The future of disability income insurance - an Australian analysis Brad Louis Alex Threlfall
Agenda 1: Australian market overview - General 2: Australian market overview – Product View 3: Australian DII – Experience analysis & Insights 4: Sustainable DII Product 5: Australian DII – A behavioural view 6: Next Steps 2
Competition Law compliance reminder • The purpose of this meeting is to allow Munich Re to share observations that it has made about our industry in its capacity as reinsurer provider to many of you. • The information shared at today’s meeting has been aggregated or de - identified where necessary. • Whether or not this is applicable to you and how you may wish to address any issues (if at all) is a matter for your company’s independent consideration. • At no time should you indicate in any way to others in this forum your company’s intentions regarding pricing, product terms or other strategic information. • Munich Re is in no way suggesting a collective response. 3
Section 1: Australian market overview - General “The cost of doing the same old thing is far higher than the cost of change.”
The Australian market Market Share March 2015 Others, 7% Metlife, 4% BT / Westpac, 6% AMP, 16% Suncorp, 7% TAL, 15% In force annual premium Australia OnePath, 9% 16.0 AIA, 13% NAB/MLC, 12% 14.0 12.0 CommInsure, Source: Plan for Life 10.0 12% 8.0 6.0 4.0 2.0 0.0 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Total Individual Risk - Lump Sum - In Force Total Individual Risk - Income - In Force Group Risk - In Force 05/08/2015 5 Source: Plan for Life
Best Interest Duty Licensee/Dealer Life Company APL Adviser Group 05/08/2015 6
Where is the Industry at today? Industry quarterly profit retail DI 200 100 0 -100 $m Profit (after tax) -200 -300 -400 -500 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 Source: APRA Quarterly Life Insurance Performance Insights to Action: A pricing and profitability view 7
The industry is making losses on retail DI 2014 $569,000,000 Source: APRA Quarterly Life Insurance Performance Insights to Action: A pricing and profitability view 8
Section 2: Australian market overview – Product View “The cost of doing the same old thing is far higher than the cost of change.”
Question… Male employee, managing a shopping centre. Insured for $22,000 per month. • diagnosed with testicular cancer • less than 1 week off work to undergo an orchidectomy • a couple of intermittent days off when he was having cycles of chemotherapy. • in aggregate, he had 5 weeks off work, equivalent to approximately $36,000 in lost income • 100 days of accrued sick leave, which covered the lost income Insights to Action: Product Design 10
Question… What benefit payments would be reasonable over the course of his illness and treatment? $0, He was not totally disabled for at least 14 days during the A waiting period and he had sufficient sick leave for the time off work so he suffered no loss of income. Approximately $27,500 in partial disablement benefits B equating to the 5 weeks that he was absent from work while undergoing treatment. for the time off work so he suffered no loss of income. $ 132,000, being 6 months worth of benefits under the IP C Trauma Benefit. Insights to Action: Product Design 11
The Munich Re view Causes of poor DI experience Features The claim and Focus Complexity experience benefits Insights to Action: Product Design 12
The Munich Re view Causes of poor DI experience Features The claim and Focus Complexity experience benefits Insights to Action: Product Design 13
Direct office survey Features not reflecting the principles of insurance 80% Features 70% 60% 50% 40% 30% 20% 10% 0% A B C D E F G H I J K L M N O P Insights to Action: Product Design 14
The distribution channel Insights to Action: Product Design 15
Section 3: Australian DII – Experience analysis & Insights “The cost of doing the same old thing is far higher than the cost of change.”
IAD 89 – 93 disability table Pick the winners of 2015 world cup based on 1992 world cup? Insights to Action: A pricing and profitability view 17
Insights to Action: A pricing and profitability view 18
Why we’re confident in our results… Huge technical analysis… MRA Investigation Covers 70% of the market 10-year analysis Credible data volumes 19,321 incidences 15,616 terminations Insights to Action: A pricing and profitability view 19
Insight 1... Sickness incidence increases by policy duration Policy duration – Sickness (amt) 250% A:E (MRA Table except Pol Dur.) 200% 150% 100% 50% 0 1 2 3 4 5 6 7 8 9 10 10+ Policy Duration (Years) Insights to Action: A pricing and profitability view 20
Policy duration – Other sources Source: FSC 2007-2011 Experience Analysis Insights to Action: A pricing and profitability view 21
Insight 2... Accident incidence is increasing Accidents by year 160% 140% A:E (MRA Table) 120% 100% 80% 60% 40% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Insights to Action: A pricing and profitability view 22
Accident incidence is increasing across all portfolios Cedant experience by year – Accident (Amt) 180% 160% Actual to Expected (MRA Table) 140% 120% 100% 80% 60% 40% 2008 2009 2010 2011 2012 2013 Insights to Action: A pricing and profitability view 23
Insight 3... No systemic change in termination experience Year 1 claim duration by year 175% 150% A:E (MRA Table) 125% 100% 75% 50% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Insights to Action: A pricing and profitability view 24
Insight 3... No systemic change in termination experience Year 2 claim duration by year 200% 175% 150% A:E (MRA Table) 125% 100% 75% 50% 25% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Insights to Action: A pricing and profitability view 25
Where is the Industry at today? Industry quarterly profit retail DI 200 100 0 -100 $m Profit (after tax) -200 -300 -400 -500 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 Source: APRA Quarterly Life Insurance Performance Insights to Action: A pricing and profitability view 26
Headline result of our message to industry 20% - 35% Insights to Action: A pricing and profitability view 27
A view on some factors that may influence pricing Assume prices 35% below where they need to be to meet claims costs 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Long Term Benefit Period Short Term Benefit Period -5% -10% Insights to Action: A pricing and profitability view 28
Benefit period has a big impact Price rise required to deliver a 35% increase: by benefit period 60% 50% 40% 30% 20% 10% 0% Long Term Benefit Period Short Term Benefit Period -10% Insights to Action: A pricing and profitability view 29
Section 4: Sustainable DII Product “The cost of doing the same old thing is far higher than the cost of change.”
An opportunity to improve Customers / advisers affordability, equity FEATURES THE CLAIM FOCUS SIMPLIFY & BENEFITS EXPERIENCE Claim triggers More transparent & Focus on recovery Make it count consistent Aligned with loss outcomes Deliver on service Plain language that promise through everyone can Promote return to support and Holistic understand work behaviours engagement sharing of expertise Terminology that is meaningful & helpful Insurers / reinsurers profitability, risk management Insights to Action: Product Design 31
Section 5: Australian DII – A behavioural view “The cost of doing the same old thing is far higher than the cost of change.”
How did we get here? Industry quarterly profit retail DI 200 20% - 100 0 -100 $m Profit (after tax) 35% -200 -300 -400 -500 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 Source: APRA Quarterly Life Insurance Performance Insights to Action: A pricing and profitability view 33
How did we end up here? Version 1 Product & u/w enhancements Interest rate movements Other Factors Insights to Action: A pricing and profitability view 34
How did we end up here? Version 1 10%+ Product & u/w enhancements 10%+ Interest rate movements ~10% Other Factors ~35% Insights to Action: A pricing and profitability view 35
Where is the Industry at today? Retail DI new business premium rate changes 2008-2013 140 130 120 110 100 90 80 2008 2009 2010 2011 2012 2013 Source: RICE Warner Insights to Action: A pricing and profitability view 36
Where is the industry at today? Restrictive product changes 2009 - 2014 10 9 8 7 6 5 4 3 2 1 0 2014 2009 2010 2011 2012 2013 Insights to Action: A pricing and profitability view 37
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