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Post Retirement Health Insurance

KC Cheung, FSA Regional Product Actuary

Swiss Re, Life & Health

Joint IACA, IAAHS and PBSS Colloquium in Hong Kong www.actuaries.org/HongKong2012/

Session Number: MBR10

Post-Retirement Health My Challenges…


What is post retirement healthcare?

Post retirement healthcare is nothing new

Post retirement healthcare seems crazy to me

Let’s develop a post retirement healthcare product next quarter

My customers are quite young and they don’t need this now

What is Post-Retirement Healthcare? Big topic in Medical System, "Not so big" in Insurance


• >50% of hospitalization in Hong Kong

• What % of "Post-Retirement Health" products in your portfolio?


Humanity's fundamental desire to prolong life will ensure this phenomenon will be hard to stop

Aging population in the developed world

Continuous improvement of average global standard of living

Source: Swiss Re, Economic Research and Consulting

36 3118 26

18 1527 21 17

60 64

6566

6858

6566

61

618

8 1528

8 1222

4

0%

20%

40%

60%

80%

100%

1950 2000 2050 1950 2000 2050 1950 2000 2050

0-14 (%) 15-64 (%) 65 or over (%)

Asia Europe North America

What is Post-Retirement Healthcare? It is not new… but it becomes urgent

+200% +80% +80%

Risk of Living Longer - Underestimating life expectancy How well are we Prepared for Retirement?


Source: Swiss Re Survey of Risk Appetite and Insurance: Asia-Pacific 2011

Not an issue! Ooops!

The Other Way to Look at This (Insurance) Cost is Increasing Tremendously


Source: UN World Population Prospects: The 2010 Revision

Life Expectancy 1980-1985 2005-2010 Difference

China 67.67 72.71 5 Years

Hong Kong 75.65 81.61 6 Years

Singapore 72.17 80.60 8 Years

Malaysia 68.12 73.38 5 Years

Indonesia 58.83 67.86 5 Years

Australia 75.07 81.44 6 Years

USA 74.32 77.97 3 Years

Switzerland 76.09 81.81 5 Years

Post -65 Life Expectancy

1980-1985 2005-2010 Difference

China 2.67 7.71 +188%

Hong Kong 10.65 16.61 +56%

Singapore 7.17 15.60 +118%

Malaysia 3.12 8.38 +169%

Indonesia <0 2.86 ∞

Australia 10.07 16.44 +63%

USA 9.32 12.97 +39%

Switzerland 11.09 16.81 +52%

Some of us are "spoiled" by Corporate Coverage Customer Need to Extend Coverage

How well are they prepared for post retirement healthcare?

Source: Thematic Household Survey 2008

Worried about medical expenses? Yes


8

Insert chart on report p. 27 with data labels

Source: Swiss Re Asia Risk Survey 2011

Source: Swiss Re "Would You Risk It" Report 2011

Medical Inflation It becomes a moving target


General Inflation

Greedy Doctors & Hospitals

Technology Advancement

Improvement in Diagnosis

Improvement in Treatment

Improvement in Living Quality

Reduction of Government Subsidy

Living Longer Demand >> Supply

Pollutions, Global Warming

Example on how medical advancement affects the world Screening Technology Effect


0.0

0.5

1.0

1.5

2.0

2.5

1975 1980 1985 1990 1995 2000 2005

Rate

per

mille

0%

5%

10%

15%

20%

25%

30%

35%

40%

US Prostate Cancer incidence

Incidence

Prevalence of PSA testing

Prev

alen

ce o

f PSA

test

ing

at a

ges

65-8

4

Most healthcare reform happening in Asia shifts burden to consumers


China 2013 Government has committed

to spend USD125bn on broad healthcare provision for citizens with aim of ~90% coverage by 2013 (focus on rural areas)

Social Insurance Law (1/7/2011) grants all citizens the right to pension, healthcare, work injury, unemployment and maternity insurance

Citizens will be allowed to pay contributions in one place and draw benefits in another

