Risk Assessment in long term
personal insurance
Debbie Akers MA FIA
Chief Underwriter
Friends Provident
Agenda
• Background
• Statistical assessment of risk - pricing
• Personalised assessment of risk - underwriting
– Questions
– Reports and examinations
– Assessing the information
• Non-standard risks.
Principles of insurance
What sort of things can be insured?
• Uncertain future events
• Fairly low likelihood
• Risk which can be quantified
• Not open to manipulation
How does insurance work?
• Pooling risk and sharing the cost
• Segmentation of risk into smaller pools of equal risk
– Each member contributes according to the risk they bring to that pool
• Much insurance is based on indemnity
–
Putting the policyholder in the same position as before the claim
event happened eg household, motor
• Some insurance gives a wide choice of benefit size
– Life, Disability (Income Protection), Critical Illness
Statistical assessment of risk:
Industry data
• Institute of Actuaries
– Continuous Mortality Investigation (CMI)
• Collects data from insurers on claims and the exposure
to risk
• Many types of insurance – many separate studies
• Trends and projections
• Published tables – for use by insurers
• Update comparisons
• Population data
Statistical assessment of risk :
Pricing the cover- considerations
•
•
•
•
•
•
Relevant published tables
Own company experience
View on future trends
Details of the cover provided
Target Market – distribution / consumer
Degree of personalised risk assessment
=> Make suitable adjustments for pricing this particular
product
Personalised assessment of risk:
(Underwriting)
Information from life to be insured:
• Application form questions
• Teleinterview ( possibly)
Medical evidence:
• Report from doctor
• Paramedical screening ( nurse, pharmacy)
• Medical examination
• Tests
Personalised assessment of risk
Application form questions (1)
•
•
•
Recreation and Travel
– tobacco,
– alcohol
– recreational drugs
– hazardous sports / pastimes
– Travel abroad other than holidays
Occupational details
Family History
– Before the age of 60, did either of your parents or any of your brothers or
sisters suffer or die from heart disease, raised cholesterol, stroke, diabetes,
cancer, multiple sclerosis, Huntington’s disease, polycystic kidney disease,
polyposis of the colon, or any other hereditary disorder
Please provide details of conditions, current age, age at onset, cause of death
age at death
continued…
Application form questions (2)
•
Health – have you ever had any of the following
– Cancer, leukaemia, Hodgkin’s disease, lymphoma, brain or spinal tumour
– Heart disease (incl heart attack,angina,heart defects for birth, heart surgery)
– Stroke, brain haemorrhage or brain injury
– Multiple sclerosis, optic neuritis, paralysis, epilepsy, dementia, cerebral palsy,
other disorder of the central nervous system
– Disease or disorder of the arteries
– Diabetes
– Mental illness that has required hospital treatment or referral to a psychiatrist
– Have you ever tested positive for HIV, Hepatitis B or C or are you awaiting the
results of such a test
Please provide details of disorder, dates, duration of illness, treatment, results of
investigations and tests and time off work.
continued…
Application form questions (3)
•
Health – in the last 5 years have you had any of the following
– A mole or freckle that has bled or changed in appearance or any lump or growth
– Chest pain, irregular heart beat, raised blood pressure or raised cholesterol
– Asthma, bronchitis or any other respiratory disorder
– Numbness, loss of feeling or tingling of the limbs or face,loss of balance or co-ordination
– Seizures,fits, fainting or blackouts
– Any disorder of the eyes or ears or impaired hearing ( ignore sight problems corrected by
glasses or contact lenses)
– Arthritis, back pain, sciatica, neck, knee or wrist pain
– Any other disorder of the joints, bones or muscles
– Any disorder of the digestive system, liver, stomach, pancreas, or bowel (including ulcers,
hepatitis, colitis,or Crohn’s disease)
– Any blood disorder or anaemia
– Thyroid disorder
– Disorder of the kidney, bladder or genitourinary system
– Treatment or a positive test for any disease which was transmitted sexually
– Depression, anxiety, stress, fatigue or nervous breakdown
– Medical investigation, scan or test or have you been advised to have such
investigations?
– Attendance at a hospital as an inpatient or outpatient
– A surgical operation
Please provide details of disorder, dates, duration of illness, treatment, results of investigations and
tests and time off work.
continued…
Application form questions (4)
•
Health – in the last 12 months
– Have you had any medical consultation eg with a doctor, consultant,
psychiatrist, hospital, clinic, osteopath etc
– Have you ever been prescribed drugs, medicines or tablets or had any other
form of medical treatment
Please provide details of disorder, dates, duration of illness, treatment, results of
investigations and tests and time off work.
– Within the last 5 years have you been exposed to the risk of HIV infection
Medical evidence
• Report from General Practitioner (GP)
– Detailed, similar to application form
• Nurse Screening Examination ( NSE)
– Height, weight, blood pressure, urine, other
• Medical examination by doctor (ME)
• Tests
– Routine
– specific
Setting limits for medical evidence
• Cost of evidence
– Fee, and cost of arranging
– Underwriter time assessing
– Risk of client not proceeding – delay, hassle
– Risk of advisers using another company
• Benefit
– Fuller disclosure so better assessment of risk
• Extra premium / exclusions / declines
– Fewer claims disputes
Medical evidence for Life Cover:
according to sum assured £’000
1400
1200
1000
GPR +ME
GPR+NSE
GPR
App form
800
600
400
200
0
up 31to 30 35
3640
4145
4650
5155
5660
6165
6670
Medical evidence for Critical illness:
according to sum assured £’000
1400
1200
1000
GPR +ME
GPR+NSE
GPR
App form
800
600
400
200
0
up to 31-35 36-40 41-45 46-50 51-55 56-60
30
Assessing the medical evidence:
The underwriter’s training includes
• Insurance product background
• Lifestyle and occupation risks
• Medical risks:
– Basic anatomy and physiology
– Medical terminology
– Common diseases and their significant features for
underwriting
– Investigations and treatments
– Measures of severity
– Common laboratory tests
Underwriting manuals
• Information on a very wide range of impairments
• Guidance for underwriters in making their decision
• Based on medical research
– Selective on which studies to use
– Results converted for insurance use
Non-standard risks
• A standard risk is known as ‘ordinary rates’ (OR)
• Non standard terms:
– Decline/postpone
– Extra mortality /morbidity
• eg ‘+50%’, ‘+200%’
– Level extra risk per 1000 benefit
• eg 1 per mille, 3 per mille
– Decline
– Postpone
– Exclusion of claims from specified cause
Good practice to inform the customer of the reason for the
non-standard terms
Agenda - reminder
• Background
• Statistical assessment of risk - pricing
• Personalised assessment of risk - underwriting
– Questions
– Reports and examinations
– Assessing the information
• Non-standard risks.
Risk Assessment in long term
personal insurance
Debbie Akers MA FIA
Chief Underwriter
Friends Provident