Serving the Cause of Public Interest Indian Actuarial Profession 23rd India Fellowship Seminar Ageing population: Importance of long term health care product and issues in pricing Guide: Aditya Vardhan Tibrewala K T Jayasager Banashree Satpathy Sachin Madan 18th June, 2015 Mumbai

Agenda Ageing Population Importance of Long Term Care Products Issues in pricing Long Term Care Products

Ageing Population

Process of becoming older Accumulation of changes - Physical, psychological and social Reflects cultural and societal conventions Largest known risk factor for most human diseases Population ageing - phenomenon that occurs when the median age of a country or region rises due to rising life expectancy and/or declining birth rates. Ageing – Wiki’s Take

Developing countries ageing faster. Population aged 60 years and above in India is expected to increase to 20% by Population Ageing - A Concern For India? 35 years into the future!  Working population would reduce substantially  Increase in the need of old age health care benefits  Dependency on State for age related benefits would increase

Large working population A small proportion of wealthy individuals self provide for their old age General expectation that Children will take care of parents Joint family systems prevalent Government providing means tested benefits e.g. RSBY, Indira Gandhi National Old Age Pension Scheme NGOs working for the rights of the elderly Care For Elderly In India – Current Scenario

Importance of Long Term Health Care Products

Ageing and Longevity Acceleration in population ageing Increase in longevity Changing Family structure Increasing trend of nuclear families and reduction in informal care Willingness of Children to take care of old parents decreasing Support from the State Lack of state initiatives Benefits provided by the State not enough Cost Increasing cost of care Medical inflation higher than general inflation Others Aspiration to be independent at old age Savings oriented culture Importance of Long Term Health Care Products

Issues in Pricing of Long Term Health Care Products

Type of product- lack of market study to decide on pre-funded or immediate care Key product feature - Indemnity or fixed benefit? Morbidity –Incidence rates –Termination rates –Lack of data difficulty in setting morbidity assumptions Total claim costs –Inflation and its impact on care cost –Huge variation in medical cost between providers Longevity and its impact on premium Issues in Pricing – Design & Assumptions (1)

Voluntary termination (lapse) –Influenced by economic scenario, customer attitude etc. –Dynamic –Selection impact Expense assumption –Impacted by wage and medical inflation. –Depends on the medical service providers. Tax rates –Depends on fiscal outlook of Government –Prone to changes in a growing economy Investment return –Long term nature of investment decision – nature & term of assets –reinvestments Mix of business Change over time - How to allow for rapidly changing experience without impacting affordability of the product? Issues in Pricing – Design & Assumptions (2)

Cost and time involved in developing model Level of complexity in the model Availability of expertise Risk of over simplification Spurious accuracy Outputs – might be impractical to implement Sensitivities to be tested for –Model points –Assumptions Issues in Pricing – Modeling

Issues in Pricing - Profitability Uncertainty in −Parameter estimation −Claims cost Low volumes −Affordability of premiums −People unaware of the need −New type of products in Indian context Capital requirements high Regulatory constraints

Issues in Pricing – Distribution & Other Factors Lack of customer and distributor understanding More scope of Mis-selling Expensive products making sales difficult Training requirements higher than other Insurance products Underwriting requirements higher than other Insurance products Special Claims handling required

Partnership with Government Focus on penetration Micro insurance plans – in similar lines to RSBY Restricted benefit for affordable premium Process efficiency –Underwriting and Claims –Minimum hassle to policyholder in policy and claims servicing Help from partner (in case of Joint Venture) Reinsurance arrangements Risk pooling arrangements Indemnity benefits do not look like a possibility for a few years to come Only low level of guarantees possible Long term care products – next steps

“Wrinkles should merely indicate where the smiles have been.” - Mark Twain

Any Questions?