Malaysia 2015 Proposed Social Health

Insurance ("1Care") to provide health universal coverage

Mandatory contributions to government

Autonomous Malaysian Healthcare Delivery System to form an integrated public-private provider service

Government thought to consider an Employee Insurance Scheme; (i) tax relief for medical insurance (ii) provision of minimum CI and hospital benefits

Source: AXCO Reports, EIU, Presentation on Malaysia proposed HC Reform from MOH, HK Government Healthcare Consultation Paper

Hong Kong 2014 Proposed Voluntary Health

Protection Scheme (HPS)

Government subsidy to encourage higher take-up of private medical insurance

Insurers to offer subsidized private medical insurance with minimum required but can offer top-up cover too

Proposed HKD50bn (USD6.4bn) to achieve HC reform objectives

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Asia is Aging Healthcare Needs are not being met


Greater life expectancy is extending retirement planning horizon

Growing middle class are demanding greater access to healthcare

Governments are increasingly shifting the burden of care to its citizen

The young workforce population of the 70's and 80's are growing old

Longevity Aging

Wealth Governments

Post-retirement Health

Implication to Insurers From SILVER to GOLD


Getting serious illness and inability to pay

medical expenses are two biggest drivers for insurance purchases


14 Source: Swiss Re Asia Risk Survey 2011

Main worries/concerns for the future that might lead you to consider buying life/health insurance (in %)

Market Scan Our Product Offers (partially) met Customer Needs


Retirement Planning Products means:

• Savings Pot – Relatively small • No Guidance on how to spend it

What is Your Number?

• Inflation greatly erodes value of benefit • I am covered by corporate plan. Should I over-insure now?

Long Term / Whole Life Coverage – Level benefit

• What if premium increase is more than I can afford after retirement?

Long Term / Whole Life Coverage – "Level" Premium

Annuity options? Or Savings plans?


Annuity products might not be the priority investment option in the market as the investment return is relatively less attractive to customers compared to alternative savings plans or investment tools.

• Annuity options take longer period of time to breakeven the principal invested

Younger generation

• It's too late for them to buy annuities as they could not fully benefit from the payouts.

Elders

Customers' concerns:

Products for Aging Risk


? I am living longer than I expected!!

? I couldn't afford insurance when I was young, can I

get some now?

Up-selling Existing

Policyholders with GI / SI Guaranteed

Issue Whole Life / Funeral Plans

? I am living longer than I expected – do I have enough savings?

Annuity, lump sum or regular

payment

Multiple Pay Medical or

Health Coverage

Limited Pay Whole Life /

Long Term Rate Guarantee

Market Scan Which of them are Top Sellers?


Singapore Hong Kong Malaysia

I'm Well Guaranteed medical insurance

into retirement Hospitalization and surgical Guaranteed coverage to age 100 Eligibility before age 70 Long Term Care Continuing Income Benefit LTC Income on disability Eligibility before age 65

Early Income Annuity Plan Annuity to age 99 or 20 yrs Accumulation period, e.g. premium for 3

years / or SP Non-guaranteed element as bonus

Guaranteed immediate annuity Lifetime annuity for those

aged 55-75 Annuity based on yield on SP from 5-7% ROP at maturity

Pru Parent Hospitalization and LTC for those

looking to support their parents (until age 85)

LTC in monthly benefits

State sponsored Eldershield Compulsory LTC for citizens and PRs Premiums paid from social security

Medisave account Monthly income on disability

PRU Senior Med Term life policy with medical

benefits Hospitalization until age 80 Eligibility from age 45-70

Mediguard Senior Medical insurance Hospitalization benefits Eligibility from age 56-65 Guaranteed renewal up to 75, age 80

discretionary

Source: MAS, HKFI, Company's website

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Market Scan Which of them are Top Sellers?


