product innovation in retirement health insurance · market specific (in %) response to household...

Product Innovation in Retirement Protection KC Cheung, Swiss Re

November 2012

KC Cheung | Asia Conference on Pensions & Retirement

Health Protection Gap:

– Levels of healthcare expenditure which would be required to meet consumer needs based on economic growth, medical inflation and population growth

– Versus the amount governments would spend if they maintained total healthcare expenditure as a constant percentage of GDP

Difference = Health Protection Gap, a potential financing shortfall

By 2020, estimated Health Protection Gap in Asia = US$197bn, a massive shortfall

Biggest factors:

– Ageing population, rising dependency ratio, declining birth rates, higher healthcare demand, rising medical inflation

– Changing societal norms increasing the trend towards burden of healthcare funding onto families and individuals

2

Regroup


Consumers Risk Survey:

– Aware of the need to take action, but limited purchase intent, preferring instead to rely on savings/families: a very risky and highly inefficient strategy

– General awareness Government provision is inadequate and action is required, but fear that health insurance is already expensive and will become more so

3

Regroup

Significant opportunities for insurers to offer good value health insurance products to consumers

KC Cheung | Asia Conference on Pensions & Retirement 4

Investment in pension funds is increasing

Asia 12.5%

Aus 4.7%

Americas 64.4%

Europe 17.6%

Others 0.8%

Asia Aus Americas Europe Others

Pension Assets – 2011, USD bn

72.0%

19.0%

56.0%

108.0%

71.0%

95.0%

96.0%

34.0%

55.0%

115.0%

101.0%

107.0%

0% 20% 40% 60% 80% 100% 120% 140%

Australia

Hong Kong

Japan

Switzerland

UK

US

2011e 2001

Pension Assets as percentage of GDP

Sources: Global pension assets study 2012: Towers Watson


Most people are better at saving than providing protection for their families

Most people will have a pension pot or savings pot accumulating for their use at retirement

Many people are unsure about how long they will live, what their costs of living will be as well as what their medical expenses bills will be (particularly if they will suffer from cancer or need long term assistance and families may not be willing or able to provide)

Is there an opportunity for us to design new post retirement products to

access savings at retirement which remove or reduce the combined uncertainties individuals face?

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The post retirement conundrum


Health Insurance

6


Regional total (in %)

Market specific (in %) Response to household financial position if the respondent passes away, suffers from a long-term serious illness or disability (in %)

Swiss Re Asia Risk Survey: 13,800 consumers aged 20 to 40 (Gen X & Gen Y) across major cities of 11 Asia-Pacific markets in 2011

Around 40% say their families would or might struggle financially if they suffer from long-term serious illness or disability

Source: Swiss Re Asia Risk Survey 2011


Lifestyle & screening Cancer Trend in Korea 99-07

0

50

100

150

200

250

300

350

all cancers Liver (C22) Thyroid(C73)

Colon(C18)

Gallbladder& Biliary

Tract (C23-C24)

Stomach(C16)

Breast(C50)

Cervix(C53)

Rectal(C19-C20)

Pancreas(C25)

Lung (C33-C34)

Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006 Year 2007


Health Insurance as a Retirement Solution


Looking back at a product trend influenced by demography

1983 2008 Now

First CI Product in

South Africa [4 diseases]

List of diseases

grown to as much as161

Some diseases are withdrawn due to advance

medication available

Multiple Pay / Early Stage CI

Products available

Advanced Cancer

Products in Japan

Hong Kong Life Expectancy = 75.4

Cancer Incidence = 2.80 Cancer Mortality = 1.53

Hong Kong Life Expectancy = 82.4

Cancer Incidence = 3.53 Cancer Mortality = 1.15

Critical Illness Insurance


Which is the stronger marketing message?

– We cover you against 30 major illnesses and an additional 10 early-stage illnesses (the competition only covers 26 major illnesses and does not pay for early stage illness)

– If you become seriously ill, we will give you the financial power to get the right treatment for your illness, when you need it, and will help to meet your family's living expenses while you are unable to work

What are insurance companies really selling?

– There are few certainties in life – health care costs are increasing, social security is become less and less secure, but the right protection product will make the customer feel more certain and more secure, at an affordable price

Create the product features to match the message! (don't let the product features be the message)

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Peace-of-mind sells protection, not features


CI is a well-established product in most Asian markets with healthy sales, high awareness among customers and intermediaries

– Upsell opportunities (existing customers have low average SA)

– Add new features or a new story to refresh or revitalise CI

Some issues with existing CI products that suggest some product enhancement opportunities

– Significant number of "declined" claims for early stage CI conditions (definition not yet fulfilled)

– Post-CI survival and recovery rates higher than ever before

– CI lump sum provides poor match to financial needs – sometimes pays too much, sometimes pays too little

– CI lump sum provides financial flexibility but little guidance on how to spend it to optimise health outcomes

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Critical Illness – Building on Success


Early stage CI benefits

Multiple-payment CI benefits / Reinstatement options

Tiered CI benefits – varying by severity

Comprehensive disease packages

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Critical Illness – Potential Product Solutions


Longevity

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0

16

32

48

64

80

65 70 75 80 85 90 95 100 105 110

Nu

mb

er

of

de

ath

s a

t e

ach

ag

e

Age

Out of 1,000 people aged 65, at what age will people die?

