Session 5b Long-term Care Insurance: Worldwide overview and lessons learnt Ilan Cohen
Long-Term Care Insurance: Worldwide overview and lessons learnt ILAN COHEN, Head of LTC and Disability R&D Centre, Scor Global Life, 1 st September 2016
Long-Term Care Insurance: Worldwide overview and lessons learnt 1 A Demographic issue 2 Worldwide overview 3 Actuarial lessons and findings 4 Conclusions and takeaways 2
Long-Term Care, an issue shared by most developed countries Life expectancies have increased especially for elderly people (Insee) +15% 0,34% p.a. +12% 0,27% p.a. +8% 0,38% p.a. +10% 0,46% p.a. +40% 0,85% p.a. +30% 0,66% p.a. +5% 0,25% p.a. +13% 0,61% p.a. Source: indexmundi.com 3
The ageing of the population in developed countries An inevitable ageing of population: an increasing ratio of over 65 years old 40,00% 35,00% 30,00% 25,00% 20,00% 15,00% 10,00% 5,00% 0,00% 2015 2020 2025 2030 2035 2040 2045 2050 France Italy Spain Germany Europe China United States of America Source: United Nations Department of Economic and Social Affairs Population Division 4
Number of dependent people through time in France: male and female are not equal facing dependency but both will slowly boom Forecasting of dependent people (French public scheme scale) from 2010 up to 2060 (source: DREES) 5
Long-Term Care, an issue shared by most developed countries Life expectancies have increased especially of elderly people One of the biggest threats to the wealth of the elderly Only 15% of people think they can cover the costs of LTC Example of France: Cost of the Long Term Care Average monthly pension: 1,200 APA provides about 500 Monthly costs for total LOA: 2,500 to 3,300 A lack of financing up to a monthly amount of 1,600 Long-Term Care funding Shortfall of State benefits : large need of cover to face long-term care related costs Strong development of private insurance 6
Long-Term Care Insurance: Worldwide overview and lessons learnt 1 A Demographic issue 2 Worldwide overview 3 Actuarial lessons and findings 4 Conclusions and takeaways 7
Long-term care in France Public scheme in France: APA (2002) Use of a specific grid: the AGGIR grid Global amount of benefits paid in 2014 by the public scheme: roughly 6 bn 1.25 million of recipients as of 12/31/2014 Average monthly benefit : 489 (depending on the severity of the loss of autonomy - LOA) The risk of LTC and the insurance products: Indemnity product Total loss of autonomy or Partial and Total loss of autonomy ADL and / or GIR definition Loss of Autonomy must be definitive and irreversible (meaning no recoveries possible) More and more sophisticated product with riders (lump sums for equipment, rest for the caregiver..) and assistance services The market is divided in two Insurers, mainly focus on individual products through the bancassurance distribution Non profit sector, mainly mandatory schemes in group contracts for Mutual societies and individual contracts for Provident societies In 2015, there are about 7,3M insureds Most of them from group contracts More than half of the total annual premium are from private insurance 8
Insurance based on cash benefits Individual product Group: compulsory application Application Optional Compulsory Benefit level Choice between several guarantees with recommended limits Same benefits for each member Entry age Usually between 40 y.o. and 75 y.o. Implicit limits Deferred period Usually 90 days, absolute or relative Usually 90 days, absolute or relative Medical underwritting Systematic No, if sufficiently large group Elimination period Usually 3, 1 or 0 years No, if sufficiently large group Duration of the cover Usually lifetime Annual Premiums Level premium (based on the entry age) Risk premiums Reviewable premiums Usually yes Yes Paid-up value Yes No Surrender value No No Reserving Premium reserve: reserve for increasing risk Reserve for annuities in payment Reserve for annuities in payment Police termination Annuities in payment are still paid Paid-up value for the other insured Only annuities in payment are still paid 9
A critical glimpse at the US LTCI model No sufficient coverage from the public sector: Medicare & Medicaid Complex products: the insured have many choice decisions to make Reimbursement / Indemnity / Disability type policies Home Health care / Assisted Living Facilities / Nursing Home expenses Durations of benefit period (from 1 year to lifetime) Daily / weekly / monthly reimbursement Level of inflation protection: a must have, but quite expensive 2ADLs6, with no consolidation state required The US LTCI players have been facing serious difficulties Many players withdrew due to losses or lack of profitability (MetLife and other have exited the market) Several of the remaining players have been filing to implement large rate increases Why..? Underestimation of benefit costs: Overestimation of lapse rates Underestimation of longevity Inflation cost Strong sensitivity to interest rates Psychological barrier of the «use it or lose it» product A zero growth in LTCI stand-alone sales between 2003 and 2009 in the US Since then, development of Combo products : Life/LTC and Annuity/LTC 10
Singapore: the Eldershield LTC public scheme Evolution of the Eldershield scheme over the years All Singaporean citizens and permanent residents 3ADL6 no specific dementia criteria Cash benefit of $300, up to 60 months Entry Age 40-69 yo Benefit increased to $400 per month Benefit duration extended to 72 months Premium increase of only $2! Aviva entered the market Lifetime coverage, premium payable up to 65 90 days elimination period Great Eastern Life Assurance & NTUC Income Eldershield Rebate 2002 2007 2016 11 11
The private LTCI market in Singapore Private insurance to complement the Public system? Due to limited amount of public benefit (< SGD 400 per month) Due to limited benefit duration (< 6 years) Private LTCI products have room to develop Possibility to obtain higher coverage by purchasing ElderShield Supplements. These Supplements complement ElderShield by offering additional benefits at different pricing levels. They increase the coverage through: increasing the monthly payout extending the benefit period or a combination of both. Dementia only product Complementary product, as the public scheme does not cover dementia The private market is still very small for the time being 12
