Council of EuropeStrasbourg

2-4 December 2007

CDBI Seminar on predictivity, genetic tests and insurance

André Chuffart, Kuesnacht, Switzerlandon behalf of the CEA - European Insurance and Reinsurance Federation

Mission of life insurers

To allow as many applicants as possible to

obtain the coverage they need at a fair price

Not to exclude people from obtaining coverage

(eg by making use of advances in medical

science)

Not to cherry-pick!

Private life insurance is far cheaper today than in previous decades

0

20

40

60

80

100

120

140

£100k sum assured £300k sum assured Consumer price inflation

Movement in the mean of the 10 lowest premium rates for a portfolio of level term assurance model points for sums assured of £100,000 and £300,000 (base = 100 at January 1994)

Source: Swiss Re Term & Health Watch 2007, OECD

Private life insurance is far cheaper today than in previous decades

This fact is not new:

„Today an average 25-year old working man can

buy life insurance equal to five times his income,

for less than half the money his counterpart paid

in 1960“.

Source: Steven Zimmerman, V.P. and Medical Director, Aetna Life Ins. and Annuity co.,quoted in the National Underwriter, 24 June 1996, page 8

Developments in medical science

In the past almost all type I diabetics were declined;

today > 90% of all diabetics who have no end organ

damage (e.g. kidney failure) are insurable for death.

In the past any history of breast cancer resulted in

decline; today if details of staging are available and if

the cancer has been diagnosed at an early stage,

terms may be possible even straight after surgery

(= no postponement).

Source: John Turner, Swiss Re Zurich

Developments in medical science

In 1952, for example, 55% of U.S. applicants with

cardiovascular problems were declined,

compared

with 25% in 1992.

Source: Steven Zimmerman, V.P. and Medical Director, Aetna Life Ins. and Annuity co., quoted in the National Underwriter, 24 June 1996, page 8

Why do life insurers need to assess risks ?

Insurance is voluntary. Applicants can choose:

- whether or not to buy insurance, and if so, when

- which types of insurance best suit their needs

- the amount of cover they require

To limit adverse selection

To remain competitive in a competitive environment

Risk assessment permits economic incentives to operate

Source: Swiss Re Term & Health Watch 2007

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10FNS 30:25, £100k MNS 30:15, £100k MNS 45:25, £100kFNS 30:15, £300k FNS 30:15, £100k FNS 45:15, £100kMNS 30:15, £300k average

Ratio of premium rates by provider against the cheapest provider for level term assurance for the top 10 most competitive providers(base = 100 for the most competitive provider at March 2007)

Risk assessment and data collection

The insurance company’s right to collect information

on the applicant is no longer undebated.

The key issue seems to lie not so much in the

relevance, necessity and validity of the inquiries but in

their proportionality1.

When does the right of an insurer to assess the risks

submitted to it encroach disproportionately on the

right of the applicant to be left alone?

1Council of Europe

Percentage of life applicants medically examined

Company # 1 3.3% Company # 2 medical only 4.5% + lab tests 1.6% + ECG 1.8% 7.9%

Market

Source: Wolfgang Wilsch, Swiss Re, Munich ~ 3.0%

Company # 1 (Life & CI; bancass.) 3.8% Company # 2 (Life; IFA bus.) 8.5%

Company # 3 (only DI) 10.0% Source: Jon Lambert, Swiss Re London

Percentage of life applicants medically examined

Bancassurance Comp # 1 # 2 #3

- Production 2004 0.67% 1.21% 3.44% 2005 0.34% 0.66% 2.69%

Source: Paloma Fernandez, Swiss Re Madrid

Public perception of risk classification1995 MAP Studies (USA) (1) Rated Turned down

% %10 or fewer 10 2011 - 20 9 1321 - 30 9 1131 - 40 5 441 - 50 14 851 - 75 9 478 - 100 4 2

Don't know/No answer 40 39

Median estimates 35 19

(1) Estimates of number of applicants out of 100 who are rated/turned down

Outcome of risk classification process

Life (market)

Accepted as standard ~ 92%Accepted as substandard ~ 5%Decline ~ 3%Source: Wolfgang Wilsch, Swiss Re, Munich

Life (one company)

Accepted as standard 89.0%Accepted as substandard 10.0%Decline 1.0%

These figures are more or less constant over the years

Outcome of risk classification process

Bancassurance – Life & CI (one company)

Accepted as standard 91.9%Accepted as substandard 7.1%Decline 1.0%Source: Jon Lambert

Bancassurance – Life (one company)

Accepted as standard 98.78%Accepted as substandard 1.13%Decline / Postpone 0.09%

Life Expectancy at age 30 and corresponding Mortality (as a multiple of basic mortality)

0

20

40

60

80

100

120

140

5 10 20 30 40 49=standard

Life Expectancy

Mor

talit

y

15.7

5.6 2.2 1

54

127.9

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Life Expectancy at age 40 and corresponding Mortality (as a multiple of basic mortality)

0

10

20

30

40

50

60

70

80

90

5 10 20 30 39=standard

Life Expectancy

Mor

talit

y

76.3

27.7

7.12.4 1

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Survival Rate after 10 years and corresponding Mortality (as a multiple of basic mortality)

Age 30

0

2

4

6

8

10

12

14

16

18

99% 95% 90% 80%

Survival Rate

Mor

talit

y

1

3.7

7.5

15.8

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Survival Rate after 20 years and corresponding Mortality (as a multiple of basic mortality)

Age 30

0

1

2

3

4

5

6

96% 95% 90% 80%

Survival Rate

Tota

l Mor

talit

y

11.3

2.7

5.6

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Survival Rate after 10 years and corresponding Mortality (as a multiple of basic mortality)

Age 40

0

1

2

3

4

5

6

7

8

9

10

97% 95% 90% 80%

Survival Rate

Mor

talit

y

1

2

4.1

8.6

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Survival Rate after 20 years and corresponding Mortality (as a multiple of basic mortality)

Age 30

0

0.5

1

1.5

2

2.5

3

91% 95% 90% 80%

Survival Rate

Mor

talit

y

1

0.6

1.1

2.4

Basic mortality : EKM 1995Source: Christian Jaggy, Ph.D., Swiss Re Zurich

Expected mortality of a group with 1% substandard lives

Average mortality of the Average mortality of 1% substandard lives the whole group as

a multiple of basic mortality

30 times basic mortality ~1.31

50 ,, ,, ~1.52

1,2 All members of the group pay 30%, resp. 50% extra-premium

The way forwardLife insurers need to continue to undertake selective initiatives to raise awareness of

risk management, incl. pricing implications, among their clients, patients’ organisations, insurance supervisors, politicians, government advisors and supranational institutions

exercise their mission, in a transparent way and in full compliance with all existing laws

treat all applicants fairly to make available affordable products targeting the

needs of those individuals currently considered as uninsurable

act in a coherent way.

Council of EuropeStrasbourg

2-4 December 2007

CDBI Seminar on predictivity, genetic tests and insurance

André Chuffart, Kuesnacht, Switzerlandon behalf of the CEA - European Insurance and Reinsurance Federation