The future of disability income insurance - an Australian analysis - - PowerPoint PPT Presentation
The future of disability income insurance - an Australian analysis Brad Louis Alex Threlfall Agenda 1: Australian market overview - General 2: Australian market overview Product View 3: Australian DII Experience analysis &
The future of disability income insurance - an Australian analysis Brad Louis Alex Threlfall
Agenda
1: Australian market overview - General 2: Australian market overview – Product View 3: Australian DII – Experience analysis & Insights 4: Sustainable DII Product 5: Australian DII – A behavioural view 6: Next Steps
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Competition Law compliance reminder
that it has made about our industry in its capacity as reinsurer provider to many of you.
identified where necessary.
any issues (if at all) is a matter for your company’s independent consideration.
company’s intentions regarding pricing, product terms or other strategic information.
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“The cost of doing the same old thing is far higher than the cost of change.” Section 1: Australian market overview - General
AMP, 16% TAL, 15% AIA, 13% CommInsure, 12% NAB/MLC, 12% OnePath, 9% Suncorp, 7% BT / Westpac, 6% Metlife, 4% Others, 7%
Market Share March 2015
The Australian market
05/08/2015 5
In force annual premium Australia
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Total Individual Risk - Lump Sum - In Force Total Individual Risk - Income - In Force Group Risk - In Force
Source: Plan for Life Source: Plan for Life
Best Interest Duty
05/08/2015 6
Life Company Licensee/Dealer Group APL Adviser
100 200 Mar 2009 Sep 2009 Mar 2010 Sep 2010 Mar 2011 Sep 2011 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 $m Profit (after tax)
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Where is the Industry at today?
Insights to Action: A pricing and profitability view
Source: APRA Quarterly Life Insurance Performance
Industry quarterly profit retail DI
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Source: APRA Quarterly Life Insurance Performance
The industry is making losses on retail DI
Insights to Action: A pricing and profitability view
“The cost of doing the same old thing is far higher than the cost of change.” Section 2: Australian market overview – Product View
Question…
Male employee, managing a shopping centre. Insured for $22,000 per month.
chemotherapy.
$36,000 in lost income
10 Insights to Action: Product Design
Question…
11 Insights to Action: Product Design
What benefit payments would be reasonable over the course
$0, He was not totally disabled for at least 14 days during the waiting period and he had sufficient sick leave for the time off work so he suffered no loss of income. Approximately $27,500 in partial disablement benefits equating to the 5 weeks that he was absent from work while undergoing treatment. for the time off work so he suffered no loss of income. $132,000, being 6 months worth of benefits under the IP Trauma Benefit.
A B C
The Munich Re view
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Features and benefits The claim experience Focus Complexity
Causes of poor DI experience
Insights to Action: Product Design
The Munich Re view
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Causes of poor DI experience
Insights to Action: Product Design
Features and benefits The claim experience Focus Complexity
0% 10% 20% 30% 40% 50% 60% 70% 80% A B C D E F G H I J K L M N O P Features
Direct office survey
14 Insights to Action: Product Design
Features not reflecting the principles of insurance
The distribution channel
15 Insights to Action: Product Design
“The cost of doing the same old thing is far higher than the cost of change.” Section 3: Australian DII – Experience analysis & Insights
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IAD 89 – 93 disability table
Pick the winners of 2015 world cup based on 1992 world cup?
Insights to Action: A pricing and profitability view
18 Insights to Action: A pricing and profitability view
Covers 70% of the market
10-year analysis
Credible data volumes 19,321 incidences 15,616 terminations
Why we’re confident in our results…
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MRA Investigation
Huge technical analysis…
Insights to Action: A pricing and profitability view
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Insight 1...
50% 100% 150% 200% 250% 1 2 3 4 5 6 7 8 9 10 10+ A:E (MRA Table except Pol Dur.) Policy Duration (Years)
Policy duration – Sickness (amt)
Sickness incidence increases by policy duration
Insights to Action: A pricing and profitability view
Policy duration – Other sources
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Source: FSC 2007-2011 Experience Analysis
Insights to Action: A pricing and profitability view
40% 60% 80% 100% 120% 140% 160% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 A:E (MRA Table)
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Insight 2...
