Les enjeux de la dépendance – Laure de Montesquieu, SCOR

1. Assurance Dépendance

2. 2
Long-Term Care Insurance
1 Introduction
2 Caractéristiques des produits
3 The CIRDAD
4 Technical Issues
5 Underwriting selection and claims management

3. 3
What is LTC (Loss of Autonomy)?
 The concept of Loss of Autonomy (LTC) can be defined based on 3 different notions :
 Functional limitations: caused by impairment in functional functions (walking for instance), in sensory development or in
cognitive disorders;
 Restrictions in activity: measured by ADL or IADL
 Need of help or assistance
 One definition of the Loss of Autonomy:
“Illness or ageing may generate functional limitations which, if not compensated by technical aids or environment
management, could lead to activity restrictions. This will lead to a regular assistance of a third person for the basic activities”
 LTC is neither Disability Insurance nor Health Insurance even if it is triggered by the same causes
 Disability is a reduction of capacity to accomplish an activity normally (World Health Organization definition)
 LTC is a limitation in the accomplishment of a normal role for age resulting from an impairment or disability
 LTC is defined by the inability to perform the Activities of Daily Living:
Bathing Dressing Continence
Eating Walking Bed-chair transfer
 Other scales – often public schemes - also use Instrumental Activities of Daily Living (more complex : domestic
activities, managing of the financial affairs, phoning…) or Superior Activities (interaction with social background:
leisure, sport, clubs, travels,…)
 Determining factors are numerous and various:
 The ageing of the population in the developed countries
 Actual or perceived role of the family assistance
 Actual or perceived role of the public schemes

4. 4
The ageing of the population in developed countries
 An inevitable ageing of population: an increasing ratio of over 65 years old
Percentage of people over 65 in the population
10%
15%
20%
25%
30%
2000 2010 2020 2030
Italy
Spain
Germany
France
USA
Source : EUROSTAT, DREES-OFCE and U.S. Bureau of the Census, current Population Reports

5. 5
Introduction
Demography in France – Main figures
 In 2005, 1 in 5 is over 60
 In 2050, 1 in 3 will be over 60
 The number of people over 60 will double
And…
 The number of people over 75 will be tripled
 The number of people over 85 will be
multiplied by 4
Actual or perceived role of the family
support
 Only 40% of French dependent people are
assisted by their family
 The Spanish and the Japanese cases are far
from this situation with more than 70-65%
assisted by family.
 The number of natural home helps (spouse,
children, neighborhood) will drop in France
from 2,5 to 2,1 persons by 2040 as:
 The average size of the family is
decreasing
 The age of fertility is increasing, reducing
the age and the availability of the
children at moment of LTC occurrence
 The labor participation of young and
middle-aged women is rising
5

6. 6
Introduction
The role of the public schemes is
fundamental for the development of
private insurance :
 Communication around the new public
scheme, APA, in France strongly
boosted a sleepy LTCI market in 2002…
 …nevertheless, a very generous plan
can reduce the place of the private
market (Germany, Japan)
 Current governmental reflections
about the new branch of Social Security
for LTC and the Alzheimer plan should
be the main LTC growth’s driver
LTC: a common problem for developed
countries:
 Life Expectancy of elderly people has
increased
 Healthy Life Expectancy without severe
disability
 Life Expectancy with severe disability
 One of the biggest threats to the wealth of
the elderly
 Only 15% of people think they can cover the
costs of LTC
 Long-Term Care funding
 Shortfall of State benefits: large need of
cover to face long-term care
 related costs
Strong opportunities for
development of private Insurance
6

7. 7
The LTC framework in France
 The average cost of LTC per person: EUR 2,500 to 3,000 per month
 The average pension, which is about EUR 1,200 per month
 Public scheme APA: EUR 491 monthly average APA
Gap to be financed: average EUR 1,500 per month

8. 8
Long-Term Care Insurance
1 Introduction
2 Caractéristiques des produits
3 The CIRDAD
4 Technical Issues
5 Underwriting selection and claims management

9. 9
The French v.s. US market
There are 2 main product designs : the reimbursement design and the cash benefit design
SGL operates only in cash benefit design
USA FRANCE
Public scheme Medicaid / Medicare PSD then APA
Experience ~ 30 years ~ 25 years
Annual Market Growth <0 p.a. on 2003-2012
+ 15-20% p.a. until
2006, stand still after
Current Market size
More than 7 million
insured in-force
More than 6 million
insured in-force
Products / Benefits
Mostly reimbursement
(of care services)
Cash benefits
The US approach:
 Currently mainly reimbursement, aiming at
covering all the costs
 Thus complex products to design, expensive
and difficult to monitor and administer
 In practice: low flexibility / inception options,
limited durations, inflation issue, lapses
issue, technical rate issue, price increases
 LTCI Market: adjusting for many years (still
ongoing)
The French approach:
 Coverage of severe impairments, now extending to less severe
ones
 Simple to sell and administer - monitorable (large consistent
experience)
 In practice: flexibility due to cash benefit, but
generally does not cover the full cost of LTC
and does not fit into the actual need of services
 LTCI Market: needs a real new life (some products launched)

