les enjeux de la dépendance – laure de montesquieu, scor

Assurance Dépendance

2

Long-Term Care Insurance

1 Introduction

2 Caractéristiques des produits

3 The CIRDAD

4 Technical Issues

5 Underwriting selection and claims management

3

What is LTC (Loss of Autonomy)?

The concept of Loss of Autonomy (LTC) can be defined based on 3 different notions : Functional limitations: caused by impairment in functional functions (walking for instance), in sensory development or in

cognitive disorders;

Restrictions in activity: measured by ADL or IADL

Need of help or assistance

One definition of the Loss of Autonomy:

“Illness or ageing may generate functional limitations which, if not compensated by technical aids or environment management, could lead to activity restrictions. This will lead to a regular assistance of a third person for the basic activities”

LTC is neither Disability Insurance nor Health Insurance even if it is triggered by the same causes

Disability is a reduction of capacity to accomplish an activity normally (World Health Organization definition)

LTC is a limitation in the accomplishment of a normal role for age resulting from an impairment or disability

LTC is defined by the inability to perform the Activities of Daily Living:

Bathing Dressing Continence

Eating Walking Bed-chair transfer

Other scales – often public schemes - also use Instrumental Activities of Daily Living (more complex : domestic activities, managing of the financial affairs, phoning…) or Superior Activities (interaction with social background: leisure, sport, clubs, travels,…)

Determining factors are numerous and various: The ageing of the population in the developed countries

Actual or perceived role of the family assistance

Actual or perceived role of the public schemes

4

The ageing of the population in developed countries

An inevitable ageing of population: an increasing ratio of over 65 years old

Percentage of people over 65 in the population

10%

15%

20%

25%

30%

2000 2010 2020 2030

Italy

Spain

Germany

France

USA

Source : EUROSTAT, DREES-OFCE and U.S. Bureau of the Census, current Population Reports

5

Introduction

Demography in France – Main figures

In 2005, 1 in 5 is over 60

In 2050, 1 in 3 will be over 60

The number of people over 60 will double

And…

The number of people over 75 will be tripled

The number of people over 85 will be multiplied by 4

Actual or perceived role of the family support

Only 40% of French dependent people are

assisted by their family

The Spanish and the Japanese cases are far from this situation with more than 70-65% assisted by family.

The number of natural home helps (spouse, children, neighborhood) will drop in France from 2,5 to 2,1 persons by 2040 as:

The average size of the family is

decreasing

The age of fertility is increasing, reducing the age and the availability of the children at moment of LTC occurrence

The labor participation of young and middle-aged women is rising

5

6

Introduction

The role of the public schemes is

fundamental for the development of

private insurance :

Communication around the new public

scheme, APA, in France strongly

boosted a sleepy LTCI market in 2002…

…nevertheless, a very generous plan

can reduce the place of the private

market (Germany, Japan)

Current governmental reflections

about the new branch of Social Security

for LTC and the Alzheimer plan should

be the main LTC growth’s driver

LTC: a common problem for developed

countries:

Life Expectancy of elderly people has

increased

Healthy Life Expectancy without severe

disability

Life Expectancy with severe disability

One of the biggest threats to the wealth of

the elderly

Only 15% of people think they can cover the

costs of LTC

Long-Term Care funding

Shortfall of State benefits: large need of

cover to face long-term care

related costs

Strong opportunities for

development of private Insurance

6

7

The LTC framework in France

The average cost of LTC per person: EUR 2,500 to 3,000 per month

The average pension, which is about EUR 1,200 per month

Public scheme APA: EUR 491 monthly average APA

Gap to be financed: average EUR 1,500 per month

8


1 Introduction


3 The CIRDAD

4 Technical Issues


9

The French v.s. US market

There are 2 main product designs : the reimbursement design and the cash benefit design

SGL operates only in cash benefit design

USA FRANCE

Public scheme Medicaid / Medicare PSD then APA

Experience ~ 30 years ~ 25 years

Annual Market Growth <0 p.a. on 2003-2012 + 15-20% p.a. until

2006, stand still after

Current Market size More than 7 million

insured in-force

More than 6 million

insured in-force

Products / Benefits Mostly reimbursement

(of care services) Cash benefits

The US approach:

Currently mainly reimbursement, aiming at covering all the costs

Thus complex products to design, expensive and difficult to monitor and administer

In practice: low flexibility / inception options, limited durations, inflation issue, lapses issue, technical rate issue, price increases

LTCI Market: adjusting for many years (still ongoing)

The French approach:

Coverage of severe impairments, now extending to less severe ones

Simple to sell and administer - monitorable (large consistent experience)

In practice: flexibility due to cash benefit, but

generally does not cover the full cost of LTC

and does not fit into the actual need of services

LTCI Market: needs a real new life (some products launched)