Accidents by year
Accident incidence is increasing
Insights to Action: A pricing and profitability view
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Accident incidence is increasing across all portfolios
40% 60% 80% 100% 120% 140% 160% 180% 2008 2009 2010 2011 2012 2013 Actual to Expected (MRA Table)
Cedant experience by year – Accident (Amt)
Insights to Action: A pricing and profitability view
50% 75% 100% 125% 150% 175% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 A:E (MRA Table)
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Insight 3...
Year 1 claim duration by year
No systemic change in termination experience
Insights to Action: A pricing and profitability view
0% 25% 50% 75% 100% 125% 150% 175% 200% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 A:E (MRA Table)
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Insight 3...
Year 2 claim duration by year
No systemic change in termination experience
Insights to Action: A pricing and profitability view
100 200 Mar 2009 Sep 2009 Mar 2010 Sep 2010 Mar 2011 Sep 2011 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 $m Profit (after tax)
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Where is the Industry at today?
Insights to Action: A pricing and profitability view
Source: APRA Quarterly Life Insurance Performance
Industry quarterly profit retail DI
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Headline result of our message to industry
Insights to Action: A pricing and profitability view
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% Long Term Benefit Period Short Term Benefit Period
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A view on some factors that may influence pricing
Assume prices 35% below where they need to be to meet claims costs
Insights to Action: A pricing and profitability view
0% 10% 20% 30% 40% 50% 60% Long Term Benefit Period Short Term Benefit Period
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Benefit period has a big impact
Price rise required to deliver a 35% increase: by benefit period
Insights to Action: A pricing and profitability view
“The cost of doing the same old thing is far higher than the cost of change.” Section 4: Sustainable DII Product
An opportunity to improve
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FOCUS
Focus on recovery Deliver on service promise through support and sharing of expertise
THE CLAIM EXPERIENCE
More transparent & consistent
Holistic engagement
FEATURES & BENEFITS
Claim triggers Aligned with loss Promote return to work behaviours
SIMPLIFY
Make it count Plain language that everyone can understand Terminology that is meaningful & helpful
Customers / advisers
affordability, equity
Insurers / reinsurers
profitability, risk management
Insights to Action: Product Design
“The cost of doing the same old thing is far higher than the cost of change.” Section 5: Australian DII – A behavioural view
100 200 Mar 2009 Sep 2009 Mar 2010 Sep 2010 Mar 2011 Sep 2011 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 $m Profit (after tax)
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How did we get here?
Insights to Action: A pricing and profitability view
Source: APRA Quarterly Life Insurance Performance
Industry quarterly profit retail DI
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How did we end up here?
Product & u/w enhancements Interest rate movements Other Factors
Version 1
Insights to Action: A pricing and profitability view
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How did we end up here?
Product & u/w enhancements Interest rate movements Other Factors
Version 1
Insights to Action: A pricing and profitability view
10%+ 10%+ ~10% ~35%
80 90 100 110 120 130 140 2008 2009 2010 2011 2012 2013
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Where is the Industry at today?
Source: RICE Warner
Retail DI new business premium rate changes 2008-2013
Insights to Action: A pricing and profitability view
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Where is the industry at today?
1 2 3 4 5 6 7 8 9 10
Restrictive product changes 2009 - 2014
Insights to Action: A pricing and profitability view
2014 2013 2012 2011 2010 2009
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How did we end up here?
Product & u/w enhancements Interest rate movements Other Factors
Version 1
Reinsurer support Commitment to analyse claims Reluctance to move prices
Version 2
Target Q1 product features Ignoring root cause
Insights to Action: A pricing and profitability view
“The cost of doing the same old thing is far higher than the cost of change.” Section 6: Next Steps
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Recap...
New analysis not using IAD
2
Trends exist that may not be allowed for
3
Industry Losses
1
Action stations
4
Insights to Action: A pricing and profitability view
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Where does that leave us? Pricing and Product implications
New Business
Insights to Action: A pricing and profitability view
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Recommendations for Oz...
Experience review using FSC or MRA
1
Decide Price and Product Actions
Product review
3
T&C review
4
Pricing review
2
Insights to Action: A pricing and profitability view
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NZ Considerations
1: Understand Experience
Insights to Action: A pricing and profitability view