Israel: a high penetration rate for private insurance Israel : a high penetration rate (5 millions insureds on a population of about 8 millions people), an aware population, an insurance market quite developed 1 st level: public system mainly providing in kind benefits home based care, institutional care assumed by the national insurance and the ministry of health (for pensioners) or ministry f work (for active population) 2 nd level : 4 «Sick funds», private health funds, with their own healthcare network. On top of providing mandatory basic health insurance, possibility for facultative LTC insurance, the risk being carried by an insurance company (group contract). The LTC cover is highly spread, because before 1998 this cover was associated with health. Cover is for the whole family, and benefit is for 5 to 6 years maximum for 3 sick funds, and lifetime for the 4 th one. There is currently of process os uniformisation for all the 4 sick funds. 3 rd level : private insurance on a complementary basis of sick funds coverages. Market is increasing on individual coverages A very regulated market : how is defined the Loss of Autonomy, minimal level of benefit, premium increases has to be validated by the commissioner of insurance Loss of Autonomy definition: 3ADL6 + Dementia / Often 2ADL6 if one is incontinence There is no notion of consolidated loss of autonomy SGL is the leading reinsurer on that market (more than 1 million insureds) 13
Long-Term Care Insurance: Worldwide overview and lessons learnt 1 A Demographic issue 2 Worldwide overview 3 Actuarial lessons and findings 4 Conclusions and takeaways 14
Lessons learnt from experience and research Uncertainties can affect the actuarial tables and/or the pricing: Evolutions of the risk itself: risk factors, medical progress and access to medical structure, new diseases, family structures, And. Issues on underwriting and claims management Issues on regulation evolutions 15
Underwriting selection: 2 stages Stage 1: Medical questionnaire filled in by the proposer Simple, rapid and easily completed Detection of preexisting disability or long term treatment a key monitoring tool If the proposer answers «NO» to all questions: acceptance at standard conditions Selection can stop here: about 55% of proposals are insured at standard rates and the others are refused But possibility to study Substandard Risks with assessment of aggravating pathologies Stage 2: Specific Medical Questionnaire completed by the doctor More detailed, with specific questions Family history Lifestyle Existing pathologies and risk factors 16
Underwriting selection: The selection by SCOR Global Life Standard risk: Medical Questionnaire without anomalies Substandard Risk: assessment of extrapremium Long Term Care Postponement: pathologies in evolution or not consolidated Refusal: already dependent or foreseeable long term care in a near future 17
Claims management Verification of medical and administrative criteria Administrative: Date of the beginning of the long term care Check for the elimination period and deferred period Medical: Incapacity to perform 3 of 4 ADL (depending on the definition of the trigger in the contract) Total or partial dependency must be permanent and irreversible Confirmed dementia (MMSE - Folstein s test) Need of a helper During the claim: Ask for a yearly proof of living from the insured Link with any other potential life insurance contracts 18
Actuarial modeling aa P x Healthy aa q x Dead ia p x 0 i x i q x, t i P x Loss of autonomy 19
Technical and financial piloting Specificities of a LTC Insurance product The duration of liability is long term (30 to 40 years, maybe more) Interaction between various biometric assumptions (ex: phenomenon of compensation between a decrease in incidence rates and a decrease in mortality) Any potential trends An accounting piloting is not sufficient, and does not allow to observe rapidly enough any potential drift in the risk Only a detailed and regular statistical analysis allows an efficient piloting 20
Long-Term Care Insurance: Worldwide overview and lessons learnt 1 A Demographic issue 2 Worldwide overview 3 Actuarial lessons and findings 4 Conclusions and takeaways 21
Conclusions and Takeaways (1/2) Various countries have already strong experience in LTCI, due to public scheme and/or private insurance Private insurance should complement benefits received from the public scheme Two main models for private insurance: reimbursement products (US) vs indemnity products (France) Long-Term Care Insurance is a very long term risk with high uncertainties It is important to acknowledge those long term risks and all their consequences However, there definitively are ways to build sustainable Long term insurance offers Length and type of guarantees are key Equalization fund is a very important and smart tool to manage a LTCI portfolio through time Data management is KEY to monitor correctly the risk in the portfolio! 22
Conclusions and Takeaways (2/2) Role of reinsurance companies is to support insurance companies in creating good insurance products Reinsurance reduce the required capital, reduce the level of pricing Help the insurance companies to build the product cycle SGL has developed an extensive expertise in Long Term Care Over 160 million in premium and 1,5 billion in reserves Active in France, Israel, Korea, Germany, Singapore, Spain and Italy More than 4 million policies reinsured Market research Product design An experience of 30 million exposure-year An experience of 55 000 claims over 30 years Risk monitoring Underwriting SGL R&D Centre: A pole of expertise on Long-Term Care Insurance Technical and Medical Expertise on LTC risk : product design, underwriting, risk modelling, pricing, reserving, risk monitoring Reserving Statistical analysis Experience Analysis, build up pricing basis for different markets Partnerships with Researchers: PAQUID (LTC Risk Analysis for elderly): Survey of the French National Institute of Health and Medical Research (INSERM) o Epidemiological study dedicated to ageing and its related pathologies Claims management Marketing distribution Pricing o A cohort survey, 20 years of follow-up 23
Thank you for your attention Ilan Cohen, Scor Global Life 24