 The 2003 Healthcare Conference 5-7 October 2003 Scarman House, The University of Warwick

Critical Illness Why reviewable rates are more appropriate. Bill Baker Swiss Re Life & Health

Key Points n Guarantees cannot be provided at a fair price n We are insurers not bookmakers n Reviewable does not mean “no risk” n The right product at the right price

So what’s the right price for guarantees? Source: Average of 8 providers. M30NS, F30 NS, 25 year, £100,000 level cover With every price increase more people become financially excluded

It’s tough getting the right price! n Variability of company experience n Company A: 100 n Company B: 170 n Distribution? Social class mix? Underwriting? Claims control? n IBNR n A record? 77 months between claim event and notification to the insurer n Do we really have sufficient volume of data?

Good foundations?

Quality of our data? n Are we treating death claims correctly? n Our split between accelerated and stand alone? n The right claim date? n Date of diagnosis, notification, acceptance, settlement? n What date did the HCSG use? n What date does CMI use? n What date do you use for experience studies? n What about substandard business? n What about differences in scope of cover? n What about population data?

How may the future change? n Impact of troponin: 2-3% increase in claims? n Cancer screening: nNMP 48 Prostate cancer test nBowel cancer screening nBreast cancer screening n Ombudsman’s decisions

Aims of medical science n Want to spot nasty conditions sooner n Want to improve the outcome if you’re unlucky n Want to stop nasty conditions happening n Good news for all of us n Good news for life assurance n Mixed news for critical illness!

Genetics and cancer n 2002: Single gene test n 2003: Total Genotyping n 2007: Early treatments developed n 2017: Treatments implemented n 2025+: A cancer cure?

What do we really want? Access to insurance Competitive premium rates Equity between policyholders Keep within morbidity assumptions Benefits to policyholder Spread the risk Benefits to Insurers Accurate and sustainable pricing Shared risk

What do guaranteed rates give us? n Uncertainty about where we are n Guessing about what will happen at the longer durations n Trying to second guess medical changes n Predicting future actions of the Ombudsman n Is 60% increase too much or too little? Rip off Britain? n Get the price too low and solvency suffers and all prices have to rise n Insurance or gambling? With every price increase more people become financially excluded

Reviewable does not mean “no risk” n Rates should be set to be sustainable over the product term n Review looking forward n Any past loses should not be passed on to the policyholder

Right product for the right price! n If it’s not broken don’t fix it! nAre we covering the right events? nReviewable definitions? nConsumer choice: Increase premiums or change cover?

Why reviewable rates? n There is no right price for the unknown n Every price increase more people are financially excluded n Critical today, routine tomorrow? n Indemnity insurance or windfall gamble? n Are we insurers or bookmakers?