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Speaker Name & Country :

Topic:

Daisy Ning, Chief Pricing Actuary Asia


Hong Kong

Breaking the Insurance Mould Whats Next for our Industry?

Agenda

Introduction
Medical Advances and Technologies
Genetic Testing
Digital Transformation and Big Data
Case Study: Cancer A Look Into the Future
The Future of Life and Health Insurance

FAMILY HISTORY

How our consumers are evolving:

The informed and connected self

Technology empowering
consumers with greater
personal biometric and
behavioural insights heightening
information asymmetry but
also informed choice, and
organisations who understand
the data to know consumers
more than they know
themselves

Questions for our industry


To what extent will consumers share this
information with us?
How will we effectively underwrite?
How will we enforce pre-existing conditions
and other policy terms and conditions?
How will regulation respond to protect the
individuals privacy?
How will regulation respond to protect
individuals from discrimination by insurers
particularly in the UW, pricing and claims
adjudication processes?
How will the insurance process evolve to
engage consumers in this connected and
instant gratification world?
How will we keep up to understand
consumers as much as they do themselves if
not more?
How will we leverage the knowledge and
insights into consumers to nudge better
informed choices and hence better life and
health outcomes?

2012: Perfect Storm Impacting Health Insurance


Major trends

Implications for health insurance

Ageing societies

Lower birth rates, falling dependency ratio, increasing longevity


means healthcare needs and protection gap continue to rise

Social change

Fragmenting societies with changing values puts onus on


individuals to provide for healthcare in later life

Rising healthcare costs

Healthcare costs increasing faster than inflation; technological


improvements cope at a price

Growing middle classes

Rising expectations about the quality and speed of healthcare


provision

Healthcare system reform

State withdrawal creates demand for alternate / supplementary


private coverage

Rise of emerging markets

Demand for high-quality health provisioning and financing


solutions to mitigate high out-of-pocket funding
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2016: Trends Impacting Life & Health Insurance Today


Key Trends

Implications for L&H Insurers

Digital Health

Technological advances enable the gathering of data from the physical world,
enabling insurers to generate new insights (eg health info from wearables); develop
products that better match consumer needs; deliver services that add value (eg
health/disease management) through more channels; it also creates new models of
distribution & a new world of connected consumers .

Connected
Consumers

Greater access to technology & data allows consumers to be more informed about
and take more control of their health status, engage with healthcare providers,
social networks and the broader ecosystem (eg insurers)

Big Data

To be useful, data must be aggregated and analysed. Insurers need to access big
and small data from a variety of traditional and new sources to gain market insights,
and then analyse to provide useful outputs. Issues such as ownership, privacy and
control remain key.

Radical
Medical
Advances

Technological advances in medical diagnostics & treatment continue apace,


providing earlier detection, more personalised forms of treatments, greater survival
rates, and escalating costs that are straining public provision of healthcare and
individuals & families abilities to pay out of pocket.

Rapid Ageing

Regulatory & Economic


Turbulence

Growing Middle Classes


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Stormy Weather Ahead

Medical Advances and


Technologies

Projected healthcare costs as the population increases and technology advances

Source: The World Health Organization Annual World Health Statistics Reports, Part 7 Health Expenditure; the United
Nations; national statistics and Swiss Re projections

Medical costs will increase in the future. BUT

Advancements can change the landscape for the way insurance companies Underwrite
the risks, and manage claims.
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Disruptive Technologies:
With potential high impact to health outcomes

1. Mobile Internet
2. Automation of knowledge work
3. The Internet of Things
Health and chronic
disease monitoring
4. Cloud technology
5. Advanced robotics
Robotic surgery
and prosthetics
6. Near-autonomous vehicles
Reduction in
car accidents

7. Next-generation genomics
Predictive health
analytics
8. Energy storage
9. 3D printing
Organ
bioprinting
10. Advanced materials
Nanodrugs
11. Oil and gas exploration and recovery
12. Renewable energy

Source: McKinsey Global Institute 2013


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Two key technologies influencing healthcare delivery

The Internet of Things

Next-generation genomics

Networks of low-cost sensors and


actuators for data collection,
monitoring, decision making, and
process optimization
300% increase in connected
machine-to-machine devices over
past 5 years
1 trillion things that could be
connected to the Internet across
industries
$36 trillion operating costs of key
affected industries

Fast, low-cost gene sequencing,


advanced big data analytics,
and synthetic biology

Key to cardiovascular mortality

Key to cancer mortality

2003: $2.7 billion, 13 years


2025: $100, 1 hour
10 months to double sequencing
speed per dollar
26 million annual deaths from cancer,
cardiovascular disease, or type 2
diabetes
$6.5 trillion global health-care costs

Source: McKinsey Global Institute 2013

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Genetic Testing
12

As the cost of genome sequencing decreases,


technology advances.

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Testing Uses

14

But insurers use of genetic test results are limited


It is common insurance best practice not to request insurance
applicants to undergo predictive genetic testing

Several countries have prohibited the use of family history information


perhaps the best predictor of diseases.
Source: Genetic testing and implications for the Life & Health insurance industry, Florian Rechfeld - Swiss Re

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Financial impact of information asymmetry

A Swiss Re study in collaboration with the Canadian Actuarial Society


shows the estimates financial impact of regulator restrictions on genetic
test information available to insurers:

Source: Genetic testing and implications for the Life & Health insurance industry, Florian Rechfeld - Swiss Re

Anti-selection impact greater for CI business due to primary impact on


morbidity factors.
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Impact on purchasing behavior after positive test

Source: Genetic testing and implications for the Life & Health insurance industry, Florian Rechfeld - Swiss Re

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Digital Transformation and Big


Data

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When it comes to using


technology, insurance is in
the Stone Age while other
industries are circling Mars.
Mark Wilson, CEO Aviva, October 2015

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Digital Transformation

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Big Data is transforming the insurance industry

Explosion of data
volume

Rapid change in
consumer behaviour

Significant
improvements of
sensing and analytical
capabilities

Proliferation of digital
platforms/market places

Substantial increase in
computational power

Emergence of agile
digital native primary
attackers

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Data is leveraged to accelerate different key aspects


of our value chain
Customer acquisition
Significant shift to a proactive commercial approach
Targeted marketing

Predictive underwriting and fraud detection


More discriminating pricing than traditional tariffs
Client segmentation and claims handling

Retention
Focus on customer stickiness
Customer loyalty and tailored solutions

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23

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Case Study
Cancer A look into the future
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Good news (and more risk?)


