Session 110 PD, LTC Pricing Trends and Their Impact to the Spectrum of LTC Products. Moderator: Robert T. Eaton, FSA, MAAA

Transcription

1 Session 110 PD, LTC Pricing Trends and Their Impact to the Spectrum of LTC Products Moderator: Robert T. Eaton, FSA, MAAA Presenters: E. Perry Kupferman, FSA, MAAA Roger Loomis, FSA, MAAA Anthony Alex Silva, FSA, MAAA SOA Antitrust Disclaimer SOA Presentation Disclaimer

2 LTC Pricing Trends and Their Impact to the Spectrum of LTC Products Session SOA Annual Meeting Tuesday October 25, 2016 Panelists: Perry Kupferman, FSA, MAAA Roger Loomis, FSA, MAAA Alex Silva, FSA, MAAA Moderated By: Robert Eaton, FSA, MAAA

3 SOCIETY OF ACTUARIES Antitrust Notice for Meetings Active participation in the Society of Actuaries is an important aspect of membership. However, any Society activity that arguably could be perceived as a restraint of trade exposes the SOA and its members to antitrust risk. Accordingly, meeting participants should refrain from any discussion which may provide the basis for an inference that they agreed to take any action relating to prices, services, production, allocation of markets or any other matter having a market effect. These discussions should be avoided both at official SOA meetings and informal gatherings and activities. In addition, meeting participants should be sensitive to other matters that may raise particular antitrust concern: membership restrictions, codes of ethics or other forms of self-regulation, product standardization or certification. The following are guidelines that should be followed at all SOA meetings, informal gatherings and activities: DON T discuss your own, your firm s, or others prices or fees for service, or anything that might affect prices or fees, such as costs, discounts, terms of sale, or profit margins. DON T stay at a meeting where any such price talk occurs. DON T make public announcements or statements about your own or your firm s prices or fees, or those of competitors, at any SOA meeting or activity. DON T talk about what other entities or their members or employees plan to do in particular geographic or product markets or with particular customers. DON T speak or act on behalf of the SOA or any of its committees unless specifically authorized to do so. DO alert SOA staff or legal counsel about any concerns regarding proposed statements to be made by the association on behalf of a committee or section. DO consult with your own legal counsel or the SOA before raising any matter or making any statement that you think may involve competitively sensitive information. DO be alert to improper activities, and don t participate if you think something is improper. If you have specific questions, seek guidance from your own legal counsel or from the SOA s Executive Director or legal counsel. 2

4 Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 3

5 Agenda Introductions Developments in Product Pricing and Research Recent Carrier Pricing Trends Ideas from the SOA s LTC Think Tank 4

6 Introductions Perry Kupferman, FSA, MAAA Supervising Life Actuary California Dept of Insurance Los Angeles, CA Roger Loomis, FSA, MAAA Consulting Actuary Actuarial Resources Corporation Overland Park, KS Alex Silva, FSA, MAAA AVP & Actuary John Hancock Insurance Boston, MA Robert Eaton, FSA, MAAA Consulting Actuary Milliman Tampa, FL 5

7 Developments in Product Pricing and Research Roger Loomis 6

8 Spectrum of LTC and Life/LTC Hybrid Products Standalone LTCi Next Gen LTCi Standalone LTCi with Return of Premium on Death 7702b Product Extension of Benefits (EOB) Coverage 7702b Product LTC Rider 101g Products Acceleration and Chronic Illness 7

9 31% of policies sold in 2015 with some LTC protection were standalone LTC. 35% 30% % LTC Policies by Benefit Type For combo products, most of the coverage is for the life portion, not the LTC portion: For 101g, 3% is for LTC; For LTC Rider, 7% is for LTC; For EOB (Extension of Benefits), 27% is for LTC; and For Standalone, 100% is LTC Percentage Sales by Policies 25% 20% 15% 10% 5% 0% 101g LTC Rider EOB Standalone LTC Benefits Non-LTC Benefits 8

10 Stand-Alone LTCi Actual Gross Premiums for 6 Companies 9

11 Methodology Six large insurers who have been in the market continuously for at least 15 years participated Each provided the research team with pricing data for 3 points in time: December 2000 December 2007 June 2014 Data aggregated into illustrative market assumptions 10

12 Assumption Analysis How have the assumptions changed over time? Should we now be more confident that the current assumptions are right? How much downside risk still exists? 11

13 LTC is a Lapse Supported Product A level premium supports increasing claim costs For each policy, a large reserve is developed to fund future claims If a policy lapses, there is no surrender value and the reserve is released Reserves and benefits are funded by three sources: Premium Interest Lapses the reserves of policies that lapse help fund the reserve increases of the policies that persist Being supported by lapses helps keep premiums low But if the assumed lapses don t happen, premium increases are required to make up the difference A 3% lapse rate has the same effect as an extra 3% interest yield 12

14 Understanding Increase in Morbidity Assumptions In uninsured population, morbidity has decreased by 1%-2% per year. So why is morbidity going up? Insured population has higher morbidity: people with insurance benefits want to use them 15 years ago, we had very little data on insured morbidity for high ages old assumptions were guesses that turned out to be wrong We now have credible data on insured morbidity 13

15 More Data for All Policy Years 2014 assumptions based on 16 times as much data as 2000 Pricing Year Policy-Years of Data , ,895, ,999,086 14

16 Much More Data for High-Claim Years 2014 assumptions based on 70 times the data for cells in attained Age 80+ and policy duration 10+ Pricing Year Policy-Years of Data , , ,836 15