10. 10
Group vs Individual Insurance
Individual product Group: compulsory application
Application Optional Compulsory
Benefit level Choice between several guarantees with recommended limits Same benefits for each member
Entry age Usually between 40 y.o. and 75 y.o. Implicit limits
Deferred period Usually 90 days, absolute or relative Usually 90 days, absolute or relative
Medical underwritting Systematic No, if sufficiently large group
Elimination period Depends on the country but usually 3, 1 or 0 years No, if sufficiently large group
Duration of the cover Usually lifetime Annual
Premiums
Level premium
(based on the entry age)
Risk premiums
Reviewable premiums Usually yes Yes
Paid-up value Depends on the country No
Surrender value No No
Reserving
Premium reserve: reserve for increasing risk
Reserve for annuities in payment
Reserve for annuities in payment
Police termination
Annuities in payment are still paid
Paid-up value for the other insured
Only annuities in payment are still paid

11. 11
Level premium and risk premium
 Whole life level premium
 Depends on the age at inception
 To be paid until claim payment or death
 Revisable rate (according to the technical results, medical treatment improvements and extended lifespan)
 Mainly for individual coverage or group enterprise coverage with a complementary individual cover
 Risk premium
 Annual coverage
 Depends of the age. Could be mutualized, but as long as there’s enough young insured to balance portfolio
ageing.
 Independent of time spend in the contract
 Mainly for statutory coverage of French Mutual or some group enterprise coverage

12. 12
Example of pricing (French market)
 Annual premiums (net of any loadings)
 3 months deferred period
 Elimination period: 3, 1 or 0 years
 1000€ per month
 Total Loss of Autonomy
Levelled Premium Risk Premium
55yo 330 € 20 €
65yo 500 € 40 €
75yo 840 € 220 €
€-
€500,00
€1 000,00
€1 500,00
€2 000,00
€2 500,00 Comparison Risk and level premiums
Pure RP
Pure LP 60 yo
Pure LP 70 yo
Pure LP 75 yo
Pure LP 80 yo
Pure LP 85 yo

13. 13
Riders and services
 Riders:
 « Equipment » Lump sum
 « Help for the caregiver » Lump sum (Group coverage)
 « Rest for the caregiver » Lump sum (Individual coverage)
 « Fracture » Lump sum
 « Death of the caregiver » Lump sum
 Services through Assistance contracts, for instance:
 At inception date: info and advices on everyday life (meal delivery, domestic help …), « life » check up »,
support in case of LoA of a relative (help for administrative process, search for long-term care facility, search for
psychological help …), prevention check up (Home adaptation …), memory check up …
 In case of partial LoAI: home adaptation, medicine delivery, teleassistance (to be connected with the outside
world), support for memory ….
 In case of total LoAI: support for life organization and quality of life, support for moving…
 Creation of a complete website on LTC
 …

14. 14
Long-Term Care Insurance
1 Introduction
2 Caractéristiques des produits
3 The CIRDAD
4 Technical Issues
5 Underwriting selection and claims management

15. 15
CIRDAD – A dedicated R&D Center for LTC
LTCI Portfolios (an important database)
Pricing basis / Risk Monitoring
New products
CIRDAD
Experience
Research
CIRDAD

16. 16
CIRDAD: Statistical data
 What do we need to know to estimate the price of LTC ?
 How long do people live?
 How many will need LTC insurance?
 How long will the period of LTC last?
 Estimation of transition probabilities
 Large portfolios of homogeneous insurance data (25 years experience)
• Aggregate reliable data
• Combined experience of more than 30 million exposure-years and around 55 000 claims
 Population data, Specific studies and surveys
 Partnership with PAQUID (INSERM)
 LTC Risk Analysis for elderly: Survey of the French National Institute of Health and Medical Research (INSERM)
 Epidemiological study dedicated to ageing and its related pathologies
 A cohort survey, 20 years of follow-up
 PAQUID’s Relevance for Insurance
 Long-Term Care Risk Definitions
 Data, Prevalence of severe and moderate disability for very old people

17. 17
Long-Term Care Insurance
1 Introduction
2 Caractéristiques des produits
3 The CIRDAD
4 Technical Issues
5 Underwriting selection and claims management

18. 18
Technical issues – Statistical data
 3 transition probabilities
 Longevity of active people
 Depends on age, sex, life expectancy without severe disability
 Incidence of dependence
 Depends on age, sex, the medical selection effect
 Longevity of dependent people
 Depends on age, sex, time aalready spent in LTC, the main disease responsible for dependence

