1. Prepared for D ISABILITY C LAIMS R I S I N G Adrian C T Mak GeneralCologne Life Re Australia

2. 2Individual Disability Income Insurance in New Zealand USA disability insurance Source: Milliman & Robertson Disability Newsletter

3. 3Individual Disability Income Insurance in New Zealand IP: a high risk and low reward product

4. 4Individual Disability Income Insurance in New Zealand Premium rate revisions often lag experience Source: GeneralCologne Re Australia, Individual disability income premium rate survey, July 2002

5. 5Individual Disability Income Insurance in New Zealand Agenda Introduction to the drivers of disability claims cost Background to the 1997-2001 investigation Highlight of results –Current levels –Trends Conclusion Discussion

6. Company Functions Disability Claims Cause Age Sex Benefit Type Replace -ment Ratio Benefit Period Deferment Period Policy Definitions Offsets Smoker Status Claim Type Claims Management Underwriting Actuarial & Pricing Sales & Distribution Product Claimant Income Occupation Work Ethic Occupation Classes Smoker Political/ Legal Economy External Factors

7. 7Individual Disability Income Insurance in New Zealand Claim cost New claim incidence Claim length Disability claim cost drivers Claim termination % benefit paid

8. 8Individual Disability Income Insurance in New Zealand The 1997-2001 investigation Claims incurred during 1 January 1997 to 31 December 2001 6 individual disability insurers, 94% of the New Zealand market 4,153 number of new claims 439,397 policy years exposed Scope is agreed value and indemnity products only Not group salary continuance or mortgage insurance Gross of reinsurance claims Expected results on 100% of IAD89-93 and 85CIDA

9. 9Individual Disability Income Insurance in New Zealand Snapshot of the data

10. 10Individual Disability Income Insurance in New Zealand Incidence and duration drive claim costs % change in experience from 1995-99 to 1997-01

11. 11Individual Disability Income Insurance in New Zealand Claim length driving 30 day waiting period % change in experience from 1995-99 to 1997-01

12. 12Individual Disability Income Insurance in New Zealand Incidence driving 90 day waiting period % change in experience from 1995-99 to 1997-01

13. 13Individual Disability Income Insurance in New Zealand White collar blue % change in male experience from 1995-99 to 1997-01

14. 14Individual Disability Income Insurance in New Zealand White collar blue % change in male, 30 day wait, experience from 1995-99 to 1997-01

15. 15Individual Disability Income Insurance in New Zealand White collar blue % change in male, 90 day wait, experience from 1995-99 to 1997-01

16. 16Individual Disability Income Insurance in New Zealand Current costs of claim A/E claim cost based on IAD89-93

17. 17Individual Disability Income Insurance in New Zealand Current levels of claim incidence A/E incidence rates based on IAD89-93

18. 18Individual Disability Income Insurance in New Zealand Reversal of trends A/E incidence rates for 30 day deferment period

19. 19Individual Disability Income Insurance in New Zealand More opposites A/E incidence rates for 90 day deferment period

20. 20Individual Disability Income Insurance in New Zealand Occupational incidence rate relativities A/E incidence rates (IAD89-93)

21. 21Individual Disability Income Insurance in New Zealand Occupational claim length relativities A/E length of claim (IAD89-93)

22. 22Individual Disability Income Insurance in New Zealand Occupational claim cost relativities A/E claim cost (IAD89-93)

23. 23Individual Disability Income Insurance in New Zealand Causes of claim Male Female

24. 24Individual Disability Income Insurance in New Zealand Average length of claim Analysis of new claims that have been closed during the investigation period

25. 25Individual Disability Income Insurance in New Zealand Higher female incidence and cost Excess female morbidity (IAD89-93)

26. 26Individual Disability Income Insurance in New Zealand Females remain longer on claim Ratio of female A/E to male A/E (using male IAD expected) termination

27. 27Individual Disability Income Insurance in New Zealand Higher smoker incidence and cost Excess male smoker morbidity (IAD89-93)

28. 28Individual Disability Income Insurance in New Zealand First year selection in claim incidence Ratio of select to ultimate experience (85CIDA)

29. 29Individual Disability Income Insurance in New Zealand Termination rates for 30 day deferment period A/E termination rates (IAD89-93), male, 30 day deferment period

30. 30Individual Disability Income Insurance in New Zealand Termination rates for 90 day deferment period A/E termination rates (IAD89-93), male, 90 day deferment period

31. 31Individual Disability Income Insurance in New Zealand Long term termination rates improved A/E termination rates (IAD89-93), males, 30 day deferment period

32. 32Individual Disability Income Insurance in New Zealand Long term termination rates improved A/E termination rates (IAD89-93), female, 30 day deferment period

33. 33Individual Disability Income Insurance in New Zealand Long term termination rates deteriorated A/E termination rates (IAD89-93), male, 90 day deferment period

34. 34Individual Disability Income Insurance in New Zealand Long term termination rates deteriorated A/E termination rates (IAD89-93), female, 90 day deferment period

35. 35Individual Disability Income Insurance in New Zealand Claim offsets steadily reducing over time Ratio of paid to insured claim amounts in 1997-2001

36. 36Individual Disability Income Insurance in New Zealand Claim offsets steadily reducing over time Ratio of paid to insured claim amounts in 1997-2001

37. 37Individual Disability Income Insurance in New Zealand Indemnity products have longer claims A/E termination rates (85CIDA), male, 30 day deferment period

38. 38Individual Disability Income Insurance in New Zealand Higher claim frequency under agreed value A/E incidence rates (85CIDA), male, 30 & 90 day deferment period

39. 39Individual Disability Income Insurance in New Zealand Agreed value products do cost more A/E experience (85CIDA), male, 30 day deferment period

40. 40Individual Disability Income Insurance in New Zealand Features of the data

41. 41Individual Disability Income Insurance in New Zealand Disability Insurers Report Card Office Company A/E to industry, male, class B, 30 day deferment period

42. 42Individual Disability Income Insurance in New Zealand Disability Insurers Report Card Company A/E to industry, male, all deferment periods Office

43. 43Individual Disability Income Insurance in New Zealand 360 degrees of separation Product –Agreed Value, Indemnity –Benefit period –Basic, Deluxe versions –Definition of disability –Definition of income Price –Sales vs profit objective –Arbitrage opportunities Corporate –Size of portfolio –Underwriting –Claims management Customers –Self employed –Employees Distribution –Direct –Adviser

44. 44Individual Disability Income Insurance in New Zealand More adverse claims experience Policy definition of total disability and partial disability benefit formula Education, skills and training of underwriters and claims teams Occupation class upgrades Commercial underwriting decisions Customers’ greater awareness of cover and the right to claim Changing work ethic and social attitudes to insurance

45. 45Individual Disability Income Insurance in New Zealand Other claim cost variables Partial disability claims Specific occupations within occupation classes Does size of policy matter? Does benefit period make a difference? Is experience better for employees versus self-employed? Actual versus expected claim length by disability cause Are the newer products really better managed?

47. Prepared for D ISABILITY C LAIMS R I S I N G Discussion Questions and Answers