17 Companies More Conservative 2015 SOA experience study shows actual claims from 2000 to 2001 Companies average pricing best estimate claim costs are now 108% of actual industry data 16

18 CC Confidence Intervals 17

19 Risk Margins Higher 18

20 PV Claims as Percentage of Expected PV Claims 19

21 Lower Lapses Mean More People Collect Benefits When They Need it 20

22 Standalone LTC from Carriers Perspective For new policy issues, premiums likely stable Rock-bottom lapse assumptions Now have credible morbidity data on insured population High risk margins Lower but more predictable investment returns Future morbidity, mortality, and investment returns may be different than current assumptions Many scenarios are good morbidity improvements more than offset mortality improvements, eventually higher interest returns Some risk remains 21

23 Standalone LTC from Consumers Perspective Strong insurance leverage to mitigate LTC risk Uncertain if will be subject to future rate increases Uncertainty about value proposition. What if they don t need it? Return-of-premium riders expensive Can perceive that LTC insurance brings risk into their lives rather than insures against it 22

24 Acceleration of Benefits Riders from Carriers Perspective LTC risk and life insurance have a natural hedge Combined risk is less than risk of constituent parts A way for life carriers to provide LTC solution without investing fully in stand-alone LTC 23

25 Acceleration of Benefits Riders from Consumers Perspective Viable plan for financing some LTC costs If they need the life insurance for the death benefit protection, it s a poor solution because they risk losing the death benefit in the event of an LTC claim. Much less leverage as a way to fund actual LTC risk Doesn t fully cover LTC risk But, less risk of losing the premiums without getting anything back for it 24

26 Extension of Benefits Riders from Carriers Perspective Life insurance benefit, acceleration benefit, and extension benefit diversify risk Lower morbidity than stand-alone LTC Aligns incentives of insurance company and policy holders Policyholders (or beneficiaries) reluctant to spend down life insurance benefit on LTC unless strong need Policyholders may be more careful in selecting cost 25

27 Extension of Benefits Riders from Consumers Perspective Extension of benefits is true high-leverage LTC insurance About 70% of people will need some LTC in their lives, but most of the care is for short durations of less than 6 months Since short-duration LTC is such a high-frequency event, is it really insurable? Real risk is cost of long LTC events Combo products with EOB can be thought of as a high-deductible stand-alone LTC policy with a life insurance policy to fund the deductible 26

28 Mutual LTC Next Generation LTC LTC Think Tank report described Mutual LTC as an LTC plan with a built in formula that causes premiums to adjust year to year according to actual company experience Net Gen LTC is better name, because premium adjustments are driven by formula, not dividends declared by Board of Directors Risk spread among policyholders rather than absorbed by insurer Less risk for insurance company Requires smaller margins Policyholders share in positive experience 27

29 Recent Carrier Pricing Trends Alex Silva 28

30 Agenda Traditional LTC Next Gen LTC Design Pricing Regulatory Environment Claim Sensitivities Modernized Communication 29

31 Traditional LTC Traditional design Level premiums Moderately Adverse Experience (MAE) margin In force rate increases 30

32 Next Gen LTC - Design Experience promptly and automatically shared with policyholder Adverse as well as favorable experience Cost difference? 31

33 Next Gen LTC - Design Experience promptly and automatically shared with policyholder Adverse as well as favorable experience Cost difference? Next Gen LTC lower cost Lower company risk Less pads Lower customer prices Unused MAE safety margin benefits policyholder, not company 32

34 Next Gen LTC - Pricing How to price Next Gen LTC? Set contract premiums with very conservative assumptions Build mechanism to reflect experience through some type of credit Contract Premium Experience Credit Premium Outlay 33

35 Premium Next Gen LTC - Pricing Lower premiums how do we get there? Attained Age 34

36 Next Gen LTC Regulatory Environment Next Gen LTC meets the requirements of existing NAIC and state requirements No explicit restrictions on large MAE margins Benefits must be reasonable in relation to premiums Experience credits are additional benefits to the customer 35

37 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Benefits paid out by company under various scenarios Total Benefit:

38 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Benefits paid out by company under various scenarios Total Benefit:

39 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Benefits paid out by company under various scenarios Total Benefit:

40 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Benefits paid out by company under various scenarios Total Benefit:

41 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Benefits paid out by company under various scenarios Total Benefit:

42 Contract Premium Experience Credit Premium Outlay Next Gen LTC Claim Sensitivities Premiums paid by customers under various scenarios Premium $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Attained Age Scen 1: Base Scen 2: Claims +10% Scen 3: Claims +35% Scen 4: Claims +75% Scen 5: Claims -25% 41

43 Next Gen LTC Modernized Communication Sales illustration Range of outcomes Options in adverse scenarios Annual statements Updated projections 42

44 Summary Next Gen LTC Experience credits Less risk lower prices Reaction to claim sensitivities Modernized communication 43

45 Ideas from the SOA s LTC Think Tank Robert Eaton 44

46 SOA LTC Think Tank October 2015 Data-Driven Decision Support Service Evolution and Platforms Paying for Care 45

47 SOA LTC Think Tank Data-Driven Decision Support Healthy-Longevity App Incenting behaviors for healthy longevity 46

48 SOA LTC Think Tank Data-Driven Decision Support The Care Portal Vetted, relevant health products, services, and info 47

49 SOA LTC Think Tank Service Evolution & Expansion Uberfication 48

50 SOA LTC Think Tank Service Evolution & Expansion The family LTC Account No use-it-or-lose-it Tax-deferred savings 49

51 SOA LTC Think Tank Paying for Care Flex 401(k) Saving for retirement & LTC at the same time 50

52 51