Session 25 PD, Individual Disability Insurance Experience Trends. Moderator/Presenter: Robert W. Beal, FSA, MAAA

Transcription

1 Session 25 PD, Individual Disability Insurance Experience Trends Moderator/Presenter: Robert W. Beal, FSA, MAAA Presenter: Mark S. Seliber, FSA, MAAA

2 Individual Disability Insurance Experience Trends Session 25 SOA June Health Meeting 2016 Mark S. Seliber, FSA MetLife Robert W. Beal, FSA Milliman 1

3 AGENDA New Valuation Table and IDEC Update Bob IDI Experience Study Capabilities Survey Bob 2015 Noncan Profitability Study Mark Preliminary Results from two SOA IDI Research Projects Bob 2

4 2013 IDI Valuation Table Update If you haven t already, you should download the following three items: Report of the Individual Disability Tables Working Group (IDTWG) of the Academy of Actuaries, who developed the new table ( the Actuarial Guidelines ) 3

5 2013 IDI Valuation Table Update 2013 IDI Valuation Table Workbook Version

6 2013 IDI Valuation Table Update Model Regulation to Implement the Accident and Sickness Insurance Minimum Standards Model Act framework_exposure_mo171.pdf 5

7 Status of the NAIC Approval Process Health Actuarial Task Force (HATF) approved the table and actuarial guidelines in December, 2015 The Individual Disability Valuation Table Implementation (B) Subgroup was charged with modifying the Health Insurance Reserves Model Regulation (Model #10) NAIC Committee Review Health Insurance and Managed Care (B) Committee Approved in May NAIC Committee Review - Executive (EX) Committee. We anticipate final approval at the NAIC s Summer National Meeting August

8 Effective Date of New Table The earliest implementation date is January 1, 2017 with a 3- year transition window. The latest effective date for a company to adopt the new table is January 1,

9 IDEC Update Following the 2012 Report of IDI Experience from and development of the IDEC 2012 table, IDEC has been relatively dormant. Most of the activity since then was under IDTWG, which developed the 2013 IDI Valuation Table and Actuarial Guidelines. IDEC activity is now being re-kindled. New co-chairs Carl Desrochers (Guardian) and Chuck Meintel (Unum) 8

10 IDEC Update New Roster IDEC Member Affiliation IDEC Member Affiliation Jay Barriss Unum Charles Herman Combined Bob Beal Milliman Fei Hui MassMutual Kathryn Campbell Northwestern Mutual Chris Keffalos Ameritas Maggie Cormier Standard Tracy Koch Principal Financial Carl Desrochers Guardian Christopher Kozol DMS Rich Ferree MetLife Chuck Meintel Unum Anju Gupta-Lavey RiverSource Anne Mitchell Income & Benefit Solutions Chris Haire Mutual of Omaha Todd Petersen Standard Brian Holland AIG Paul Ziobrowski DMS 9

11 IDEC Update IDI experience data-call planned for later this year to get industry experience through Measure results relative to the 2013 IDI Valuation base incidence and termination rates and release results in The new study will dive into areas that we have not been able to do well or do at all in the prior studies, e.g., specific occupations, underwriting type, trends since 2000, including the impact of the recession. Evaluate results to determine if adjustments to the 2013 IDI Valuation Table are needed. 10

12 How well are companies measuring their own experience? Conducted a telephone survey of 8 IDI carriers Ameritas Guardian MassMutual MetLife Northwestern Principal RiverSource Standard 11

13 How well are companies measuring their own experience? All 8 measure their claim termination rates, claim incidence rates and policy termination rates - at least annually for most one said every three years All 8 measure A/E incidence & termination ratios where E = 85 CIDA 4 also measure A/E incidence & termination ratios where E = company experience or pricing assumptions 1 uses the 2005 IDEC Table as the expected Most are in the process of adding E = 2013 IDI base rates 1 uses the 2012 LIMRA Lapse Rates as E for A/E policy termination ratios 12

14 How well are companies measuring their own experience? All 8 companies also track experience by regularly calculating statutory or GAAP loss ratios Some adjust the loss ratios for interest Most companies describe their systems as very flexible, i.e., easy to slice and dice Most companies maintain data warehouse linking policy and claim data, which is updated monthly if not daily Most companies capturing data by specific occupations and type of underwriting 13

15 How well are companies measuring their own experience? Other Types of Experience Analysis # Respondents UW Decisions - Single Life 8 UW Decisions - Multi-Life 4 Time to Issue 5 Claim Activity 8 Claim Status Movement 4 Claim Settlements 5 Demographic of New Business 6 14

16 History of the Disability Newsletter Study Statutory Noncan Financial Results 1980 First study Statutory financial results of top 9 companies 1988 Expanded to 23 companies 2015 Down to 16 companies Half still selling IDI 15

