Session 63 Lecture Practical Applications of Risk Appetite in Managing Disability Insurance

50 Pages·2017·1.66 MB·English

Session 63 PD, Practical Applications of Risk Appetite in Managing
Disability Insurance

Moderator/Presenter:
Rebecca B. Scotchie, FSA, MAAA

Presenters:
Peter A. Heinrichs, FSA, MAAA

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Risk Appetite Applications – Group LTD
Peter Heinrichs, FSA, MAAA
Managing Director

2017 Society of Actuaries Health Meeting – Session 63
June 13, 2017
Objectives
1. Identify and understand the risks arising from Group Disability business that
should be considered within a risk appetite framework.

2. Overview of approaches to analyze risk, its impact, and strategies to
manage it.
2
4
2017 Society of Actuaries Health Meeting – Session 63
June 13, 2017 1
Risks Arising from Group Disability Insurance
Insurance Market Claims Product Behavioral
• Competition • Incidence • Maximum Benefits • Individual Enrollment
• Sales • Recovery • Rate Guarantees • Lapses
• Persistency • Mortality • Disability Definitions • Benefit Selections
Economic Demographics Regulatory Extreme Events
• Employment and Wages • Age • Product / Rate • Earthquake
• Industry Trends • Gender • Offsets (SSDI, WC) • Terrorism
• Investment Yields • Geographic • Taxation • Pandemic
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Insurance Market Risks
 Increased competition tends to result in:
– Lower rates
Competition
– Liberalized product terms
– Loosened underwriting

 Higher than expected sales may signify:
– Underpriced products
– Liberalized product features
Sales
– Less stringent underwriting
 It may also signify innovation

 Lower than expected persistency may result in:
– Failure to recover acquisition costs
Persistency
– Anti-selection
 May be driven by other coverages

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June 13, 2017 3
Claims Risks
 Incidence is impacted by:
– Employment levels
Incidence
– Claim approval practices
– Backlogs

 Recoveries are impacted by:
– Availability of employment
Recovery
– Adaptive technologies
– Medical treatment

 Mortality rates are impacted by:
– Mortality improvement
Mortality
– Medical treatments
– Extreme events

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June 13, 2017 4
Product Risks
 Higher maximum benefits:
– Increase claim volatility
Maximum
Benefits
– Diminish the impact of claim offsets
– Lower recovery rates

 Longer rate guarantees:
Rate – Limit the ability to correct rates for financial performance
Guarantees
– Permit anti-selection by the employer
– May require contract reserves
 More liberal disability definitions:
Disability
– May increase claim incidence
Definitions
– May decrease claim recoveries
 Definitions permitted by regulation may change
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June 13, 2017 5
Behavioral Risks
 Enrollment levels impacted by:
– Premium levels
Individual – Disposable income
Enrollment
– Enrollment methods
– Underwriting guidelines

 Lapse levels impacted by:
– Premium levels
Lapses
– Anti-selection
– Employee turnover

 Benefit selections include:
Benefit – Benefit amounts
Selections
– Pre-tax elections

2017 Society of Actuaries Health Meeting – Session 63
June 13, 2017 6
Economic Risks
 Employment levels impact:
 Wage levels impact:
– Claim incidence
Employment – Enrollment
and Wages – Claim recoveries
– Benefit elections
– Market growth
– Market growth

 Industry trends include:
– Mergers and dissolutions
Industry
Trends – Employment levels
– Wage levels

 Investment yields impact:
Investment – Reserve levels
Yields
– Pricing levels
– Profit from investment spreads

2017 Society of Actuaries Health Meeting – Session 63
June 13, 2017 7
Demographic Risks
Age
 Age and gender mix impacts:
– Average incidence rates
– Average reserve levels
 Rate guarantees limit the ability to
respond to changes in mix
 Impact varies by industry

Gender
 Geographic mix may impact the effect of:
– Industry trends
Geographic
– Health trends
– Accident trends

2017 Society of Actuaries Health Meeting – Session 63
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