1. Life Underwriting Trends and Opportunities 22 April 2016 André Basson Central Actuarial Services Hollard Group Organisation of Southern and East Africa Insurers Technical Training Seminar

2. What is underwriting? Underwriting is the process of consideration of an insurance risk. This includes assessing whether the risk is acceptable and, if so, setting the appropriate premium, together with the terms and conditions of cover. It may also include assessing the risk in the context of the other risks in The portfolio. This helps the company to control the quality of lives accepted. Insurance company will normally aim to accept as many policies as possible at the appropriate premium rates. Given this, the fundamental risks are: That premium rates are not appropriate for the lives concerned That the premium rates permit selection against the company

3. Terms of Acceptance Standard rates Special terms – An increased premium – A reduction in benefit – An exclusion Exclusion clauses Deferred for stated period Decline Offer an alternative product/policy

4. Risk Management Protect company from anti-selection Identify sub-standard lives for whom special terms need to be quoted For those sub-standard lives, the underwriting process will identify the most suitable approach and level of special terms to offer Adequate risk classification within the underwriting process will help to ensure that all the risks are rated fairly Will help to ensure that the actual mortality experience does not depart too far from that assumed in the pricing Financial underwriting will help to reduce the risk from over-insurance

5. Underwriting Processes Medical underwriting – Questions on application forms – Medical doctor’s reports – Medical examination – Specialist medical test Lifestyle underwriting – Factors like occupation, leisure pursuits, country of residence, health care environment, socio-economic factors Financial underwriting (failure = decline) – Are premiums affordable (persistency)? – Fraud (income vs benefit)? Claims underwriting – Disclose terms and conditions at sale stage and enforce when a claim is submitted

6. Interpretation of Evidence Evidence needs to be measured against the standard of health required from the life company (design & pricing assumptions) Where risk factors are outside the standard the evidence will need to be interpreted by specialist underwriters employed, who will use: – Any doctor specifically employed for this purpose – Underwriting manuals prepared by major reinsurance companies

7. Determining underwriting levels Ensure that the increased volumes from more relaxed underwriting outweigh the cost of increased anti-selection and any increased cost of obtaining reinsurance.

8. Determining underwriting levels (cont.) - Factors Expenses (salary of underwriter, cost of medical reports, obtaining further evidence) Extent of any potential anti-selection risk (financial significance) Interaction between level of underwriting and potential level of sales (greater underwriting = lower sales) Claims underwriting deter sale – creates uncertainty Effectiveness of underwriting Homogenisation of risk Regulatory influence/restrictions Reinsurer terms offered How to vary underwriting by risk factors – age, sum assured, target market etc.

9. Practicalities of getting to market Disclosures – At sale stage (brochures, telesales) – Any client communication and documentation – Increase in expenses – Low non-medical limits – Claims repudiation – Extreme customer discomfort/dissatisfaction

10. Practicalities of getting to market (cont.) Underwriting skills – Qualified/skilled staff to apply the necessary judgement is expensive, as is training – Skilled underwriters are not always available – Reinsurers provide underwriting manuals – Automation and systems  Lack of skills – Inappropriate inconsistent decisions – Loss of market credibility – Increased medical evidence requirement – Higher declinature rate – Loss of business

11. Practicalities of getting to market (cont.) Processing hurdles – Systems controls needs to be robust and efficient – Automated underwriting systems are useful but expensive – Sound decisions are important – Technology barriers and/or lag  Shortfalls – Delay in issuance – Dissatisfied customers and sales force – Customer cool offs – Reduced business volumes – Market edge loss

12. Non-Disclosure & Anti-Selection Customer A 40 years old Goes regularly to gym Yearly health checks No ailments No family history of ailments Health data within acceptable levels (weight, height) No adverse disclosures Customer B 40 years old No physical activity or very irregular Back pain on and off Diagnosed with high blood pressure Early stages of diabetes Health data outside acceptable levels No adverse disclosures Both pay same premiums Underwriting required to accept risk within acceptable levels Introduce exclusions and waiting periods to manage the sub-standard risks

13. So…what can we do? New approach where sound decisions need to be made Tele underwriting Automated expert underwriting

14. Tele underwriting While the quote/sale is being concluded, the sales agent gathers all the information Information sent to underwriter Decision is communicated off-line, or – Then communicated to applicant Automated underwriting system – Long development process involving experts – Costly – But fast/instant results Sales agents can be skilled underwriters – Not required if system automated

15. Tele underwriting (cont.) Advantages Reduces the decision making time if skilled underwriters are sales agents Reduces the need for medical report Improves disclosure rate Disadvantages First to market to get a head start Call times may become excessively long Market saturation after extended period

16. Automated expert underwriting Most automated systems do some of the following: Identify Yes/No questions Refer applications with non-standard disclosures Calculated BMI Use logic based “rules” (decision trees) Capable of identifying medical conditions

17. Automated expert underwriting (cont.) Advantages Faster turnaround times Improved business turnaround times Accurate and consistent decisions

