RTW Pathways for Ambiguous Impairments

1
Trends in the Disability Market Chris
Jerome Vice President, Group Underwriting
Operations March 21, 2006
2
Trends in Disability Market

• Disability Costs
• Cyclical and Non-Cyclical Cost Drivers
• Workforce Implications of Non-Cyclical Factors
• Implications for Our Market
• Key Questions to Consider

3
Overview of the Current Disability Industry

• Many external factors have been working against
  the health of the disability industry

Interest Rates
Disability
Aging
Economic Factors
Other Risk Factors
All providers impacted by above trends..
4
Changes in Risk Dynamic - Aging
Source US Census Bureau. Statistical Abstract
of the US 2006, Section I, Table 12

• Between 1990 and 2000, the median age of the US
  working age population increased from 40 to 42
  and it will continue to rise

• The largest proportional increase came from the
  45-54 age bracket, as the baby boomers continue
  aging

5
Changes in Risk Dynamic
Source UnumProvident LTD Block
Source UnumProvident Rate Basis

• The population and workforce are aging
• Impact of aging along the disability curve can be
  steep cost increases of 4 8 per age year are
  common.

• UnumProvident block and new sales have been aging
  by 4-6 months each year

6
Interest Rates
Source Federal Reserve Board H15

• Declining rates impact new money invested, and
  therefore Net Investment Income as well as
  reserves

• Interest has a direct and significant impact on
  cost (100bp shift requires approximately 4 shift
  in rates)
• Interest rates affect all players and all sizes
  and segments of cases

7
Disability Incidence and Economic Recessions
The horizontal axis above is quarters since the
recession with 0 being the end of the recession.
Source UnumProvident LTD Block
Qtr End of Recession

• Submitted incidence increased more steeply,
  initially, in the most recent recession. Now 4
  years later, it continues to exhibit a similar
  pattern as observed in 1990-91 recession.
• Submitted incidence continued to climb long after
  the recessions officially ended. In 19901991
  recession, ending in March 1991, incidence
  reached its peak 19 quarters later.

8
Other Risk Factor Trends
OBESITY - Nationwide overweight, measured by BMI

• Prevalence of obesity has increased over the last
  several years
• Over past decade there has been a tenfold
  increase in the incidence of STD claims
  attributed to obesity

• Growing body of scientific evidence demonstrating
  significant associations between obesity and
  other chronic diseases (e.g. diabetes,
  stroke, hypertension, etc.)

9
Change in Disability Deaths
Source UnumProvident LTD Block
While aging is currently a secular trend
impacting disability costs for US private
insurers, due to the demographic profile of US
employees, other secular costs such as disability
death rates also affect disability cost. The
actual rates of disability death in recent years
have been relatively stable however, in the
early 1990s the disability death rates were
declining.
10
Disability Costs Summary

• Costs Are rising
• Interest rates
• Economy
• Obesity
• Aging
• Even mortality
• Which are cyclical?
• What are workforce implications of non-cyclical?

All contributing to higher disability costs
11

• Work Force Dynamics

12
A Growing Shortage of Workers in the US
Expected Labor Force and Labor Force Demand
Palpable by the End of This Decade
Millions of People
Source Employment Policy Foundation analysis
and projections of Census/BLS and BEA data.
12
13
Dramatically Different Patterns of Growth by Age
Percent Growth in U.S. Population by Age
2000-2010

• Declining number of mid-career workers
• Few younger workers entering the work force
• Rapid growth in the over-55 workforce

Age of Workers
Source US Census Bureau International Data Base
14
. . . Continuing for Our Working Lives!
Percent Growth in U.S. Workforce by Age 2000-2020
Age of Workers
Source US Census Bureau International Data Base
15

Why? Dramatic Increase in Life Expectancy
80
75
Average Life Expectancy at Birth in the U.S.
70
65
60
55
50
45
40
1900
1950
1970
1980
1990
2000
1910
1920
1930
1940
1960
Source U.S. Social Security Administration
16

• Aging, Disability and Healthcare Costs
• Patterns Trends

17
Median age of employed population by selected
industry
Source 2003 Current Population Survey, U.S.
Department of Labor
18
Distribution of short (STD) and long (LTD) term
disability by age
Source UnumProvident Disability Database,
2002-2004.
19
Risk dynamics-STD duration of lost time by age
group
Source UnumProvident Disability Database,
2002-2004.
20
Risk dynamics-STD by major impairment category
Source UnumProvident Disability Database,
2002-2004.
21
Risk Dynamics-STD lost days by selected
impairments
Source UnumProvident Disability Database,
2002-2004.
22
Medical Conditions Productivity Connections
Prevalence of ees reporting condition
Ambiguous Impairments
High Scores
23
Healthcare costs by age x risk
Source Musich, McDonald, Hirschland, Edington,
Disease Managements Health Outcomes 2002
10(4) 251-258 University of Michigan Health
Management Research Center. Used with
permission. Dee Edington, Ph.D. University of
Michigan, Ann Arbor, Michigan
24
Implications for Benefits Design

• Productivity Increasing need for
  Disease/Condition Management
• Aging Increasing incidence,
  duration cost pressures
• Cost pressures Increasing
  Medical costs Ancillary Benefits??
• Decision Pressure Shift from
  Employer to Employee funding

?
25
Things to Consider

• What base level of ancillary benefits will
  employers fund?
• What design will stabilize employer costs?
• What gaps will remain for employees?
• How will employees choose what to add?
• What will employees consider understandable?
• What will employees consider affordable?

26
Old Choices
New Approach?
LTC
Critical Illness
IIP
Consumer Choice
Vision Dental
LTD
STD
Disease Mgmt.
Medical

• Greater Employee Responsibility
• Reduced Employer Funding
• Longer EPs for disability
• Higher co-pays if unmanaged
• Greater Need for support service
• Greater Need for asset consideration

• Generally Er Funded
• Choices made by Er