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Underwriting Trends in CanadaModerator: Mary Forrest, Munich RePanellists: Nazir Damji, Sun Life
Dr. Robert Snihura, RBC LifeBrenda Buckingham, Swiss Re
Specialty Track: IndividualSession # D1-PD
General Meeting
Montreal
Wednesday, November 17,
2004
Annual General Meeting – November 2004
Introduction …Mary ForrestSenior Vice President, Individual LifeMunich Reinsurance
Annual General Meeting – November 2004
From an Underwriter’s Perspective …Nazir DamjiIndividual Underwriting Vice PresidentSun Life Assurance Company of Canada
Annual General Meeting – November 2004
Placements
• 76% Placed Standard• 20% Not Placed
Placed
Not Placed
76%
20%
*Source Munich Re Pricing Survey 2004
Annual General Meeting – November 2004
Cost of Wastage
$13,750,000
*Source Munich Re Pricing Survey 2004
Annual General Meeting – November 2004
Tele-Underwriting Data Collection
• More disclosure• More details• Less APS’s• Mixed feelings amongst advisors and clients
Annual General Meeting – November 2004
Non-Invasive Lab TestsOral
– Cotinine– Cocaine– HIV anti-bodies
Skin Sterol
Annual General Meeting – November 2004
From a Medical Director’s Perspective …Robert Snihura MD FRCPCVP & Chief Medical DirectorRBC Insurance
Annual General Meeting – November 2004
Any Changes Since 1848?• Prompt reply from MD—one day turn around!• NOTE: “he/his” and “she/her” option in some questions• Is he generally healthy?• Habits of & mode of life (regular & temperate)?
– Alcohol, tobacco, exercise, avocations• Past health history?• Immune to disease (of the day)?• Arthritis?• Seizures?• Brain, viscera (chest & abd. organs) healthy?• Any predisposition to genetic/inherited disease?• Family history?• How long will he live?…as long as any 36 y.o. male
Annual General Meeting – November 2004
Changes in Past 25 Years• HIV (1981)…revolutionized medical underwriting/lab tests
– Now have urine, blood, oral fluid, hair analysis and…– Home HIV tests (potential for anti-selection)
• Technology…faster, easier, safer diagnosis & Rx – Ultrasound: echocardiography (incl. transesophageal or TEE),
breast, abdominal, pelvic, transrectal (prostate)– Computerized Axial Tomography CT Scan (CAT Scan)– Positron Emission Tomography (PET Scan)– Single Photon Emission Computerized Tomography (SPECT
Scan)– Magnetic Resonance Imaging (MRI)
Annual General Meeting – November 2004
Changes in Past 25 Years cont’d.• Procedures:
– Fine Needle Aspiration Biopsy (FNAB)– Laparoscopic surgery– Endoscopic technology & treatment– Catheter technology:
• Angiography• Angioplasty• Stent• Radiofrequency ablation
– Laser treatment: corneal, skin, palatal• New Medications +++
Annual General Meeting – November 2004
Changes in Past 10 Years• Rapid expansion of medical knowledge & information almost
faster than underwriters and medical directors can learn…information bombardment
• Human Genome has been mapped…therefore, public access to new (and poorly understood) genetic data
• Pressure on researchers to produce new medications quickly…therefore, what can we believe? …..….
• Conflicting information now appearing, e.g., Vioxx, HRT, beta-carotene; PSA vs uPM3; SSRI’s & bone loss, etc.
• Faster, bigger, better tests…“Ultra Fast CT Scan”• “Self-serve Strip Mall Medicine”..can buy a CT Scan report• Huge expansion in imaging, catheter, stent, laparoscopic, fine
needle technology…surgery faster, safer, easier
Annual General Meeting – November 2004
Changes in Past 10 Years cont’d.• New sophisticated treatments for cardiac disease, HBP, lipid
control, chronic hepatitis C, MS, transplants, cancer• Huge expansion in micro-technology (e.g., swallowed video
camera), imaging, catheter, laparoscopic, stent, fine needle technology and treatments
• Novel fertility, cloning technology• Surgery is faster, easier, safer…but bed shortages and long
waiting times now• Fewer doctors; busier doctors• More non-traditional medicine and self-care
Annual General Meeting – November 2004
Medical Underwriting in Next 10 YearsNew Medications in Future:• Molecular technology allows for genetically engineered and
targeted medication (e.g., specific antiviral agents (Hep. B, C, etc.)
• For acquired disease (arteriosclerosis, cancer, DM, obesity, hypertension, etc.)
• For inherited disease (e.g., cystic fibrosis, muscular dystrophies, polycystic kidneys, etc.)