10

Group vs Individual Insurance

Individual product Group: compulsory application

Application Optional Compulsory

Benefit level Choice between several guarantees with recommended limits Same benefits for each member

Entry age Usually between 40 y.o. and 75 y.o. Implicit limits

Deferred period Usually 90 days, absolute or relative Usually 90 days, absolute or relative

Medical underwritting Systematic No, if sufficiently large group

Elimination period Depends on the country but usually 3, 1 or 0 years No, if sufficiently large group

Duration of the cover Usually lifetime Annual

Premiums Level premium

(based on the entry age) Risk premiums

Reviewable premiums Usually yes Yes

Paid-up value Depends on the country No

Surrender value No No

Reserving Premium reserve: reserve for increasing risk

Reserve for annuities in payment

Reserve for annuities in payment

Police termination

Annuities in payment are still paid

Paid-up value for the other insured

Only annuities in payment are still paid

11

Level premium and risk premium

Whole life level premium

Depends on the age at inception

To be paid until claim payment or death

Revisable rate (according to the technical results, medical treatment improvements and extended lifespan)

Mainly for individual coverage or group enterprise coverage with a complementary individual cover

Risk premium

Annual coverage

Depends of the age. Could be mutualized, but as long as there’s enough young insured to balance portfolio

ageing.

Independent of time spend in the contract

Mainly for statutory coverage of French Mutual or some group enterprise coverage

12

Example of pricing (French market)

Annual premiums (net of any loadings)

3 months deferred period

Elimination period: 3, 1 or 0 years

1000€ per month

Total Loss of Autonomy

Levelled Premium Risk Premium

55yo 330 € 20 €

65yo 500 € 40 €

75yo 840 € 220 €

€-

€500,00

€1 000,00

€1 500,00

€2 000,00

€2 500,00 Comparison Risk and level premiums

Pure RP

Pure LP 60 yo

Pure LP 70 yo

Pure LP 75 yo

Pure LP 80 yo

Pure LP 85 yo

13

Riders and services

Riders:

« Equipment » Lump sum

« Help for the caregiver » Lump sum (Group coverage)

« Rest for the caregiver » Lump sum (Individual coverage)

« Fracture » Lump sum

« Death of the caregiver » Lump sum

Services through Assistance contracts, for instance:

At inception date: info and advices on everyday life (meal delivery, domestic help …), « life » check up »,

support in case of LoA of a relative (help for administrative process, search for long-term care facility, search for

psychological help …), prevention check up (Home adaptation …), memory check up …

In case of partial LoAI: home adaptation, medicine delivery, teleassistance (to be connected with the outside

world), support for memory ….

In case of total LoAI: support for life organization and quality of life, support for moving…

Creation of a complete website on LTC

…

14


1 Introduction


3 The CIRDAD

4 Technical Issues


15

CIRDAD – A dedicated R&D Center for LTC

LTCI Portfolios (an important database)

Pricing basis / Risk Monitoring

New products

CIRDAD

Experience

Research

CIRDAD

16

CIRDAD: Statistical data

What do we need to know to estimate the price of LTC ?

How long do people live?

How many will need LTC insurance?

How long will the period of LTC last?

Estimation of transition probabilities

Large portfolios of homogeneous insurance data (25 years experience)

• Aggregate reliable data

• Combined experience of more than 30 million exposure-years and around 55 000 claims

Population data, Specific studies and surveys

Partnership with PAQUID (INSERM)

LTC Risk Analysis for elderly: Survey of the French National Institute of Health and Medical Research (INSERM)

Epidemiological study dedicated to ageing and its related pathologies

A cohort survey, 20 years of follow-up

PAQUID’s Relevance for Insurance

Long-Term Care Risk Definitions

Data, Prevalence of severe and moderate disability for very old people

17


1 Introduction


3 The CIRDAD

4 Technical Issues


18

Technical issues – Statistical data

3 transition probabilities

Longevity of active people

Depends on age, sex, life expectancy without severe disability

Incidence of dependence

Depends on age, sex, the medical selection effect

Longevity of dependent people

Depends on age, sex, time aalready spent in LTC, the main disease responsible for dependence

19

Technical issues – Semi-Markov Model used by Scor Global Life

aa

xq

0ia

xp

Healthy

Dead

Loss of autonomy

i

txq

,

i

xP

aa

xP

xi

20

Technical issues – Pricing

Single pure premium for 1 unit of annuity in the event of total dependence (without taking waiting

time into account)

The risk is differentiated by sex but the premiums are the same for both sexes (M/F proportions)

Effect of selection, waiting periods, return of premium taken into account in the rate

0

,, ...k

Smikx

Skx

Saaxk

kSx aipv

sexS

ageentryx

21

Technical issues – Reserving

Reserve for active people

Prospective method, using pricing basis

Unisex

General formula :

Reserves for outstanding claims

Depends on age at the beginning of LTC, sex and time already spent in LTC

General formula :

0

)'()(.. "1)1.(..

j

maakx

mijkxjkx

aakxj

jxk .äg).P(rRaipvPRC

premiumgrossP

investmentonreturnandensesforloadingg

ensespaymentannuityr

annuityannualR

durationoncontributikageentryx

"

exp

exp

,

rRaPSAPSmi

txSxt 1..