Male Female

43% of Males are expected to die between ages 78 and 87

46% of Females are expected to die between ages 83 and 92

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You will not know if you got it right for some time Death at different stages of life

Source: 2009 Korea Life Table


The uncertainty is significant – actuaries got it wrong

40

45

50

55

60

65

70

75

80

85

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

Singapore - Females - History

6%-7%

5%-6%

4%-5%

3%-4%

2%-3%

1%-2%

0%-1%

-1%-0%

-2%--1%

-3%--2%

-4%--3%

?

?

?

?

?

?

?

? ? ?

?

? ? ?

? ?

?

? ?

Singapore females history

Source: WHO Mortality Database with smoothing


Past Performance is No Guarantee (period & cohort)

40

45

50

55

60

65

70

75

80

85

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

Singapore - Females - History

6%-7%

5%-6%

4%-5%

3%-4%

2%-3%

1%-2%

0%-1%

-1%-0%

-2%--1%

-3%--2%

-4%--3%

Singapore females history

Source: WHO Mortality Database with smoothing


Life expectancy mis-estimated for decades

In 1977, the projected life expectancy of a UK male born in 2010 was estimated to be 71 years. By 2000 this projection was revised to more than 77 years

Changes in Life expectancy

Source: Chris Shaw, “Fifty Years of United Kingdom National Population Projections: How Accurate have they been?”, Population Trends, 128, Office for National Statistics, 2007


Volatility Risk

– Statistical fluctuations - risk that individuals die earlier or later than expected

– Diversifiable within a pool of individuals

Mortality Level Risk

– Risk that current levels of mortality are misestimated

– Partially diversifiable across different pools of individuals, across different ages, across different market segments, across different geographic areas, etc

Mortality Trend Risk

– Risk that future trends in mortality are misestimated

– Slightly diversifiable to the extent that different factors drive differences in mortality trends across different pools of individuals

– Not diversifiable to the extent that mortality trends are driven by factors that are common across the globe

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Components of Longevity Risk Longevity risk


Annuities sell well where

• It is mandatory to take some retirement savings in the form of an income stream

• there are significant incentives or for annuity purchase

• tax benefits

• subsidies

• interest rates are high, making annuities look like good value for money

• long term assets exist to match liabilities

Annuities do not sell well

• Everywhere else

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Factors for a healthy annuity market Drivers of health annuity market


Longevity Action in Asia

Retirement Savings Longevity

Australia Superannuation Old-Age Pension

China Enterprise Annuity Social Insurance

Hong kong MPF NA

India New Pension Govt & Private Pensions

Japan Various Pensions National Pensions

Korea Various Pensions National Pensions

Malaysia EPF NA

Singapore CPF CPF Life

Taiwan New Labour Pension National Pensions

Thailand NPF Old Age Pension

bold = mandatory / near-universal, italics = voluntary / limited coverage

Asian pension / annuity overview


Long-Term Care (LTC)

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In markets without government incentives or support, sales of LTC insurance are close to zero

LTC sales are better in markets with government incentives or support

Reinsurers have been trying to build interest in LTC since the 1990s

More effective growth strategy maybe to convince governments and stay aligned with government policy rather than marketing direct to consumers

Alternative exposure to demographic drivers of LTC needed via investments in nursing homes, assisted living facilities, etc

23

Does anyone buy LTC Insurance?


LTC low on the priority list for insurance protection

– Death of family breadwinner or primary carer

– Severe illness of family member

– Disability / unemployment of family member

– Retirement income / bequest

What is the message?

– The cost and financial / care burden of LTC is under-appreciated – there is scope to grow the need in the eyes of clients

– Increase awareness about cost of quality nursing care

– Ageing population means that state-funded care will be in short supply and means tested – those who can afford it will be made to pay

– Emphasise financial and care burden on children

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Customer Need for Long-Term Care


• Japan, Korea, Singapore have government-sponsored LTC

• Supplemental LTC products in these markets viable from a sales perspective

Supplemental to government LTC

provision

• Markets where awareness of LTC is low

• LTC income benefit paid as acceleration of Death benefit

• 2% per month for up to 50 months upon ADL failure / Cognitive Impairment

• Appeal to ageing population

• "Combo" structure to overcome concerns that benefits might never be needed

Death and LTC "Combo" products

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Potential LTC Products


More than Product Features…

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27


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There are times when answering health questions can be good for you?


Link with Health Wellness Proposition

– For healthier lives, more is allocated to Daily Expenses

– Less healthy lives needs a higher reserve of health cost

– Higher income payment is a meaningful incentive to keep healthy

Wellness program in place to help retirees to maintain good score

Wellness Proposition

Daily Expenses

Health Cost Higher Score

Lower Score


Next Steps

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Our focus must be on the future – BOTH THE GOOD


- AND THE BAD that will be with us for some time

Thank you


Legal notice

©2012 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

Although all the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial and/or consequential loss relating to this presentation.

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