SCOR Global Life Non-disclosure Survey Catherine Lyons HIS Dublin – 11th September 2014

Agenda Introduction Definition of non-disclosure Consequences of non-disclosure Background to the survey SCOR survey findings How many companies are monitoring non-disclosure Non-disclosure rates in Ireland and UK Most common conditions non-disclosed Impact of non-disclosure Best practice tips Conclusion

Introduction What is the definition of non-disclosure? For clarity, we define non-disclosure as any instance where a disclosure should have been made on the application form which would have changed the underwriting terms/decision. Consequences of non-disclosure Reduced number of rated cases – without additional premiums charged Additional claims filtering into the experience – cases that should have been declined at outset Pricing impact - Non-disclosure rate and process feeds into scoring criteria which feeds into pricing – every reinsurer will take this into account Higher premiums for customers More “declined claims” because of non-disclosure Customers don’t have the coverage they thought they had Increased claims costs for disputed claims Reputational risks to companies because of disputed claims What has the industry done to reduce non-disclosure? SCOR’s best practice guide – update coming soon!!!!

Should we be concerned about non-disclosure? We can deal with it as we find it!!! Underwriting - We have the ability to act on all non-disclosure that’s found through evidence received / monitoring / sampling Claims - Ability to act on some of the non-disclosure found during the claims process What about the rest of the portfolio? Need to implement changes to improve the hidden non-disclosure and endeavour to identify it at outset.

SCOR Non-disclosure survey SCOR carries out first industry wide non-disclosure survey of this type – why? Focussing on process, definitions and methods that provide more clarity to the results Also asked about the reporting, analysis and actions. Based on Life & Serious Illness

Companies monitoring non-disclosure

Methods of non-disclosure checking Post issue sampling Issue PMAs on a random sample of clean (standard rate) cases after they have been issued Discretionary/routine evidence Logging non-disclosure on evidence received either due to disclosures made or sum assured Targeted sampling Issue PMAs on a targeted sample of clean (standard rate) cases after they have been issued – sample can be taken from: Trends identified from other checking processes e.g. ages, sums assured, smokers. MI analysis – looking for distributor outliers, e.g. high levels of standard rates cases, more non-smokers than would be expected, cases just below non-medical limits, etc. Feeds into distribution management to determine the overall quality of business received

Methods of monitoring in Ireland and the UK .

What do you see?

Headline results – how can we compare them? 3% from medical evidence 4.9% from POST Innocent 1% negligent 12.2% Deliberate 0.7% 4.09% 2.73% Outside Tolerance Random 19% (accumulative X few years) Significant 2.58% 10.8% Random <3% Dis 1.4% Life/CI 11.8% Innocent 7% Negligent 9.4% Deliberate 2.8% 10% random Random 4.5% 4%

Comparison of results – Ireland & UK Comparisons Rate Tolerance Type SCOR adjusted rate Comments Company 1 19% 25 POST Average over a number of years , so not adjusted as had been higher Company 2 5.4%  6.2% Adjusted for waiving 25s Company 3 10% 50  13% Adjusted for waiving 50s Company 4 4.9% 5.6% Company 5 4.1% 6.8%  2.7% outside tolerance Company 6 12.1% 13.9% Company 7 Target/ post 10.5% Adjusted down as targeted will be higher Company 8 10.8%  No adjustment required Company 9 4%   No adjustment required Company 10 2.7% Dis 5.1% Adjusted for waiving 25s and Dis ,

Random post issue sampling - SCOR adjusted non-disclosure rates - Ireland & UK

Sample of 500 cases (€100k SA / €40 p/m) The financial impact of finding non-disclosure through post issue sampling Sample of 500 cases (€100k SA / €40 p/m) 10% non-disclosure rate = 50 cases 10 cases should have been declined 18 should have had an exclusion applied 22 should have been rated (average SI rating of +55%,€40 per month premium, in force 8 years) = €46,464 extra premium Cost / benefit Cost of 500 PMAs (€86 each) €43,000 + cost for underwriting resource / admin costs Additional premiums: €46,464 Potential claim savings Up to €1m on declined cases Up to €1.8m on exclusions Conservatively if just 1 of the declined / exclusions resulted in a claim – additional saving of €100,000 Additional benefits Known non-disclosure rate Data available for analysis and further actions Reduced claims costs

Effect on experience? SI Assumed 5% non-disc 10% non-disc Mix Rate OR 75% 100% 70% 65% Rated 15% 155% 18% 21% Exclusion 5% 325% 6% 7% Decline Average 131% 137% 143% 5% non-disc 10% non-disc This results in an increase in experience of 4.7% 9.4%

Companies with lowest levels

Top 10 Medical conditions non-disclosed - Ireland

Top conditions non-disclosed- Ireland v UK 1. Cardiovascular 1. Mental health 2. Mental health 2. Musculoskeletal 3. Outstanding investigations 3. BMI 4. Musculoskeletal 4. Alcohol 5= Alcohol 5. Cardiovascular 5= Hypertension 6. Smoking 7. Gastrointestinal 7. Hypertension 8. Gynaecological 8. Family history 9= Neurological 9= Respiratory 9= Outstanding investigations

Best practice tips Use all methods available to monitor non-disclosure Different methods help to understand the rates and can focus attention on the areas where it matters most Analyse data to determine the causes of non-disclosure Any necessary changes to application form questions / warnings / reflexive questions / help text – particularly in the automated world Identify areas for further targeted checks Discuss with intermediaries – tell them what you’re doing, advise them what action will be taken, identify training needs and provide support. A consistent approach from companies will encourage better behaviours and quality of business Publish results to management, sales, reinsurers and intermediaries Make non-disclosure monitoring part of BAU Continue to monitor non-disclosure and invest the time and resource to continue to reduce it.

Conclusions Average non-disclosure rate in Ireland & UK is 10% Additional 9.4% ‘worse’ lives in the experience Ireland 11% and UK 9% Wide variation of results between companies Companies are performing more monitoring of all types Most are performing post-issue sampling – need to ensure that the number are sufficient to provide credible results More scope to get better use of discretionary evidence and more useful data Non-disclosure is increasingly being used as an important element of ‘Distribution Management’ – feeding into the overall quality of business received The results are being widely circulated to senior management - still some reluctance to share results or even make it known to intermediaries that companies are actually monitoring non-disclosure A consistent approach will provide more clarity to sales and applicants There is room for improving non-disclosure monitoring processes; identifying where non-disclosure is coming from and more importantly reducing the overall non-disclosure rate!! This will help companies keep costs down and maintain premiums for customers This will provide more certainty to customers that their claims will be paid if the insured event happens.

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