17 Pre-Tax Earnings - % Earned Premium Since 1980, there has four distinct periods of profitability 16

18 Pre-Tax Earnings - % Earned Premium Since 1980, there has four distinct periods of profitability 17

19 What went wrong in the late 1980 s and 1990 s? Net Investment Income yield rates started decreasing Commissions and Expenses increased with rapidly growing sales Very rapidly growing incurred loss ratios 61% 1980 to % 1986 to % 1992 to 1998 Causes of skyrocketing incurred loss ratios Very competitive premiums Very competitive policy provisions Benefit-rich Riders - Cost of Living, Your Occupation, Lifetime Benefit Period Managed care led to explosion of claims on physicians - high claims incidence and low terminations Increase in more subjective claims - back, soft tissue, MNAD, carpal tunnel 18

20 What has gone right since 1999? Commission rates decreased as the rate of growth of sales and premium slowed Decreasing incurred loss ratios 109% 1999 to % 2005 to % reduction in Incurred Loss Ratio is worth about $310M per year in Pre-Tax Earnings Causes of reduced incurred loss ratios Longer elimination periods - 30 to 60 Days to 90 to180 days Lower increase in policy reserves, with the lower rate of sales growth More stable disability income market No spike in morbidity after 2008 financial crisis No spike in morbidity since enactment of Affordable Care Act - YET! 19

21 Net Investment Income & Yield Rates NII and Yield on Reserve Trends 5-Year Period Net Investment Income (% EP) Estimated Yield on Mean Reserves % 9.18% % 8.63% % 8.22% % 7.89% % 7.50% 20

22 Commissions, Expenses and Premium Taxes 21

23 Incurred Loss Ratios 22

24 Schedule H Claim Reserve Adequacy 23

25 Claim Reserves and Total Reserves 24

26 2015 Results: Open vs Closed Blocks ITEM OPEN CLOSED COMMENTS EARNED PREMIUM ($ millions) $3,500 $549 Open Blocks growing with Sales PREMIUM GROWTH 2.6% -8.5% Closed Block - 8.5% Lapse/Maturity Rate GAIN/(LOSS) AFTER DIVIDENDS $520 ($29) Closed Blocks with Losses 3 of last 5 years PERCENT OF EARNED PREMIUM MARGIN BEFORE DIVIDENDS 23.8% -5.2% DIVIDENDS 8.9% 0.0% Companies paying Dividends are still selling business MARGIN AFTER DIVIDENDS 14.9% -5.2% Open Blocks have Earnings between 10% and 16% of Premium FEDERAL INCOME TAX 2.8% 3.1% MARGIN AFTER DIVIDENDS & FIT 12.1% -8.3% $ are in millions 25

27 2015 Results: Open vs Closed Blocks ITEM OPEN CLOSED COMMENTS PERCENT OF EARNED PREMIUM INVESTMENT INCOME 35.5% 144.9% Closed Blocks have much larger relative assets EST. NII YIELD ON MEAN RES 6.6% 9.1% Cash flows on Sales invested at lower yield rates INCURRED CLAIMS 75.6% 246.1% Closed blocks have considerably older policyholders INCREASE IN POLICY RESERVES 0.3% -19.0% Policy reserves being released as business lapses/matures BENEFITS & INCR POLICY RES 75.9% 227.1% COMMISSIONS 14.4% 8.9% Sales from Open Blocks generate first year Commissions EXPENSES 18.9% 11.1% Sales from Open Blocks generate acquisition Expenses TAXES, LICENSES, FEES 2.5% 3.0% COMMISSIONS-EXPENSE-TAX 35.8% 23.0% 26

28 Companies Still Selling Experience Over Last 5 Years ITEM EARNED PREMIUM $3,140 $3,228 $3,330 $3,411 $3,500 PREMIUM GROWTH 2.1% 2.8% 3.2% 2.4% 2.6% GAIN/(LOSS) AFTER DIVIDENDS $332 $388 $505 $420 $520 PERCENT OF EARNED PREMIUM MARGIN BEFORE DIVIDENDS 18.6% 20.3% 23.5% 21.0% 23.8% DIVIDENDS 8.0% 8.2% 8.3% 8.7% 8.9% MARGIN AFTER DIVIDENDS 10.6% 12.0% 15.2% 12.3% 14.9% FEDERAL INCOME TAX 2.0% 2.9% 1.2% 4.1% 2.8% MARGIN AFTER DIVIDENDS & FIT 8.6% 9.1% 13.9% 8.2% 12.1% $ in millions 27

29 Companies Still Selling Experience Over Last 5 Years ITEM PERCENT OF EARNED PREMIUM INVESTMENT INCOME 39.6% 38.9% 37.7% 36.5% 35.5% EST. NII YIELD ON MEAN RESERVES 7.2% 7.1% 6.9% 6.7% 6.6% INCURRED CLAIMS 82.7% 82.8% 78.5% 80.5% 75.6% INCREASE IN POLICY RESERVES 1.5% -0.3% 1.1% 0.3% 0.3% BENEFITS & INCREASE POLICY RESERVES 84.2% 82.5% 79.6% 80.8% 75.9% COMMISSIONS 14.2% 14.0% 14.6% 14.2% 14.4% EXPENSES 19.7% 19.3% 17.2% 18.1% 18.9% TAXES, LICENSES, FEES 2.8% 2.8% 2.8% 2.3% 2.5% COMMISSIONS-EXPENSE-TAX 36.7% 36.1% 34.6% 34.6% 35.8% 28

