The 2003 Healthcare Conference

5-7 October 2003

Scarman House, The University of Warwick

Critical Illness

Why reviewable rates are more appropriate.

Bill Baker

Swiss Re Life & Health

Key Points

Guarantees cannot be provided at a fair price

We are insurers not bookmakers

Reviewable does not mean “no risk”

The right product at the right price

So what’s the right price for guarantees?

Average market price

90100110120130140150160

Ind

ex

Source: Average of 8 providers. M30NS, F30 NS, 25 year, £100,000 level cover

With every price increase more people become financially excluded

It’s tough getting the right price!

Variability of company experience Company A: 100 Company B: 170 Distribution? Social class mix? Underwriting? Claims

control?

IBNR A record? 77 months between claim event and notification to

the insurer

Do we really have sufficient volume of data?

Good foundations?

50

60

70

80

90

100

110

120

130

0 1 2 3 4 5

Duration

Rel

ativ

e va

lue

Observed

Expected

Reality?

Quality of our data?

Are we treating death claims correctly? Our split between accelerated and stand alone? The right claim date?

Date of diagnosis, notification, acceptance, settlement? What date did the HCSG use? What date does CMI use? What date do you use for experience studies?

What about substandard business? What about differences in scope of cover? What about population data?

How may the future change?

Impact of troponin: 2-3% increase in claims? Cancer screening:

NMP 48 Prostate cancer test Bowel cancer screening Breast cancer screening

Ombudsman’s decisions

Aims of medical science

Want to spot nasty conditions sooner Want to improve the outcome if you’re unlucky Want to stop nasty conditions happening

Good news for all of us Good news for life assurance Mixed news for critical illness!

Genetics and cancer

2002: Single gene test 2003: Total Genotyping 2007: Early treatments developed 2017: Treatments implemented 2025+: A cancer cure?

What do we really want?

Access to insurance

Competitive premium rates

Equity between policyholders

Keep withinmorbidity assumptions

Benefits to policyhold

er

Spread the risk

Benefits to Insurers

Accurate and sustainable

pricing

Shared risk

What do guaranteed rates give us?

Uncertainty about where we are Guessing about what will happen at the longer

durations Trying to second guess medical changes Predicting future actions of the Ombudsman Is 60% increase too much or too little? Rip off Britain? Get the price too low and solvency suffers and all

prices have to rise Insurance or gambling?

With every price increase more people become financially excluded

Reviewable does not mean “no risk”

Rates should be set to be sustainable over the product term

Review looking forward

Any past loses should not be passed on to the policyholder

Right product for the right price!

If it’s not broken don’t fix it!

Are we covering the right events?

Reviewable definitions?

Consumer choice: Increase premiums or change cover?

Why reviewable rates?

There is no right price for the unknown Every price increase more people are financially

excluded Critical today, routine tomorrow? Indemnity insurance or windfall gamble? Are we insurers or bookmakers?