Annual General Meeting – November 2004
Medical Underwriting in Next 10 YearsNew Diagnostic and Therapeutic Technology in Future:• Improved tissue-specific imaging (adeno. vs squamous)• Micro-surgical technology (brain, eye, ears, vascular)• Minimally invasive cardiac repairs• Robotic/remote surgery• Endoscopic vascular repairs• Transplant (growth of organs in animal donors)• Genetically engineered cell growth (e.g., new heart cells after an
acute myocardial infarction, new neurologic tissue after a stroke or spinal injury, etc.)
Annual General Meeting – November 2004
New Laboratory Technology in Future:• More sensitive/specific tests to predict cancer, cardiovascular &
other risks (better mortality assessment)• More oral fluid, transcutaneous testing• Home testing for e.g., infections, CVS risk, etc. (nondisclosure
risk)• Detailed, specific/targeted genetic testing esp. for personal/home
use (non-disclosure risk)• More detailed prenatal screening
Medical Underwriting in Next 10 Years
Annual General Meeting – November 2004
Increased Information Availability in Future:• Unsupervised, uncensored, unedited Internet provides people
with both real knowledge and pseudo-knowledge about medicine and insurance products…Internet is like an intellectual Flea Market: mainly junk, lots of marginally useful things, and an occasional item of value
• Busier MD’s…less time for patients…more self-directed care by patients (non-disclosure risk)
• More non-traditional medical treatment, e.g., OTC naturopathic meds (non-disclosure risk)
• Direct to patient advertising of drugs• More OTC medication (GI meds, NSAID’s)
Medical Underwriting in Next 10 Years
Annual General Meeting – November 2004
New Problems in Future:• Exposure to unusual/resistant organisms:
– Travel abroad (TB, malaria, new viruses, animals, birds)– Hospitals (MRSA, vancomycin-resistant enterococci, E-coli, C.
difficile, pneumococcus, STD’s, HIV)• Pandemics and new diseases (e.g., SARS, Avian flu, etc.)• New environmental problems & diseases, e.g., respiratory &
cardiac disease associated with pollution (traffic, industrial waste; human waste, etc.)
• Affordability of expensive new treatments and technology… “haves & have nots”
• Increasing cost of public health care system• Fewer MD’s and greater privacy concerns:
– Therefore, less medical information about clients…need other means to assess risks
Medical Underwriting in Next 10 Years
Annual General Meeting – November 2004
Doctor’s Typical DayWhat is a doctor’s typical day to day activity?
• History• Examination• Investigation• Prescribe treatment
Annual General Meeting – November 2004
The 21st Century Insurance Applicant• Knows his/her own history and family history• Can read about his/her symptoms on Internet• Can get full exam from private clinic in Canada or USA• Can “buy” genetic testing• Has access to self-directed USA style strip mall imaging • Can get many meds OTC or from the USA
– The typical APS may not reveal any of the above information
Annual General Meeting – November 2004
What to do?• Look for other means of gathering medical risk - data from
patients/clients, e.g.:– Health card data in Canada
• Stricter requirements: – More detailed blood/fluid analysis (= more cost)– More focused lab analysis (e.g., CAD markers)– Obtain info. from all practitioners; all Rx even OTC Rx
• Novel ways to price group/population risks• Fewer preferred categories/cases• Continued close scrutiny of medical literature• Close watch for self-directed health care esp. genetic tests
Annual General Meeting – November 2004
From a Reinsurer’s Perspective …Brenda BuckinghamPresident and CEOSwiss Re Life and Health, Canada
Annual General Meeting – November 2004
Canadian Underwriting Trends – Are You Aware?
Expected mortality results can only be realized when actuaries and underwriters work together to achieve a full understanding of each others expectations, and business environments
Annual General Meeting – November 2004
Underwriting Business Environment1. Competitive market
2. Underwriting guideline liberalizations
3. Capacity limitations, reduced auto/jumbo limits
Annual General Meeting – November 2004
Competitive Market
• Canadian individual insurance market is very concentrated
• The competition for new business is largely occurring on the underwriting front
– Reduce cycle time– Reduce expenses– Emphasis on MGA/Broker relationships
Annual General Meeting – November 2004
Competitive Market
• Increased number of business decisions (relationships)
• Reduced compliance with age/amount requirements (cycle time, expense, relationships)
• Reduced adherence to preferred criteria (relationships, expense)
Annual General Meeting – November 2004
North American Underwriting Audit Survey 2002• Importance of compliance with treaty guidelines (binding, plan,
pool share, etc.): Extremely important
– Reinsurers 85%– Direct writers 70%
• Compliance with age/amount requirements: Extremely important
– Reinsurers 62%– Direct writers 49%
Annual General Meeting – November 2004
North American Underwriting Audit Survey 2002• Adherence to preferred criteria: Extremely important
– Reinsurers 77%– Direct writers 44%
• Business decision justification: Extremely important
– Reinsurers 100%– Direct writers 47%
Annual General Meeting – November 2004
North American Underwriting Audit Survey 2002• Percentage of business decisions allowed:
Less than 2%– Reinsurers 92%– Direct writers 51%
Annual General Meeting – November 2004
Audits and Surveys– What we found• Underwriters stretch cholesterol and build in the preferred criteria• Overall underwriting error is minimal• Attending physician statements are waived more often than any
other requirement• The underwriting of combinations of impairments should be
strengthened• Benefits of financial underwriting are under appreciated
Annual General Meeting – November 2004
2002 Protective Value Study
Note: Mortality costs were adjusted for issue age and frequency requirement was ordered.
