is annual renewal business (age rated based on age at renewal)

Non-guaranteed rates

Full offset if person earns income whilst disabled

Agreed Value and Indemnity benefits are available

Australian & NZ Market
australian nz market1
Most common deferment periods are 30 and 90 day

Benefit period is generally to Age 65, but 2 and 5 year periods also common for blue collar workers

Many extras added :

Hospital benefit (pays benefit whilst in hospital during deferment period)

Rehabilitation benefits

Payment of minimum benefit period on certain accidents / illnesses

Australian & NZ Market
iad 89 93 standard table
Experience Reports for Australia and New Zealand are done on basis of comparing actual results to a standard table – IAD89-93

IAD89-93 developed by the IAAust based on the Australian disability income experience for this period

Incidence rates graduated by age/sex and 4 occupation classes

Termination rates based on % of the US CIDA85 termination rate tables

IAD 89-93 Standard Table
iad 89 93 standard table1
4 Occupation classes

A : Professional and white collar

B : Other sedentary (light manual technical)

C : Light Manual (qualified trades persons)

D : Moderate to Heavy Manual

IAD 89-93 Standard Table
australian experience
WARNING

Experience results presented for Australia are preliminary only at this stage and are still going through a checking process which may alter the final results

Australian Experience
australia latest experience
Australia – Latest Experience

Experience – Trends

Claim cost in first 3 years of claim : 1 mth deferment

australia latest experience1
Australia – Latest Experience

Incidence Experience - Males

australia latest experience2
Australia – Latest Experience

Incidence Experience - Females

australia latest experience3
Australia – Latest Experience

Occupation Relativities

australia latest experience4
Australia – Latest Experience

Amount vs Number of Claims

Preliminary results for continuing companies only

Ratio of A/E amounts versus A/E number for Incidence of Claim

australia latest experience5
Australia – Latest Experience

Termination Rates

Preliminary results for continuing companies only

Ratio of A/E Number of Terminations

australia latest experience6
Australia – Latest Experience

Termination Rates – Male: Occ A: 1 mth deferment

australia latest experience7
Australia – Latest Experience

Termination Rates – Female: Occ A: 1 mth deferment

australia latest experience8
Australia – Latest Experience

Termination Rates

Preliminary results for continuing companies only

Actual Termination Rates of Claim by duration of claim

australia latest experience9
Australia – Latest Experience

Amount vs Number of Terminations

Preliminary results for continuing companies only

Ratio of A/E amounts versus A/E number for Termination Rates of Claim

australia latest experience10
Australia – Latest Experience

Variation in Experience by Company

Preliminary results

summary for australia
Experience has improved significantly

Driven by lower incidence experience (although there are concerns over quality of data used in the investigation)

Termination rates during first year of claim continue to deteriorate, however, this is being compensated by better termination rates at later durations

Incidence and termination rates by amounts are worse than by number (total claims cost by amounts about 15% higher than by number), need to be careful in setting pricing and reserving assumptions – especially for reinsurers on a surplus basis

Summary for Australia
new zealand latest experience2
Claim Duration ExperienceNew Zealand – Latest experience

Ratio (%) of actual to expected claim length by deferment period and investigation period

Ratio (%) of actual to expected claim length by occupation class and investigation period

new zealand latest experience3
Important feature of NZ Experience is the interaction with the government accident compensation scheme (ACC)

ACC provides benefit up to 80% of taxable salary (with maximum dollar cap) in event a person is injured and unable to work

Covers most forms of accidental injury (work and outside work) and can sometimes overlap with what would normally be considered a sickness

New Zealand – Latest experience
new zealand latest experience7
Ratio (%) of actual to expected incidence for smokers over non-smokers in 2000-02New Zealand – Latest experience

Warning: smoking hazardous to your health

Ratio (%) of actual to expected claim cost for smokers over non-smokers in 2000-02

new zealand latest experience8
New Zealand – Latest experience

Agreed Value benefits versus Indemnity

new zealand latest experience9
New Zealand – Latest experience

Self-employed versus Employed

summary for new zealand
Experience has improved

Driven by increased termination rates

Difference between self-employed and employee can be an important rating variable – is just as important as smoker status

Incidence and termination rates by amounts are worse than by number, need to be careful in setting pricing and reserving assumptions – especially for reinsurers on a surplus basis

Experience varies greatly by company

Summary for New Zealand
slide50
Experience Trends in Canada

Denis Garand

Denis Garand & Associates

fraser garand 2000 2004 study
Proprietary study

Financial and technical support from:

Munich Re

Optimum Re

RGA Re

SCOR Re

Swiss Re

Fraser Garand 2000-2004 Study
slide52
13 companies

Small group market, average size 41 employees

2,600,000 exposure from 2000 to 2004

26,000 claims of which 18,000 terminate in first 2 years

one province Quebec, overrepresented

These companies represent:

34% of the market, groups less than 1000 employees

demographic data
Female Male

Average age 39.7 40.1

Distribution in % 40% 60%

Growth of portfolio higher in earlier years of the study

72% 119 day elimination period

91% initial own occ definition

Demographic data
fraser garand 2000 2004 table
4 month elimination

Own Occupation

Benefit to age 65

Tables by 5 year age band and gender

Quebec,

Canada except Quebec

Fraser Garand 2000-2004 Table
incidence per 1000 study population
Canada 8.4

Canada, except Quebec 6.2

Quebec 15.1

SOA GLTD 1987 Basic “4 months” expected

4.6

Incidence per 1000, study population
variation actual expected f g
Variation Actual /Expected (F-G)
  • By age (compare to SOA 87)
    • Younger female higher incidence
    • Older males lower incidence
  • By amount insured
    • Lower benefits higher incidence
    • Higher benefits lower incidence
  • By industry (50% to 150%)
variation actual expected f g1
Variation Actual /Expected (F-G)
  • By region
    • Some provinces better (no control on industry)
  • By cause of disability
    • Variations by Mental and Nervous, Musculoskeletal and all other causes
  • By year of disability
    • 2000 highest, 2003 best
  • By participating company (~70% to 125%)
termination study
Termination study
  • 18,000 terminations within the first 24 months of duration.
  • Produced termination rates for duration 4-12 months.
    • 159% versus SOA87 Basic 3 month
  • Analysis of claims duration to 24 months by three major causes of disability.
    • Substantial variation in termination rates.
caveats
Caveats
  • Study not adjusted for industry.
  • Short period of study was in a favourable economic cycle.
  • Termination study requires more data
uses of study
Uses of study
  • Improve pricing for current environment (most companies operated on “old” data)
  • Adjust valuation reserves for key parameters of region and cause of disability.
  • Benchmark company versus industry
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