Emerging need to insure Lifestyle diseases the pricing challenges and solutions Mentor Srinivasan Nagasubramanian Presenters Nancy Gupta Ankit Arora Ridhi Paliwal Date December 15 2016 ID: 1045336
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1. 26th Indian Fellowship SeminarEmerging need to insure Lifestyle diseases – the pricing challenges and solutionsMentor : Srinivasan NagasubramanianPresenters:Nancy GuptaAnkit AroraRidhi Paliwal Date : December 15, 2016Shantanu Gaur Place : Mumbai
2. Lifestyle DiseasesDefinitionCausesFacts & FiguresEffectNeed to insure Lifestyle DiseasesHealth Insurance in India Types of Health Insurance Products in IndiaPricing challenges & possible solutionsRegulatory Framework www.actuariesindia.orgAgenda
3. www.actuariesindia.org3Lifestyle Diseases:Definition, Causes,Facts & Figures, Effect
4. www.actuariesindia.org4Lifestyle Diseases – DefinitionLifestyle diseases (also sometimes called diseases of longevity or diseases of civilization interchangeably) are defined as diseases linked with the way people live their life. This is commonly caused by alcohol, drug and smoking abuse as well as lack of physical activity and unhealthy eating – WikipediaA disease associated with the way a person or group of people lives. Lifestyle diseases include atherosclerosis, heart disease, and stroke; obesity and type 2 diabetes; and diseases associated with smoking and alcohol and drug abuse – MedicinenetLifestyle Diseases are defined as diseases linked with the way people live their life. These are called lifestyle diseases/ disorders because of the reason that the diseases associated with this are limited to people who adopt unhealthy and inappropriate lifestyles– National Health Portal (India)Any non-infectious disease that is caused or promoted by the behaviour or choices one make, also known as Non Communicable Diseases (NCDs)
5. Major examples of Lifestyle diseases/disorders are:Diabetes (Usually Type II)HypertensionObesityOsteoporosisChronic Obstructive Pulmonary diseasesCancerChronic Liver DiseaseAlzheimer's diseaseArthritisAsthmaMetabolic SyndromeStrokewww.actuariesindia.org5Lifestyle Diseases – Types
6. Unhealthy dietSedentary lifestyleLack of exerciseInadequate sleepExcessive weightStressTobacco useDrug abuseAlcohol drinkingwww.actuariesindia.org6Lifestyle Diseases – CausesCONTROLLABLENON CONTROLLABLEHereditaryGenderAgeEthnicityPrior Stroke
7. Deaths due to Lifestyle diseases account for 63% of the global deaths 80% of such deaths occur in low and middle income countries such as IndiaMore than 9 million of such deaths happen before the age of 60Around the world, it affects men and women equallySuch diseases are largely preventable with changes in diet, lifestyle and environmentwww.actuariesindia.org7Lifestyle Diseases - Facts and Figures GLOBALINDIA13 percent of women and 9 percent of men in India are overweight or obese. Obesity increases the chance of other lifestyle disordersCardiovascular diseases and diabetes will more than double and cancers will rise by 25% in the coming few yearsThe greatest numbers of people with diabetes are between 40 and 59 yearsThe most disturbing trend is the shift in age of onset of diabetes to a younger age in the recent yearsThe studies also reported three-fold higher mortality in diabetes compared to non-diabetic75% of working women likely to suffer from depression or general anxiety disorder, compared to women with lesser levels of psychological demand at work
8. www.actuariesindia.org8Lifestyle Diseases – EffectThe impact is higher in the low and middle income countries due to the: Population ageing Major socio economic changes (such as urbanisation, change in lifestyle)
9. www.actuariesindia.orgLifestyle Diseases:Need to insure, Health insurance in India, Health products in India
10. Social reasonsMost patients are breadwinners of their families, and failing health is a dent to their careers as well as to the family's standard of living.Lifestyle disorders such as Diabetes can be an uphill battle for those that suffer from it, and their dependents. Medical expenses for diabetics are far more than those for non-diabetics, and so are the risks involved. Government/Regulatory reasonsIt makes business sense to do it?www.actuariesindia.org10Need to insure Lifestyle Diseases
11. Annual growth of ~12% has been observed from 2011-12 to 2014-15 in no. of lives covered (~288 million lives in 2014-15).Annual Growth rate of ~18% in last 3 years in Gross written premium (20,096 crores in 2014-15).Source : Handbook on Indian Insurance Statistics 2014-15www.actuariesindia.org11Health Insurance in India – 1 of 3
12. ~74% persons (161 million in 2014-15) are covered by Government Sponsored Schemes whereas premium written by them is just ~17% (2,225 crores in 2014-15).~26% persons (50 million) are covered by insurance companies with ~83% (10,844 crores) premium written by them.Source : Handbook on Indian Insurance Statistics 2014-15www.actuariesindia.org12Health Insurance in India – 2 of 3 Insurance Companies
13. India has one of the highest out of pocket contribution towards health care funding.Out of pocket expenses are ~90% annually in the period 2010-2014.Source: WHO Global Health Expenditure Database (Link : http://apps.who.int/nha/database)www.actuariesindia.org13Health Insurance in India – 3 of 3
