Jean Louis PIQUET
Vice President Life & Accident
INSURANCE & UNDERWRITING
2 14/11/2011
LIFE UNDERWRITING
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The insurance principles
Uncertain (unpredictable for the insured);
With a probability of occurrence (>0 and <1);
Independent (no autocorrelation);
Not controllable by the insured;
Having an insurable interest (Financial loss);
Unambiguous
For being insurable, an event must gathered the following criteria:
However, nothing is really crystal clear:
Adverse selection;
Fraud;
Moral hazard
LIFE UNDERWRITING,
Its components
The components of underwriting are :
• The medical underwriting (against adverse selection)
• The list of exclusions (against adverse selection, moral
hazard and covariant hazard) ;
• Eligibility Conditions (« Actively at Work » clause, waiting
period, etc…) (against adverse selection, moral hazard
4 14/11/2011
LIFE UNDERWRITING
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Why ? The actuaries point of view.
Mortality/morbidity based on general population
Size of the insurance Company portfolio
Homogeneous risks
Underwriting avoid:
Anti-selection / Adverse selection
LIFE UNDERWRITING?
Employees benefit, Why medical underwriting and how ?
Mutualization of the risk;
High Sum Insured creating deviation;
Unbalanced risk(s);
ured)
P.V.L.(Ins
urer)
6 14/11/2011
LIFE UNDERWRITING,
Employees benefits, Why underwriting and how ?
Free Cover limit (FCL) definition:
The theoretically correct free cover limit should be set
at the point at which the costs for medical information
are equal to the expected mortality payment savings
resulting from the individual underwriting.
LIFE UNDERWRITING,
Employees benefits, Why underwriting and how ?
Free Cover Limit Graph*
8 14/11/2011
LIFE UNDERWRITING,
Employees benefits, Why underwriting and how ?
FCL CHART (given as example)
Number of insureds FCL Multiple Max FCL
10 2.30 330 000 15 2.70 370 000 20 3.00 400 000 25 3.20 420 000 50 3.90 490 000 100 4.60 560 000 200 5.30 630 000 300 5.70 670 000 400 6.00 700 000 500 6.20 720 000 1 000 6.90 790 000
LIFE UNDERWRITING,
Employees benefits, Why underwriting and how ?
MEDICAL REQUIREMENTS CHART
(given as example)
Sum Insured in excess of FCL
Up to age 45 Age 46 to 55 Age 56 to 65 Age 66 to 70
Up to 30,000 GHD GHD GHD MQ
30,001 to 50,000 GHD GHD MQ MED
50,001 to 100,000 GHD MQ MQ MED
100,001 to 150,000 MQ MED MED MED
150,001 to 300,000 MQ MED+BLOOD MED+BLOOD +ECG MED+BLOOD +ECG 300,001 to 500,000 MED+HIV MED+BLOOD +HIV+ECG MED+BLOOD +HIV+ECG MED+BLOOD+HIV +ECG+X-RAY+ FJ 500,001 to 750,000 MED+BLOOD
+HIV+ECG+X-RAY+ FJ
MED+BLOOD +HIV+ Stress ECG +X-RAY+ FJ
10 2008 Highlights
14/11/2011
LIFE UNDERWRITING,
Bancassurance, Underwriting ? Why ?
Bancassurance/Credit Life business is in between
Individual life and Employee benefits business
Bancassurance/Credit Life business is Open-Group
scheme
Members are not only “Actively at work”
LIFE UNDERWRITING,
12 2008 Highlights
14/11/2011
LIFE UNDERWRITING,
Bancassurance, Underwriting ? Why ?
