Council of Europe Strasbourg 2 -4 December 2007 CDBI Seminar on predictivity, genetic tests and insurance André Chuffart, Kuesnacht, Switzerland on behalf of the CEA - European Insurance and Reinsurance Federation
Mission of life insurers n To allow as many applicants as possible to obtain the coverage they need at a fair price n Not to exclude people from obtaining coverage (eg by making use of advances in medical science) n Not to cherry-pick!
Private life insurance is far cheaper today than in previous decades Movement in the mean of the 10 lowest premium rates for a portfolio of level term assurance model points for sums assured of £ 100, 000 and £ 300, 000 (base = 100 at January 1994) Source: Swiss Re Term & Health Watch 2007, OECD
Private life insurance is far cheaper today than in previous decades This fact is not new: „Today an average 25 -year old working man can buy life insurance equal to five times his income, for less than half the money his counterpart paid in 1960“. Source: Steven Zimmerman, V. P. and Medical Director, Aetna Life Ins. and Annuity co. , quoted in the National Underwriter, 24 June 1996, page 8
Developments in medical science n n In the past almost all type I diabetics were declined; today > 90% of all diabetics who have no end organ damage (e. g. kidney failure) are insurable for death. In the past any history of breast cancer resulted in decline; today if details of staging are available and if the cancer has been diagnosed at an early stage, terms may be possible even straight after surgery (= no postponement). Source: John Turner, Swiss Re Zurich
Developments in medical science In 1952, for example, 55% of U. S. applicants with cardiovascular problems were declined, compared with 25% in 1992. Source: Steven Zimmerman, V. P. and Medical Director, Aetna Life Ins. and Annuity co. , quoted in the National Underwriter, 24 June 1996, page 8
Why do life insurers need to assess risks ? n Insurance is voluntary. Applicants can choose: - whether or not to buy insurance, and if so, when - which types of insurance best suit their needs - the amount of cover they require n To limit adverse selection n To remain competitive in a competitive environment
Risk assessment permits economic incentives to operate Ratio of premium rates by provider against the cheapest provider for level term assurance for the top 10 most competitive providers (base = 100 for the most competitive provider at March 2007) Source: Swiss Re Term & Health Watch 2007
Risk assessment and data collection n The insurance company’s right to collect information on the applicant is no longer undebated. n The key issue seems to lie not so much in the relevance, necessity and validity of the inquiries but in their proportionality 1. n When does the right of an insurer to assess the risks submitted to it encroach disproportionately on the right of the applicant to be left alone? 1 Council of Europe
Percentage of life applicants medically examined Company # 1 Company # 2 medical only + lab tests + ECG 3. 3% 4. 5% 1. 6% 1. 8% 7. 9% Market Source: Wolfgang Wilsch, Swiss Re, Munich Company # 1 (Life & CI; bancass. ) Company # 2 (Life; IFA bus. ) Company # 3 (only DI) Source: Jon Lambert, Swiss Re London ~ 3. 0% 3. 8% 8. 5% 10. 0%
Percentage of life applicants medically examined Bancassurance Comp # 1 #2 #3 - Production 2004 0. 67% 0. 34% 1. 21% 0. 66% 3. 44% 2. 69% 2005 Source: Paloma Fernandez, Swiss Re Madrid
Public perception of risk classification 1995 MAP Studies (USA) (1) 10 11 21 31 41 51 78 Rated % 10 9 9 5 14 9 4 or fewer - 20 - 30 - 40 - 50 - 75 - 100 Don't know/No answer Median estimates 35 Turned down % 20 13 11 4 8 4 2 40 39 19 (1) Estimates of number of applicants out of 100 who are rated/turned down
Outcome of risk classification process Life (market) Accepted as standard Accepted as substandard Decline ~ 92% ~ 5% ~ 3% Source: Wolfgang Wilsch, Swiss Re, Munich Life (one company) Accepted as standard Accepted as substandard Decline These figures are more or less constant over the years 89. 0% 10. 0% 1. 0%
Outcome of risk classification process Bancassurance – Life & CI (one company) Accepted as standard Accepted as substandard Decline 91. 9% 7. 1% 1. 0% Source: Jon Lambert Bancassurance – Life (one company) Accepted as standard Accepted as substandard Decline / Postpone 98. 78% 1. 13% 0. 09%
Life Expectancy at age 30 and corresponding Mortality (as a multiple of basic mortality) 127. 9 54 15. 7 5. 6 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich 2. 2 1
Life Expectancy at age 40 and corresponding Mortality (as a multiple of basic mortality) 76. 3 27. 7 7. 1 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich 2. 4 1
Survival Rate after 10 years and corresponding Mortality (as a multiple of basic mortality) Age 30 15. 8 7. 5 3. 7 1 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich
Survival Rate after 20 years and corresponding Mortality (as a multiple of basic mortality) Age 30 5. 6 2. 7 1 1. 3 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich
Survival Rate after 10 years and corresponding Mortality (as a multiple of basic mortality) Age 40 8. 6 4. 1 2 1 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich
Survival Rate after 20 years and corresponding Mortality (as a multiple of basic mortality) Age 30 2. 4 1. 1 1 0. 6 Basic mortality : EKM 1995 Source: Christian Jaggy, Ph. D. , Swiss Re Zurich
Expected mortality of a group with 1% substandard lives Average mortality of the whole group as a multiple of basic mortality 30 times basic mortality 50 , , ~1. 31 ~1. 52 1, 2 All members of the group pay 30%, resp. 50% extra-premium
The way forward Life insurers need to continue to n undertake selective initiatives to raise awareness of risk management, incl. pricing implications, among their clients, patients’ organisations, insurance supervisors, politicians, government advisors and supranational institutions n exercise their mission, in a transparent way and in full compliance with all existing laws n treat all applicants fairly n to make available affordable products targeting the needs of those individuals currently considered as uninsurable n act in a coherent way.
Council of Europe Strasbourg 2 -4 December 2007 CDBI Seminar on predictivity, genetic tests and insurance André Chuffart, Kuesnacht, Switzerland on behalf of the CEA - European Insurance and Reinsurance Federation
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