The 3 rd Younger Members Convention November 2004, The Chesford Grange Hotel, Kenilworth

The World Of Health Protection Peter Banthorpe Business Development Actuary, Munich Re UKLB Institute of Actuaries Healthcare Conference Organising Committee

The Bluffer’s Guide to Protection Peter Banthorpe Business Development Actuary, Munich Re UKLB Institute of Actuaries Healthcare Conference Organising Committee

What is Health Protection Insurance? Five Main Building Blocks: Customers Distribution Insurers Reinsurers Products

 Critical Illness Insurance

CI Cancer Definition  All tumours which are histologically described as pre-malignant, as non-invasive or as cancer in situ.  All tumours of the prostate unless histologically classified as having a Gleason score greater than 6 or having progressed to at least TNM classification T2N0M0.  All forms of lymphoma in the presence of any Human Immunodeficiency Virus.  Kaposi's sarcoma in the presence of any Human Immunodeficiency Virus.  Any skin cancer other than invasive malignant melanoma. Any malignant tumour characterised by the uncontrolled growth and spread of malignant cells and invasion of tissue. The term cancer includes leukaemia and hodgkin’s disease but the following are excluded:

Products  Income Protection (PHI)  Private Medical Insurance  Long-term Care Insurance  Life Assurance  Packaged Products  Group and Individual SA1 / ST1 Exam  Critical Illness Insurance

Distribution  Brokers  Banks  Tied Agents  Direct Sales Forces  Direct Marketing

Mix of Sales By Channel Source: ABI. Products considered: Life, CI and IP. Mix by Total New Premiums in 2003

Insurance Companies  Household names  Niche players  Sales and Marketing  Administration  Underwriting capacity  Claims Processing  Legal construction Labour Intensive

Relative Size of Insurers Source: Munich Re analysis of FSA returns. Based on new protection business in 2003.

Why Protection is Important Source: ABI.

Reinsurers  “9” reinsurers in the Life & Health market  Provide capacity – risk wholesalers  Mitigate new business strains  Allow more competitive premiums  Data – information for pricing  Product development advice  Facilitate underwriting  Claims experience Operational Risk

Relative Size of Reinsurers Source: Redmayne Report Relative size judged on Regular Premium Earned

Current issues  Inappropriate sales  Regulation  Guaranteed rate critical illness  Reviewable premiums  Service

Sales of Protection Products Source: ABI, this may understate Term Life sales versus CI Sales in the early years No of Policies – 000s

‘We think CI is a luxury product and for most people it’s more important that you have adequate life insurance and IP in place before thinking about CI’. ‘Worryingly, sales of CI are much higher than IP. We are concerned that advisers are pushing CI policies when IP would be more suitable and that many people simply don’t have adequate protection in the event of their being unable to work.’ September 2003

Regulation: Demands and Needs  General Insurance Regulation  Impact on protection market  Mortgage payment protection insurance  Fact-finds at all levels  More IP, Less CI?  Big issue for FSA

Regulation - Depolarisation Insurer 1 Insurer 2 Insurer 3 Insurer 4 Tied Agent Multi-tie Independent Financial Advisor Different regime for different products Different regime for different clients

Regulation  Individual Capital Assessments  Realistic capital => risk based capital  How much capital for: life assurance policies all of £1 each for identical lives 2.1 life assurance policy for £100 for one identical life  European Reinsurance Directive  Allowance for reinsurance credit risk

Guaranteed Rate Critical Illness  Price Increases of 20%-30% over past two years  Some reinsurers withdraw capacity….  ….some reinsurers increase capacity

Reviewable Premium Contracts  If you don’t guarantee premiums then can you review them?  Legal interpretation  FOS interpretation  Client doesn’t understand  Client can’t understand  Unfair contract term

Service How insurance companies compete:  Product  Product and Price  Product, Price and Service

Protection into The Future  PruHealth  “Virtual” Insurance Companies  New CI Products  Better IP Products  New Product Platform

PruHealth

Virtual Life Insurance Companies Source: progress From Royal Liver Website

New CI Products  What is the need for a CI product?  Huge inertia  What next:  Tighter definitions  Stand the test of time?  Impact based definitions  Subjectivity  Build from Income Protection

Better Income Protection Products  Clear need  Low emotional appeal  Uncertainty over state provision  But problems with sale:  Complicated to explain  More detailed underwriting  Accurate quotation methods  Problems at claims stage

Product Platform  Age at entry pricing is the norm  Annually costed better?  Consumer:  No prepayment for cover  Works out cheaper for most  Insurer:  More flexibility for product innovations  Distributor  Less commission?

The End Any questions?