,

ensespaymentannuityr

sexS

durationdependencytagedependencyx

exp

,

22

Technical issues – Reserving

Equalization fund

Reserve intended to smooth the bottom line over time

Supplied by a percentage of the profits

In order to offset potential future losses

Permit to postpone/avoid a repricing

After the fund reaches a certain level, the profits of the following years are totally shared

Not deductible from the profits (depends on the country)

23

Technical issues – Statistical analysis

Regular statistical analysis

Analysis by underwriting generation

Impact of selection and elimination period: masking effect

Monitoring

Differences between pricing assumptions and experience

Monitoring incidence and longevity (dependent and independent people)

Adapting actuarial basis to the underwriting and acceptance of the insurer

24

Scénario:

- Shock on incidence rates : -10%

- No shock on autonomous mortality rates

- Shock on mortality rates for LTC people : -6%

In reality, staying with the initial actuarial basis

gives this wrong image of current results.

Statistical approach vs accounting approach

On the surface, the results are in surplus during

more than 20 years.

Pricing is at the good level

(almost the same than if there was no shock)

25

6. Sensitivities

Sensitivities on level premiums (last SGL’s biometric laws and deffered period of 3 months)

To offset simultaneous decrease by 10% in mortality of autonomous insured and of dependant insured,

the incidence should decrease by:

18% for the annuity in case of Total LTC

11% for the lump sum in case of Total LTC

16% for the annuity in case of Total and Partial LTC

10% for the lump sum in case of Total and Partial LTC

Total LTC Total and Partial LTC

Entry age 55 y.o. 65 y.o. 55 y.o. 65 y.o.

Annuity

1200 €/y

Lump

Sum

1000 €

Annuity

1200 €/y

Lump

Sum

1000 €

Annuity

1200 €/y

Lump

Sum

1000 €

Annuity

1200 €/y

Lump

Sum

1000 €

Incidence +10% +7% +6% +7% +6% 7% +5% +7% +6%

Incidence -10% -8% -6% -8% -6% -8% -6% -8% -6%

Mortality of

autonomous -10% +4% +5% +3% +5% +3% +5% +2% +4%

Mortality of

Claimants -10% +13% +1% +13% 1% +11% +1% +11% +1%

26

Reinsurance Offer

Classical Quota-share treaty per generation:

min retention: 20%

ideally: 50%

Commercial premium + reinsurance commission

We help the ceding company concerning:

The construction of the product

The medical underwriting (process, analysis, … )

The piloting of the portfolio following (pricing, reserves, … )

The claims follow-up

27


1 Introduction


3 The CIRDAD

4 Technical Issues


28

Underwriting selection: 2 stages

Stage 1: Medical questionnaire filled in by the proposer Simple, rapid and easily completed

Detection of preexisting disability or long term treatment

a key monitoring tool

If the proposer answers «NO» to all questions: acceptance at standard conditions

Selection can stop here: about 55% of proposals are insured at standard rates

and the others are refused

But possibility to study Substandard Risks with assessment of aggravating pathologies

Stage 2: Specific Medical Questionnaire completed by the doctor

More detailed, with specific questions

Family history

Lifestyle

Existing pathologies and risk factors

29

Underwriting selection: The selection by SCOR Global Life

Standard risk: Medical Questionnaire without anomalies

Substandard Risk: assessment of extrapremium

Postponement: pathologies in evolution

or not consolidated

Refusal: already dependent or foreseeable long term care in

a near future

Long Term Care

30

Underwriting selection: The selection by SCOR Global Life

Medical Risk Underwriting Manual:

LTC substandard risk: more than 15 years of experience

Solem: Computerization of Long Term Care

Underwriting Manual

An original method

A rapid solution obtained by the user

Evolution and regular updating of underwriting bases according to our experience

An additional protection: the elimination period

Accident risk: 0

Illness risk: 1 year

Dementia risk: 3 years

A safeguard against adverse selection

31

Claims management

Verification of medical and administrative criteria

Administrative: date of the beginning of the long term care – elimination period and deferred period

Medical:

Total or partial dependency must be permanent and irreversible

Incapacity to perform 3 of 4 ADL (depending on the definition of the trigger in the contract)

Confirmed dementia (MMSE or Folstein’s test)

Need of a helper

Thanks for your attention

les enjeux de la dépendance – laure de montesquieu, scor

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