underwriting trends in canada moderator:mary forrest, munich re panellists:nazir damji, sun life dr....

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


From an Underwriter’s Perspective …Nazir DamjiIndividual Underwriting Vice PresidentSun Life Assurance Company of Canada


Placements

• 76% Placed Standard• 20% Not Placed

Placed

Not Placed

76%

20%

*Source Munich Re Pricing Survey 2004


Cost of Wastage

$13,750,000

*Source Munich Re Pricing Survey 2004


Tele-Underwriting Data Collection

• More disclosure• More details• Less APS’s• Mixed feelings amongst advisors and clients


Non-Invasive Lab TestsOral

– Cotinine– Cocaine– HIV anti-bodies

Skin Sterol


Prudent Underwriting

Reward or Penalty?


From a Medical Director’s Perspective …Robert Snihura MD FRCPCVP & Chief Medical DirectorRBC Insurance


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


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)


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 +++


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


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


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.)


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.)


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


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)



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



Doctor’s Typical DayWhat is a doctor’s typical day to day activity?

• History• Examination• Investigation• Prescribe treatment


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


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


From a Reinsurer’s Perspective …Brenda BuckinghamPresident and CEOSwiss Re Life and Health, Canada


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


Underwriting Business Environment1. Competitive market

2. Underwriting guideline liberalizations

3. Capacity limitations, reduced auto/jumbo limits


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


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)


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



North American Underwriting Audit Survey 2002• Adherence to preferred criteria: Extremely important


• Business decision justification: Extremely important



North American Underwriting Audit Survey 2002• Percentage of business decisions allowed:

Less than 2%– Reinsurers 92%– Direct writers 51%


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


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


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


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

%


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


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?


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


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


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


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


Non-Meds, No Fluids

• Do our pricing mortality expectations accurately reflect the impact of these new underwriting guidelines?

• Aggregate comparison scenario


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


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?


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


Be kind (but firm) with your underwriting brethren.

Times are tough.


Questions?

underwriting trends in canada moderator:mary forrest, munich re panellists:nazir damji, sun life dr....

Documents

annual general meeting

male slide

d1pd general meeting

years hiv

source munich

underwriting trends

life regular temperate

rbc life brenda buckingham