2 Definition of Voluntary Common terms used in the industry are voluntary, worksite, supplemental coverage, etc100% Employee Paid CoverageMay be linked to Employer Paid CoverageSupplemental LifeCore/Buy-Up DisabilityCarriers may include business with partial Employer subsidies
3 Major Market Trends Continued Growth Group Benefit Carrier Expansion Eastbridge StatisticsGroup Benefit Carrier ExpansionExpanded Product Lines: Critical Illness & AccidentIndividual Carrier Distribution ExpansionAFLAC Acquisition of Continental AmericanContinued Blurring of Group vs. IndividualIncreasing Awareness in the MarketLarge/Jumbo Cases
4 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012 New Business Premium GrowthTotal sales in 2011 = 5.5B2011 growth rate = 4.5%Top 15 companies account for 82% of the marketTakeover business accounts for 42% of the market
5 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012 Top Companies (47% Market)AflacUnumColonialAllstateTop Products (68% Market)Term Life InsuranceShort Term DisabilityAccidentHospital IndemnityDental
6 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012 Distribution ChannelsBenefit BrokersCareer AgentsClassicsSpecialistsOccasional55% Group, 45% Individual
7 Areas of Blurring Group vs. Individual Contract Greater rate and filing flexibility with GroupLower MLR’s with IndividualGroup products with “Individual” featuresIssue age rating, portability, heaped commissionsIndividual products with “Group” featuresGI/minimum participation, case specific rates
8 Group vs. Individual Distinctions Enrollment MethodologyGroup meetings vs. 1-1Administrative PlatformSelf-Admin vs. Individual recordsDistributionBenefit brokers vs. Worksite SpecialistsRenewal Pricing ChangesThese Distinctions Are Also Blurring
9 General Data Challenges Self-Admin Data Limitations: Aggregate BillExposure Based on Initial Rating CensusIntegrity of Participation DataInitial vs. OngoingAssumed vs. ActualQuality Control ChecksSegregating Portability Experience
10 General Pricing Challenges Employee Choice Various Forms of Employee ChoiceAmount of CoveragePlan Design: Disability Elimination & Benefit PeriodDependent CoveragePricing For Apparent ValueAnti-SelectionPossible offset from increased participation
11 General Pricing Challenges Takeover vs. Virgin Risks Possible Use of Known Information In Case Level PricingParticipation Rate: Count & AmountAge/gender mixLoss experienceActual vs. Eligible CensusAssume higher participation from poorer risks? (e.g. Blue Collar vs. White Collar employees)Participation varies by case size?Assumed Benefit Level and Expense Loads
12 General Pricing Challenges Base Claims Costs Mixing Employer Paid and Voluntary in an Experience StudyIs the Age/Gender Slope the Same?
13 General Pricing Challenges Application Of Group Rating Factors Do Industry & Area Factors Apply?If so:Link to Employer Paid coverage factors or modify?Data sources for New Voluntary Only Products?
14 General Pricing Challenges Participation Requirements Should Minimum Participation Requirements Impact Pricing?How Are Requirements Enforced?Commission Linked to Participation?
15 General Pricing Challenges Portability Assessing Value of PortabilityData Sources?Theoretical anti-selection riskAdministrative CostsWho Pays For ValueAll Participants Vs. Self-Supporting PoolCombination of AboveDeath Spiral Risk?Impact of Port Experience on Group Experience?
16 General Pricing Challenges Composite vs. Age Based Rates Measuring Composite Rating RisksPossible Risk MitigationExperience on Takeover accountsVariation By Product (e.g. Flatter VSTD claim cost curve)High projected participation
17 General Pricing Challenges Issue Age Rates/Heaped Commissions New Territory for Group Benefit CarriersIndividual Persistency Assumptions RequiredUtilize Industry DataDevelop ability to track experienceFinancial reporting – DAC?