Claim experience structure after application of u/w
Average Claim Amt
U/w year -3 4 433.759
U/w year -2 5 560.692
U/w year -1 6 447.297
LIFE UNDERWRITING,
Its effect on mortality
% of the gener al popul ati on m or tal ity Age at inception
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LIFE UNDERWRITING,
Impact on new business
WW Industry survey 2004 on underwritten cases
13% denied due to unassurable substandard risk
Declination rate increases from 5% at age 18 to 33% at age 60 and above 76% of the cases are standard rates, 22% were quoted higher rates
CCR experience on underwritten cases
3.3% denied due to unassurable substandard risk
Breakdown of cases per level of Extra premium : 89.26% of the cases are standard rates, 10.74% are substandard risks
Extra Premium % <= +50% 36.00% +51% to +100% 52.02% +101% to +150% 5.91% +151% to +200% 2.96% +201% to +300% 1.98% => +300% 1.12%
LIFE UNDERWRITING,
Frequently Asked Questions (FAQ)
1. I have an insured Group which is coming at renewal. Do I have to perform once again the medical which was performed last year through our Company ?
No, there is no need for existing members as long as the schedule of benefits is unchanged.
2. I have an insured Group which is coming at renewal. The client is asking me to increase the FCL. What I should do ?
There's no reason for increasing the FCL unless the structure of the group
demography did significantly change. In addition, increasing the FCL at renewal would mean that there would be a discrepancy/difference of underwriting between the existing members above FCL who did provide medical evidence and the
16 14/11/2011
LIFE UNDERWRITING
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Frequently Asked Questions (FAQ)
3. My Company is participating on a tender for a Group which has been already insured by the past year(s) with a different carrier. Do I have to consider u/w the member(s) above the FCL ?
The transfer of carrier shouldn't introduce any discrimination or loss of coverage for the Group members. And there should be an equitable transfer of the risk. In such case, the new carrier must be liable to cover the members insured with the prior carrier at the time of transfer. No further underwriting should be requested. However, in order to ensure an equitable transfer of the risk, any existing
limitation or extra premium for sub-standard risk must be maintain. So that the new carrier must make sure to get the information.
LIFE UNDERWRITING,
Frequently Asked Questions (FAQ)
4. My Company is participating on a tender for a Credit life agreement for loan issued for staff member of the said bank. Is it acceptable to handle that case as a Employees benefits program ?
Indeed, the client could find difficult to make the difference between their Employees benefits program and the credit life they are granting and can be
confused. However, while the Employees benefits is a compulsory cover granted to each and every members, the credit life is somewhere a voluntary cover as not all of the members are having loan. As this is more individual business than
Group business, applying medical requirements is making sense and there shouldn't be any FCL. However, as the marketing target is "actively at work" member(s) it is acceptable to have some improvement in the evidence(s) of insurability.
18 14/11/2011
LIFE UNDERWRITING,
Frequently Asked Questions (FAQ)
5. Some competitors are talking about FCL, some are talking about Non Medical Limit. What is the difference ?
As explained above the FCL is the limit below which no medical requirements even a questionnaire. While a non medical limit is a limit below which either a GHD or a questionnaire is requested. Above that amount, medical tests must be performed as per requirements chart.
6. Is it possible to replace medical evidence(s) with a waiting period ?
Yes, in some cases medical evidence can be replaced by a waiting period. This is applied especially in Bancassurance business or for Affinity schemes. In that case, GHD and waiting period can be combined or a GHD can be replaced by a waiting period. However, one must keep in mind that such practice will never replace a full medical underwriting.
LIFE UNDERWRITING,
Frequently Asked Questions (FAQ)
7. In a Bancassurance scheme, is there any difference from the underwriting
practice point of view between YRT 12 months agreement and scheme on single or annual level term premium ?
A common idea spread in the middle east market is to consider that if a scheme is concluded for a 12 months period, then the underwriting process must be as light as possible and at least follows the Employees benefits practices. But this is a short term view which will not benefit to the client/bank. There's no difference between the 2 schemes underwriting wise. By not applying the relevant underwriting, the client will find itself in an uncomfortable position year after year with the increase of claim occurrence. Such portfolio will be more and more difficult to place on the