Japan China Korea and Taiwan

Care-free Long Term Nursing LTC product SP or limited pay RP Coverage to age 100, but eligible before 59 12% of SA p.a. on disability before 60 or

survival past 60 Annuity (term) Accumulated savings until retirement (low accumulation rate) Guaranteed term annuity at retirement Term up to age 80+

Annuity (whole life) Whole of life immediate annuity product Purchase at retirement age "Kangxin" Long Time Nursing LTC income on disability

(and death benefit) Coverage until age 80 Eligibility before age 60

New Gentle EVER Medical insurance for those

with chronic disease, targeting older people Covers up to age 80 Eligibility in old age

Future Support Medical and cancer insurance Hospitalization, death, CI and LTC benefit 30 year payment for those below 60 and

whole for those above

Smart Vision Hospital cash (to top-up government

provision of medical for old age), with ROP Covers whole life (up to 100) Eligibility in old age

Whole of life medical insurance sold in Korea and Taiwan

Perfect integrated insurance 1.0 CI, LTC and medical insurance CI protection age 80 years and LTC is

covered until the death. Cover the whole family (up to 3 persons) Eligibility until age 65

Source: China Insurance Yearbooks, Company's website

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Implication to Insurers From SILVER to GOLD


Penetration

• Protection Gap • Retirement Planning for 35-45 • Retirement Solutions for 45-55

Product Features

• Focus on Protection • Living Benefit is Priority

Product Sophistication

• Meaningful Coverage • Manageable Cost

Health products need to "upgrade" constantly in order to meet the needs of the customers


Critical Illness insurance

21

1983 2008 Now

First CI Product in

South Africa [4 diseases]

List of diseases

grown to as much as161

Some diseases are withdrawn

due to advance medication available

Multiple Pay / Early Stage CI

Products available

Advanced Cancer

Products in Japan

Hong Kong Life Expectancy = 75.4

Cancer Incidence = 2.80 Cancer Mortality = 1.53

Hong Kong Life Expectancy = 82.4

Cancer Incidence = 3.53 Cancer Mortality = 1.15

Challenges in Product Development What stop us doing it now?


• Access to Customers of Different Age Groups

• Perceived Value of Benefit being Uncertain

• Guarantee vs Coverage

• We have never lived for so long

Data Product Design

Distribution Customers

How about long term health products? Predicting future is challenging and complex


•Cancer incidence trends differ by site and by country •Cure technology advancement means increasing survival rate but also increasing

incidence rate

Major Illnesses (e.g. Cancer)

•Hospitalisation incidence and medical inflation trends are worsening •People are concerned with future medical costs •Product design that suits customer needs, balance risk management and profitability

become a challenge

Medical Insurance

•People are concerned with future treatment costs of chronic diseases such as diabetes •Some governments are pushing for insurance coverage

Chronic Diseases

Practical Questions in Post Retirement Health Solutions


• Critical Illness vs Cancer

• Cash Benefit vs Reimbursement

• Long Term Care & DI?

• Mortality (Funeral only?)

• Accident Coverage

Coverage

• Minesweeper • Time machine for

Customer already close to Retirement?

Product Design • Best time of

Underwriting • Potentially high %

of Substandard

Underwriting

Possible Post Retirement Health Solutions It is NOT a Product Solution. It is a TOTAL Solution.


• Contact your customers early

• Maturity Policies could be good opportunities

• Pick the Right Channel

• Education is key • Highlight the facts • What if questions

• Underwrite early • Packaged Products • Savings may be

unavoidable • Challenges in

Predicting Cost

• "Smart" design may reduce reliance of data accuracy

• First mover advantage -> More margin

• Reinsurance

Data Product Design

Distribution Customers

Discussion What do you think the road will be like

in the future?


Post-Retirement Health My Challenges…


• An emerging and exciting segment in insurance world.

What is post retirement healthcare?

• Yes there are products touching the segment needs but more product development work needs to be done.

Post retirement healthcare is nothing new

• There are many challenges in providing solutions. Data, Product Design, Customers and Distribution.

Post retirement healthcare seems crazy to me

• Post retirement health solutions is more than a product solution. A right segment strategy is key.

Let’s develop a post retirement healthcare product next quarter

• It is an aging society. Post retirement health solution is not cheap. Young customers have more time to accumulate the fund for comprehensive coverage

My customers are quite young and they don’t need this now

Thank You


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