30 Companies Not Still Selling Experience Over Last 5 Years ITEM EARNED PREMIUM $755 $727 $656 $600 $549 PREMIUM GROWTH -6.3% -3.8% -9.8% -8.6% -8.5% GAIN/(LOSS) AFTER DIVIDENDS ($28) $4 $20 ($51) ($29) PERCENT OF EARNED PREMIUM MARGIN BEFORE DIVIDENDS -3.6% 0.6% 3.1% -8.5% -5.2% DIVIDENDS 0.0% 0.1% 0.0% 0.0% 0.0% MARGIN AFTER DIVIDENDS -3.6% 0.5% 3.1% -8.5% -5.2% FEDERAL INCOME TAX -1.0% 3.8% 1.0% -0.3% 3.1% MARGIN AFTER DIVIDENDS & FIT -2.6% -3.3% 2.1% -8.2% -8.3% 29

31 Companies Not Still Selling Experience Over Last 5 Years ITEM PERCENT OF EARNED PREMIUM INVESTMENT INCOME 108.1% 114.3% 123.1% 133.6% 144.9% EST. NII YIELD ON MEAN RESERVES 8.1% 8.6% 8.7% 8.9% 9.1% INCURRED CLAIMS 199.5% 208.8% 217.6% 240.7% 246.1% INCREASE IN POLICY RESERVES -14.8% -15.3% -18.8% -20.2% -19.0% BENEFITS & INCREASE POLICY RESERVES 184.7% 193.5% 198.7% 220.5% 227.1% COMMISSIONS 9.7% 8.6% 9.3% 9.0% 8.9% EXPENSES 14.8% 9.3% 9.5% 9.8% 11.1% TAXES, LICENSES, FEES 2.5% 2.4% 2.6% 2.7% 3.0% COMMISSIONS-EXPENSE-TAX 27.1% 20.2% 21.3% 21.6% 23.0% 30

32 Two IDI Research Projects Sponsored by the SOA 1. IDI experience relative to the 2013 IDI Valuation Table base incidence and termination rates 2. Analysis of incidence and termination rates by diagnosis These projects are just beginning. Results shown today should be considered preliminary and subject to change. 31

33 IDI Experience Relative to 2013 IDI Base Rates IDEC Occupation Class A/E Incidence Experience by IDEC Occ Class & Study Period Expected = 2013 IDI Valuation Table Study Period Total M 110% 107% 90% 100% 1 127% 102% 88% 99% 2 128% 101% 89% 103% % 99% 85% 98% Total 118% 104% 89% 100% New table is a good fit over the combined study periods In the period, the A/E is in the 85-90% range for all occ classes. In the period, A/E is much higher for non-medical occ classes than for occ class M. 32

34 IDI Experience Relative to 2013 IDI Base Rates DEC Occupation Class Ratios of Employer-Sponsored A/E Incidence to Individual Bill A/E Incidence By IDEC Occ Class and Issue Year Issue Year Group Pre Total M Total ES experience includes all underwriting types. Premium discounts for ES business are typically 15-25%. More favorable ES experience appears to justify the premium discounts. 33

35 IDI Experience Relative to 2013 IDI Base Rates The jump in incidence rates following the contestable period appears to have disappeared for business issued in

36 IDI Experience Relative to 2013 IDI Base Rates The ES business issued in and appear to have similar incidence experience. 35

37 Incidence Rates by Diagnosis Using IDEC Database for years study period Presently focusing on 90 day EP but will expand to 30 and 60 Day. Applying distribution of claims by diagnosis to the 2013 IDI Valuation Table base rates adjusted for experience. Calculating average incidence rates per 1,000 to understand differences among different segments: gender, attained age, occ class, market, policy year. Will also look at % of total claim cost by diagnosis. 36

38 Incidence Rates by Diagnosis Diagnosis Groupings MU CR CA BK MN AD NE OI CO Other Musculoskeletal Circulatory Cancer Back Mental Disorder Alcohol and Drug Nervous System Other Injury Complications of Pregnancy Research will be expanded to other diagnoses. 37

39 Male Incidence Rates by Diagnosis 38

40 Female Incidence Rates by Diagnosis 39

41 Incidence Rates by Diagnosis Differences by Sex 40

42 Incidence Rates by Diagnosis Differences by Sex 41

43 Incidence Rates by Diagnosis Differences by Sex 42

44 Incidence Rates by Diagnosis Differences by Sex 43

45 Incidence Rates by Diagnosis Differences by Sex 44

46 Incidence Rates by Diagnosis Differences by Sex 45

47 Incidence Rates by Diagnosis Occ Class M versus Occ Class 1 46

48 Incidence Rates by Diagnosis Occ Class M versus Occ Class 1 47

49 Incidence Rates by Diagnosis Occ Class M versus Occ Class 1 48

50 Incidence Rates by Diagnosis Occ Class M versus Occ Class 1 49

51 What is the value of studying incidence rates by diagnosis? Improved underwriting Medical and GSI More focused claim management Greater insight into differences by key risk segments Better understanding of incidence trends 50