14. Indemnity based productsOld Medi-claim types productsIncentivizing good healthFixed benefit productsHospital CashSurgical benefitsCritical illness products (Fixed benefit)For Specific Disease based productsProduct for Specific Population e.g. For diabetic persons www.actuariesindia.org14Types of Health Insurance Products in India
15. www.actuariesindia.orgLifestyle Diseases:Pricing challenges and Solutions
16. Pricing Challenges & Possible SolutionsAvailability of DataMedical UnderwritingPortabilityUncertain Claim ExposureProduct DesignPricing ModelAnti Selection, Selective Lapses and Moral HazardCompetitive Pressureswww.actuariesindia.org16
17. Availability of DataChallengesAvailability of dataCredible homogeneous data (e.g. gender, smoker status etc)By risk factor (e.g. illnesses, onset, duration, progress, complication & current status)Completeness & Up to DateSolutionsInsurer’s internal dataReinsurer’s dataExternal Sources - WHO, NFHSData from Medical Journals/Medical research centersMedical UW & Actuarial JudgmentStandardization of data fields and recording process www.actuariesindia.org17
18. Medical UnderwritingChallengesUnderwriting Approach: Standard and Sub Standard LivesExtent of Medical underwriting and its cost efficiencyCredibility of tests and reportsSolutionsA Board approved standard underwriting policy:Clear Communication to stakeholdersPeriodic review Level of underwriting linked to sum assuredCost benefit analysis of extent of Medical underwritingTechnical assistance from the Reinsurer. Fixed centers for underwriting to ensure credibilitywww.actuariesindia.org18
19. PortabilityChallengesInadequate controls on the exposure Higher risk for Anti selectionIncreased opportunity for Moral HazardSolutionsCommon Database for Policyholder Medical RecordsCompulsory Basic Medical UnderwritingMedical Insurance Policies linked to Unique Identification ID www.actuariesindia.org19
20. Uncertain Claim Exposure ChallengesMedical InflationNew treatment procedures & technological advancementImpact of co-morbiditiesEmergence of new diseasesFraudulent claims behaviorLack of control over third party including medical practitionersSolutionsPre Authorization of Claims/Incentives for Preferred provider networkRobust underwriting practicesCost sharing mechanismReinsuranceHigher Margins for Adverse Deviation in pricing assumptionsSpreading health awareness amongst customerswww.actuariesindia.org20
21. Product DesignChallengesStandard Product Vs Specific targeted populationBalance between Price and benefitsDefining Exclusions for the contractsMinimizing the risk exposure for the companyMeeting the needs of the consumerSolutionsDrive improvement and maintenance of good healthCost sharing mechanism (Co-pay/deductible/sub-limits)Understanding the needs of the consumerFlexibility of benefits and coverage offered to the consumersPenalty for not making efforts for being in good healthFrequent review possibilitywww.actuariesindia.org21
22. Pricing ModelChallengesCommunity Rating Vs Separate ModelData availability by various rating factorCredible long term study data on progression of diseasesAlgorithm for Onset, duration, progress, complication & current statusModeling complicated benefitsMedical cost inflation specific to complicate surgeryAllowing for flexible benefitsAllowance for guarantees or options offeredSolutionsFlexible Actuarial platform or model to be used to build the pricing modelUsing medical UW judgment and continuous refinementVariety and range of Disease-based loading application Scenario testing or stochastic modelling should be used to modelwww.actuariesindia.org22
23. Anti Selection, Selective Lapses and Moral HazardChallengesDifficult to allow in pricing Can lead to huge losses for the companySolutionsEffective Control Measures and Rating factors.Medical UnderwritingIncentivize persistency & good healthwww.actuariesindia.org23
24. Competitive Pressures ChallengesMarketabilityVolume of businessDifficult to charge appropriate level of premiumsLow profit margins Higher expenses for selling and distributionSolutionsInnovative productsEfficient distribution methods reducing allowance for costwww.actuariesindia.org24
25. www.actuariesindia.orgRegulatory Framework
26. Regulatory FrameworkHealth insurance in India governed by:Insurance Act, 1938IRDAI Health Insurance Regulations, 2016IAI APS – 21 (Appointed Actuary and General Insurance business)IRDAI (Third Party Administrators – Health Services) Regulations, 2016IRDAI (Linked Insurance Products) Regulations, 2013IRDAI (Non Linked Insurance Products) Regulations, 2013Overview of the RegulationsAdequate and fair premium rates - to be certified by AAPremium rates to be based on – own experience, industry experience, data quality, portfolio mix, marketing & underwriting strategies, random variations etc.Sufficient capital requirements arising out of New business, Solvency, Reserving requirements to be allowed forAnnual investigation to be performed on the experiencePremium rates to remain unchanged for at least 3 years after a product is launched, i.e. before any change in line with experience can be builtProvision for ‘Pilot Products’ available to facilitate innovative products’ offering www.actuariesindia.org26
27. www.actuariesindia.orgThank You