23rd India Fellowship Seminar
Ageing population: Importance of long term
health care product and issues in pricing
Guide: Aditya Vardhan Tibrewala
K T Jayasager
Banashree Satpathy
Sachin Madan
18th June, 2015
Mumbai
Indian Actuarial Profession
Serving the Cause of Public Interest
Agenda
• Ageing Population
• Importance of Long Term
Care Products
• Issues in pricing Long Term
Care Products
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Ageing Population
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Ageing – Wiki’s Take
• Process of becoming older
• Accumulation of changes - Physical, psychological and
social
• Reflects cultural and societal conventions
• Largest known risk factor for most human diseases
• Population ageing - phenomenon that occurs when
the median age of a country or region rises due to
rising life expectancy and/or declining birth rates.
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Population Ageing - A Concern For India?
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Developing countries ageing faster.
Population aged 60 years and above in India is expected to increase to 20%
by 2050
1,800,000
+26%
Population in Thousands
1,600,000
1,400,000
1,200,000
+26%
1,000,000
2013
800,000
600,000
2050
-15%
+179%
400,000
+263%
200,000
0-14
15-59
60+
80+
Total
Age bands
35 years into the future!
 Working population would reduce substantially
 Increase in the need of old age health care benefits
 Dependency on State for age related benefits would increase
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Care For Elderly In India – Current Scenario
• Large working population
• A small proportion of wealthy individuals self provide for
their old age
• General expectation that Children will take care of
parents
• Joint family systems prevalent
• Government providing means tested benefits e.g. RSBY,
Indira Gandhi National Old Age Pension Scheme
• NGOs working for the rights of the elderly
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Importance of Long Term Health Care
Products
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Importance of Long Term Health Care Products
Ageing and Longevity
• Acceleration in population ageing
• Increase in longevity
Changing Family structure
• Increasing trend of nuclear families and reduction in informal care
• Willingness of Children to take care of old parents decreasing
Support from the State
• Lack of state initiatives
• Benefits provided by the State not enough
Cost
• Increasing cost of care
• Medical inflation higher than general inflation
Others
• Aspiration to be independent at old age
• Savings oriented culture
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Issues in Pricing of Long Term Health
Care Products
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Issues in Pricing – Design & Assumptions (1)
• Type of product- lack of market study to decide on pre-funded or
immediate care
• Key product feature - Indemnity or fixed benefit?
• Morbidity
– Incidence rates
– Termination rates
– Lack of data
difficulty in setting morbidity assumptions
• Total claim costs
– Inflation and its impact on care cost
– Huge variation in medical cost between providers
• Longevity and its impact on premium
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Issues in Pricing – Design & Assumptions (2)
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Voluntary termination (lapse)
– Influenced by economic scenario, customer attitude etc.
– Dynamic
– Selection impact
Expense assumption
– Impacted by wage and medical inflation.
– Depends on the medical service providers.
Tax rates
– Depends on fiscal outlook of Government
– Prone to changes in a growing economy
Investment return
– Long term nature of investment decision – nature & term of assets
– reinvestments
Mix of business
Change over time - How to allow for rapidly changing experience without
impacting affordability of the product?
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Issues in Pricing – Modeling
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Cost and time involved in developing model
Level of complexity in the model
Availability of expertise
Risk of over simplification
Spurious accuracy
Outputs – might be impractical to implement
Sensitivities to be tested for
– Model points
– Assumptions
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Issues in Pricing - Profitability
• Uncertainty in
− Parameter estimation
− Claims cost
• Low volumes
− Affordability of premiums
− People unaware of the need
− New type of products in Indian context
• Capital requirements high
• Regulatory constraints
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Issues in Pricing – Distribution & Other Factors
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Lack of customer and distributor understanding
More scope of Mis-selling
Expensive products making sales difficult
Training requirements higher than other Insurance products
Underwriting requirements higher than other Insurance
products
• Special Claims handling required
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Long term care products – next steps
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Partnership with Government
Focus on penetration
Micro insurance plans – in similar lines to RSBY
Restricted benefit for affordable premium
Process efficiency
– Underwriting and Claims
– Minimum hassle to policyholder in policy and claims servicing
Help from partner (in case of Joint Venture)
Reinsurance arrangements
Risk pooling arrangements
Indemnity benefits do not look like a possibility for a few years to
come
Only low level of guarantees possible
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“Wrinkles should merely indicate where the smiles have been.”
- Mark Twain
Any Questions?
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