MVR Part 3 Part 2 Application
MIB
Rx ProfileAPS
Urine
ECG
1 to 5% 6 to 10% 10 to 20% >20%
Blood
Part 2: Self-reported medical history
Part 3: Physical measures statistics
Proportional mortality cost of eliminating a requirement from underwriting model of study cohort
Source: Swiss Re
Annual General Meeting – November 2004
Competitive Market – Auto/Fac Study• Received 24,535 automatic submissions from 6 Canadian
Companies (covering 11 months)
• Reviewed 2 groups of business from each of these 6 Companies
Group A – cases ceded to Swiss Re automatically and seen facultatively from another Company - Swiss Re
assessed higher or with added requirements
Group B – cases submitted facultatively to Swiss Re and also received automatically from another Company at
lower rating or with less evidence
Annual General Meeting – November 2004
Auto/Fac Study ResultsRatio of Findings to Total
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
by # of policies
by face amount
A B
%
Annual General Meeting – November 2004
Auto Fac Study - What we found• Generally, customer appreciation for completing the study and
taking action where required• Unacceptable levels of aggressive automatic underwriting• Evidence of market pressure. By amount results are considerably
worse than by number of policies• Higher level of exceptions/more aggressive underwriting
occurring on larger amount (high profile) cases
Annual General Meeting – November 2004
Competitive Market
Heightened level of competition in the primary market is impacting reinsured block (automatic and facultative)
How much room do we have in our pricing?
Annual General Meeting – November 2004
Underwriting Guideline Liberalizations• There is a trend towards liberalization of age/amount
underwriting guidelines
– Non-med, no fluids to $250,000 age 45– Fewer medical exams, increased use of parameds and
abbreviated paramed exams– Fewer inspection reports and financial statements– Fewer treadmills and higher EKG limits– Fewer APS’s, with increased use of teleunderwriting and
questionnaires
Annual General Meeting – November 2004
Testing Limits Are Increasing -Why?• Reduce cycle time• Reduce expenses• Enhance customer experience• Pressure from the Distributors• Low risk - increasing share of related mortality risk has shifted to
reinsurer
Annual General Meeting – November 2004
Non-Meds, No Fluids
• Of particular concern is the upward movement of limits for non-meds and no fluids
• This is a material sector of the market
Annual General Meeting – November 2004
Non-Meds, No Fluids
• We are limiting our ability to select against risks that have the greatest impact on our expected mortality
– Smoking– Aids– Obesity– Hypertension– Diabetes or other kidney impairments– Liver function tests
Annual General Meeting – November 2004
Non-Meds, No Fluids
• Do our pricing mortality expectations accurately reflect the impact of these new underwriting guidelines?
• Aggregate comparison scenario
Annual General Meeting – November 2004
Aggregate Comparison Scenario
blend of 3 sets of reinsurance rates - 1984
blended rate with 2.4% annual mortality improvement to 2004
Male age 40, Age Nearest
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
1 2 3 4 5 6 7 8 9 10
Policy Year
X CIA 86-92
Annual General Meeting – November 2004
Changes Impacting YRT Rates
• Table shave programmes• Old business was typically XS, today QS• Introduction of Preferred – better risks go elsewhere• Lower interest rate environment• Capital requirements• Etc.
So, where does the YRT rate for fluid free <45 really lie?
Annual General Meeting – November 2004
Capacity, Reduced Auto/Jumbo Limits• Capacity limited to $75 million in Canada
• Auto/Jumbo limits coming down– At older ages, for additional underwriting scrutiny– Reporting delays cause retention issues for retrocessionares
and reinsurers – they can be bound by multiple sources on the same risk
Annual General Meeting – November 2004
Be kind (but firm) with your underwriting brethren.
Times are tough.