19. 19
Technical issues – Semi-Markov Model used by Scor Global Life
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20. 20
Technical issues – Pricing
 Single pure premium for 1 unit of annuity in the event of total dependence (without taking waiting
time into account)
 The risk is differentiated by sex but the premiums are the same for both sexes (M/F proportions)
 Effect of selection, waiting periods, return of premium taken into account in the rate
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21. 21
Technical issues – Reserving
 Reserve for active people
 Prospective method, using pricing basis
 Unisex
 General formula :
 Reserves for outstanding claims
 Depends on age at the beginning of LTC, sex and time already spent in LTC
 General formula :
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22. 22
Technical issues – Reserving
 Equalization fund
 Reserve intended to smooth the bottom line over time
 Supplied by a percentage of the profits
 In order to offset potential future losses
 Permit to postpone/avoid a repricing
 After the fund reaches a certain level, the profits of the following years are totally shared
 Not deductible from the profits (depends on the country)

23. 23
Technical issues – Statistical analysis
 Regular statistical analysis
 Analysis by underwriting generation
 Impact of selection and elimination period: masking effect
Monitoring
 Differences between pricing assumptions and experience
 Monitoring incidence and longevity (dependent and independent people)
 Adapting actuarial basis to the underwriting and acceptance of the insurer

24. 24
Scénario:
- Shock on incidence rates : -10%
- No shock on autonomous mortality rates
- Shock on mortality rates for LTC people : -6%
In reality, staying with the initial actuarial basis
gives this wrong image of current results.
Statistical approach vs accounting approach
On the surface, the results are in surplus during
more than 20 years.
Pricing is at the good level
(almost the same than if there was no shock)

25. 25
6. Sensitivities
Sensitivities on level premiums (last SGL’s biometric laws and deffered period of 3 months)
To offset simultaneous decrease by 10% in mortality of autonomous insured and of dependant insured,
the incidence should decrease by:
 18% for the annuity in case of Total LTC
 11% for the lump sum in case of Total LTC
 16% for the annuity in case of Total and Partial LTC
 10% for the lump sum in case of Total and Partial LTC
Total LTC Total and Partial LTC
Entry age 55 y.o. 65 y.o. 55 y.o. 65 y.o.
Annuity
1200 €/y
Lump
Sum
1000 €
Annuity
1200 €/y
Lump
Sum
1000 €
Annuity
1200 €/y
Lump
Sum
1000 €
Annuity
1200 €/y
Lump
Sum
1000 €
Incidence +10% +7% +6% +7% +6% 7% +5% +7% +6%
Incidence -10% -8% -6% -8% -6% -8% -6% -8% -6%
Mortality of
autonomous
-10% +4% +5% +3% +5% +3% +5% +2% +4%
Mortality of
Claimants
-10% +13% +1% +13% 1% +11% +1% +11% +1%

26. 26
Reinsurance Offer
 Classical Quota-share treaty per generation:
 min retention: 20%
 ideally: 50%
 Commercial premium + reinsurance commission
 We help the ceding company concerning:
 The construction of the product
 The medical underwriting (process, analysis, … )
 The piloting of the portfolio following (pricing, reserves, … )
 The claims follow-up

27. 27
Long-Term Care Insurance
1 Introduction
2 Caractéristiques des produits
3 The CIRDAD
4 Technical Issues
5 Underwriting selection and claims management

28. 28
Underwriting selection: 2 stages
 Stage 1: Medical questionnaire filled in by the proposer
 Simple, rapid and easily completed
 Detection of preexisting disability or long term treatment
 a key monitoring tool
 If the proposer answers «NO» to all questions: acceptance at standard conditions
 Selection can stop here: about 55% of proposals are insured at standard rates
and the others are refused
 But possibility to study Substandard Risks with assessment of aggravating pathologies
 Stage 2: Specific Medical Questionnaire completed by the doctor
 More detailed, with specific questions
 Family history
 Lifestyle
 Existing pathologies and risk factors

29. 29
Underwriting selection: The selection by SCOR Global Life
Standard risk: Medical Questionnaire without anomalies
Substandard Risk: assessment of extrapremium
Postponement: pathologies in evolution
or not consolidated
Refusal: already dependent or foreseeable long term care in
a near future
Long Term Care

30. 30
Underwriting selection: The selection by SCOR Global Life
 Medical Risk Underwriting Manual:
 LTC substandard risk: more than 15 years of experience
 Solem: Computerization of Long Term Care
Underwriting Manual
 An original method
 A rapid solution obtained by the user
 Evolution and regular updating of underwriting bases according to our experience
 An additional protection: the elimination period
 Accident risk: 0
 Illness risk: 1 year
 Dementia risk: 3 years
 A safeguard against adverse selection

31. 31
Claims management
 Verification of medical and administrative criteria
 Administrative: date of the beginning of the long term care – elimination period and deferred period
 Medical:
 Total or partial dependency must be permanent and irreversible
 Incapacity to perform 3 of 4 ADL (depending on the definition of the trigger in the contract)
 Confirmed dementia (MMSE or Folstein’s test)
 Need of a helper

32. Thanks for your attention