18. Creating an expert underwriter Attract Nurture – In-house – Reinsurers – Diploma in life underwriting – Retain

19. The Future Underwriting will likely be segmented into: – Predictive (future / forward) Application of data and analytics on a portfolio of people to predict what the underwriting decision would be if each of those people went through a conventional underwriting approach – Selective (traditional) Applicants are screened through the submission of underwriting evidence to determine their suitable coverage Shortened proposal forms – At the cost of potential higher premiums Technology and big data – Mobile devices to sell and capture information – Activity tracking devices Field underwriting Business from elderly – Affordability – Moral hazard Source: RGA, South Africa – Underwriting Innovations

20. The Future (cont.) Improvement in risk selection – Enhancement (use existing better) – Replacement (supersede traditional) – Innovative (new information => new insights) Credit Scoring – Segments mortality across many dimensions – A/E of the worst 10% > 4x higher than that of the best 10% – “Evidence” does not appear to wear off very fast – Still a work in progress (TransUnion and RGA) Dynamic underwriting – Mining existing data to help prevent and weed out fraud Wearables (iWatch, fitbit etc.) – Health awareness and empowerment – Offering credit/benefits for healthy lifestyle choices – Access to new range of preferred products – Device manufacturers are beginning to consolidate tracking capabilities via social media platforms Source: RGA, South Africa – Underwriting Innovations

21. The Future (cont.) Wearables (cont.) – Challenges with leveraging information Accuracy of device Chain of custody Compliance with use Consumer loyalty Pace of technology development Market largely limited to Motivated Healthy and the Critically Ill Genetic profiling (not too distant future) Source: RGA, South Africa – Underwriting Innovations

22. Wellness Platforms – Employer Sponsored Program that promotes workplace health and prevent illness that aim to improve employee engagement and attendance Additional benefit of potentially improving mortality/morbidity experience under group insurance arrangements – Individual Insurance The individual policyholder is incentivised to achieve and maintain a healthy status through a series of financial and non-financial rewards: – Premium discounts – Free wearable devices – Travel, shopping and/or entertainment type rewards as well as discounts at retailers Source: RGA, South Africa – Underwriting Innovations

23. Health/Wellness Platforms Employer Sponsored Example – Wellvolution by Blue Shield Results Smoking decreased by 50% Hypertension decreased by 66% Employees paying a combined $3mill less per year in insurance premiums and have enjoyed 2500 health days off Disability claims have decreased by 20% among participating employees (compared with a 60% increase from non participating) Estimated ROI of $3: $1 spend for employer 60% increase in employee participation in wellness programs Source: RGA, South Africa – Underwriting Innovations

24. Health/Wellness Platforms (cont.) Individual Policy Approach Main Methods 1.Insurer builds their own wellness tracking application/websites, applicants reassessed at intervals, with discounts and incentive levels for the insured that achieved the best outcomes. Examples: Momentum Multiply (RSA), Great Eastern Live Great (Malaysia) 2.Insurers outsource wellness tacking to a vendor such as Vitality and then build theproducts/rewards around the results achieved. Examples: Discovery Vitality (SA), John Hancock Vitality (USA), PruProtect (UK), PingAn Vitality (China), AIA Vitality (Singapore, Australia) Source: RGA, South Africa – Underwriting Innovations

25. Future Data Sleep monitors – Studies have linked duration of sleep to predictors of health and increased risk of early mortality Digestible devices Implants DNA analysis Electronic Health Records (EHR) – Advantages entire digitized medical history available instantly and securely to authorized users across multiple health care facilities Consolidates information inputs from all clinicians involved in a patient’s care enabling a complete view of medical history, diagnoses, medications, treatment plans, immunization dates, allergies, radiology images, and laboratory and test results Allows physician’s to access directories and evidence based tools to assist in decisions about patient care – Insurance implications Complete view of an applicant’s medical history meaning lower likelihood of withheld information Overwhelming size of some EHRs presents challenges to insurers as to how to efficiently manage records that can run to 1000+ pages Source: RGA, South Africa – Underwriting Innovations

26. Future Data (cont.) Enhanced e-Underwriting Systems – e-Underwriting systems have been largely focused on: Solutions that are integrated into insurers own systems processes Focused on maximizing straight-through-processing (STP) outcomes Limited integration with underwriting evidence beyond application form – e-Underwriting systems are moving into the future: Hosted by vendors rather than integrated by insurers into their systems thereby: – Substantially lowering deployment costs – Enabling companies to consider multiple e-Underwriting deployments to support different distribution and product lines Hosted systems effectively offering decision ‘look ups’ for the insurers system Moving from STP into more complex underwriting scenarios Able to deal with a wide range of structured underwriting evidence Integrated Credit Scoring and other inputs Source: RGA, South Africa – Underwriting Innovations

27. In Conclusion The process of traditional underwriting will be profoundly reshaped by advances in technology and the type of data that will be submitted as underwriting evidence While Health Tracking Devices have not yet achieved universal appeal, their prevalence will grow as the technology develops Wellness platforms will expand as the number of consumers subscribe to wearables and other health monitoring devices Advances in the structuring and centralizing consumer health data will provide more accurate and richer sources of information for health professionals and service providers Continued advances in medical technology will add or enhance the risk screening options for insurers leading to more sophisticated product offerings and/or improved underwriting results. Source: RGA, South Africa – Underwriting Innovations

28. Questions? Thank You