18 General Pricing Challenges Experience Rating Are Non-Contributory Algorithms Directly Transferrable to Voluntary?Same credibility factors?More volatility for voluntary?Basis for Experience Data RequirementsEligible or Projected Participating Lives
19 General Pricing Challenges Expenses ID and Measure Costs Unique To VoluntaryEnrollmentSolicitation MaterialsBilling ReconciliationsLogical Relationship With Non-Contributory LoadsMinimum Loss Ratio Considerations
20 Group Term Life Pricing Challenges Participation Factors Theoretical Development: Extra mortality by participationWhat have we learned?Ratio of average claim to average coverageLinking Participation to ExperienceData scrubbingActual vs. AssumedCredibility of results/SmoothingPricing Execution: Case Specific vs. Defaults
21 Group Term Life Pricing Challenges Underwriting/GI Should Rates Be Adjusted For:GI LevelRange of EE OptionsImpact of Case SizeTheory vs. Experience AnalysisIdentifying GI risks: Impact of GrandfatheringTracking experience of underwritten risksInteraction with Participation FactorsImpact of Prior GI on Takeovers
22 Group Term Life Pricing Challenges Open Enrollments Enhancing Participation vs. Anti-SelectionTakeover RulesRe-enrollments of Existing CasesLimited GI vs. True Open EnrollmentNeed for Open Enrollment Pricing Factors?
23 Critical Illness Pricing Challenges Utilization of Population Data Primary Source But Adjustments RequiredUnderstand Data (e.g. First Diagnosis or not)Incidence vs. PrevalenceContract LanguageBenefit Trigger Definitions & Benefit %’sFirst Lifetime Diagnosis RequirementRefine Age GroupingsReconciliation of Multiple Sources
24 Critical Illness Pricing Challenges General to Insured Population Start With Theoretical 100% ER Paid ScenarioMultiple Methodologies/SourcesDash & Grimshaw Calibration FormulaInternational DataReinsurer Data (if applicable)Insured/General Ratio for Other LinesActuarial JudgmentCompetitionValidation of Pricing Assumptions
25 Critical Illness Pricing Challenges Participation & GI Factors Highly Theoretical DevelopmentConsiderations similar to LifeMore anti-selection potential?Pricing ExecutionAny basis for case specific adjustments?Minimum Participation For GIManagement of shortfalls
26 Critical Illness Pricing Challenges Value of Gatekeepers First Lifetime Diagnosis RequirementMajor pricing considerationBenefit Waiting PeriodsWhat types of claims do they prevent?Pre-Existing Condition ExclusionsWhat can be deemed a pre-existing condition?Child Triggers (Birth/Prenatal Issues)
27 Critical Illness Pricing Challenges Unique Benefit Provisions Recurrent and Additional EventsNeed for and value of separation periodsSome population data availableUnderstand what underlies baseline incidenceHealth Screening/Wellness BenefitSources of utilization assumption: judgment?Applicability to ChildrenSeparate per life charge?Is This Medical Coverage?
28 Critical Illness Pricing Challenges Industry and Area Factors Do They Apply to CI?Basis for DevelopmentAlign with Life FactorsPossible modifications
29 Disability Pricing Challenges Pre-Ex Exclusion Price differentials for GI with Pre-ex vs. GI with No Pre-exTheory & ExperienceRelationship to Employer paid factorsTakeover (prior service credit) vs. VirginVSTD vs. VLTDVSTD Pregnancy RiskValue of Partial Pre-ex BenefitLimited Benefit Duration or Percentage
30 Disability Pricing Challenges Replacement Ratio After-Tax Replacement Ratio ConsiderationsWhat Has STD/LTD Experience Shown UsIncidence and Claim Termination RatesGross-Up Plan ExperienceVSTD vs. VLTD ImpactImpact of Plan MaximumsIndividual vs. Group Replacement Ratio
31 Disability Pricing Challenges Participation Factors Considerations Generally The Same As LifeMore Anti-Selection Potential Than Life?Insured uses benefitSubjective nature of disabilityActual vs. Eligible Census More ImportantCombined VSTD/VLTD OfferingImpact on projected participation by productMinimum participation requirement considerations
32 Disability Pricing Challenges Portability Definition of Disability after Porting?Nature of RTW efforts after Porting?
33 Voluntary Accident Pricing Challenges Data Sources Myriad of BenefitsSome Population Data availableExtrapolation and adjustments requiredAD&D/Supplemental Health ExperienceGeneral to Insured Population AdjustmentNot as Material as CI?Historically material for AD&DOther Supplemental Health?
34 Voluntary Accident Pricing Challenges Evaluation of Anti-Selection Does Participation Matter?Less Than Other Voluntary Products?Potential Dependent Anti-SelectionUtilizationNumber
35 Voluntary Accident Pricing Challenges Industry & Area Factors Less of a ConsiderationBut Relatively Common for AD&DLimit Access to 24 Hour Coverage for Select Industries