Growing popularity of cancer and critical illness products across Asia
Increasing desire for rates to be guaranteed, creating an additional challenge
for insurers
certainty required not only of the initial incidence, but also future trends
how do we estimate changes in incidence over time
does it matter?

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Increasing loss

Uncertain claims

Best estimate
Parameter error
Adverse trend
temporary shock
step change

Time

Loss of reviewability means pricing error cannot be rectified

many ways to lose money!

Can we be accurate today, and tomorrow?

Future Incidence
Methods to estimate future incidence rates can be broadly grouped
into 4 categories
ignore
benchmark
compare with other markets, particularly if data is sparse

retrospective projection
extrapolate past trends

prospective projection
analysis of future drivers

What is appropriate?

Retrospective projection
Derive a trend mainly from the numeric incidence rates in the past; and
Apply this trend for the future for a period of time with/without a cap.
Features
Simple & easy to explain

Better than nothing?

Requires credible, relevant data

Projection period/ultimate cap are subjective

Relevance of past to future?

Sensitive to data period used

Cancer specific considerations


A group of conditions
Heterogeneous risk factors (modifiable and non-modifiable)
Non-natural factors (screening), behaviour driven
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Setting Trends based on Historical Data


Trends in Cancer Incidence Rates (Age-Standardized to the Segi Standard Population) for
Selected Cancers and All Cancers Combined by Sex : China, 2000 to 2011

Past data can


give a very
different
answer,
depending on
the period
considered

SOURCE: Cancer Statistics in China, 2015 in CA CANCER J CLIN 2016;

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Drilling deeper

600%

1983-1987
1998-2002
2008-2011

500%
400%

Spike in ASR is driven by specific


ages and coincides with the key
screening age group

300%

Retrospective method does not


allow for this

200%
100%
85+

80-85

70-75

60-65

50-55

0%
40-45

Relative incidence by age


(1983-87 = 100%)

Before making assumptions for the future, it is necessary


to understand the circumstances that drove current and
past experience

Breast cancer
Breast Cancer Incidence
Rate in Shanghai
(Age Adjusted)

How to project forward breast cancer incidence


rates in Shanghai?
extrapolation?
external benchmarks? which one?

45
40

100
90

Incidence Rate, Per 100,000

30
25
20
15
10

80
70
60

Shanghai

50

Japan

40

Taiwan

30

UK

20

USA

10

0
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009

Incidence Rate, Per 100,000

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1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028

What else do we know?


Breast cancer risk factors:
obesity & lack of exercise
alcohol intake
occupation
hormone levels
Can underlying risk factors help explain part of the
trend?

Fertility rate & breast cancer


Total fertility rate in Shanghai
7

50

40

30

4
3

20

10

1995

1985

1975

1965

1955

1945

2008

2003

1998

1993

1988

1983

1978

1973

Incidence Rate, Per 100,000

Breast Cancer Incidence Rate


in Shanghai (ASR)

Link between breast cancer risk and hormone status during


reproductive ages
Did we have a 20-30 year advance notice?

Prospective projection
Emphasis of understanding of risk factors, with focus on key and modifiable
ones
Evaluate the relative importance (e.g. attributable fraction) of risk factors
Project the change of these risk factors and measure the impact on cancer
incidence rate
Features
Less reliance on past experience data

Allows for known changes

Theoretically more sound

More complex

Intensive research required

Not all risk factors have been identified

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Can Actuaries Foresee the Future?

39

The Future for Life and


Health Insurance

Some Considerations the Customers


How financially savvy?
The perception and trust
Watch your language!

41

Some Considerations the Distribution Channel


Skill
Will
Channel wish list on new product:
"simpler"
"cheaper"
"better /cover more than everyone else's"
"pay me more commission"
"doesn't take too long to sell"

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Some Considerations the Actuaries


All good if we priced on experience data? Things can change:
Policyholder behaviours
Medical advances
Price to the definitions / provisions, but operational process often
imperfect:
Availability of evidence
Cost and benefits of
investigation

43

The changing projection models for actuaries


Actuarial projections no longer based purely on historical experience
Will be forward looking to take account of medical advances, new treatments,
big data analytics at consumer (granular) level, and behavioural economic
influences in take up rates, lapses, anti-selection, and non-disclosure.
120

100

100

80

60

60
Best Estimate

70

Past Experience

70

5
100

96

Best Estimate

80

Behavioural
Intervention 2

90

Behavioural
Intervention 1

90

Big Data Filter 2

100

Big Data Filter 1

100

Medical Advance 2

110

Medical Trend

110

10

Past Experience

120

The Future

Medical Advance 1

The past and


present

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Some Considerations
the Underwriters & Claims Specialists
Risk selection tools well established existing process, but
aligned with new product intent?
Provision terms are only meaningful if executed
Changes who's keeping track?
"OK as long as it is priced for?"

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Thank you

Daisy Ning | 2015 China Actuarial Conference | 23 September 2015

Daisy Ning | 2015 China Actuarial Conference | 23 September 2015

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