LongTerm Care Insurance

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Long-Term Care Insurance

• SCOR/????
• ????? ?? Olivier Goualou
• ? ??? (???? ??????)

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Agenda of this presentation

• What is Long Term Care Insurance?
• What are Long Term Care Insurance specificities?

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1 - What is Long Term Care Insurance?

• Major markets
• Characteristics

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Two big Long Term Care Insurance Markets
France the most developed european LTCI Market
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US / French (European) Approaches

• US Market (6.5 millions policies)
• Reimbursement Model
• Nursing home / home help plans
• Temporary payment periods
• French Market (2,000,000 policies sold)
• Fixed benefits model
• Lifetime payment periods

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Japan Market

• LTC an acute issue because of change in terms
  of the ageing of the population
• A new Public LTC scheme (April 2000)
• LTCI Market
• Rapid initial growth around 2 millions policies
  issued during 89-98 and decline of consumer
  demand after (public scheme)
• LTCI Market could start up again

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Market needs

• Long-term care of the elderly
• Invalidity before 60
• Low incidence for the young
• Medically diagnosed long-term care (physical or
  neuro-psychiatric)
• Consolidated, irreversible long-term care

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Market needs

• Need for a simple, understandable, objective
  definition
• Product of the future pushing back mortality,
  aging and population statistics

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Definition of LTC Activities of Daily Living
(ADL)

• The long-term care annuity is paid after loss
  of3/4 ADL
• The functions which human beings must perform to
  lead a full, independent and meaningful life

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Fundamental activities of Daily Living (ADL)

• WashingAbility to maintain bodily hygiene to
  normal standards without the assistance from
  another person.
• DressingAbility to dress and undress with
  suitable clothing, if necessary, without the help
  of another person.
• FeedingAbility to serve and eat food
  previously prepared
• and provided without the help of another person.

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Fundamental activities of Daily Living (ADL)

• ContinenceAbility to use the toilet and
  control urinary and faecal eliminations including
  the use of protection or surgical devices.
• MovementAbility to move around inside the home
  of flat surfaces, with the help of suitable
  equipment.
• TransferAbility to move from bed to chair and
  chair to bed without the help of another person.

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Long-term care insurance products

• Individual products
• Long-term care pension plan
• Double your pension
• Group products
• Level mutualized premium

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Product characteristics
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2 - What are Long Term Care Insurance
specificities?

• Deductible period
• Waiting period

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Deductible period

• 90 days
• Avoids managing short dependencies
• Reduces the cost of cover

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Waiting Periods

• 3 years / 1 year depending on the origin of LTC
• Completes medical selection
• Return-insurance of premiums

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Incidence of dementia PAQUID 1988-1995
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Incidence of dementia with respect to initial
wine consumption
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Major LTC claim reasons

• Demencia
• Cancer

15 - 50 9 - 30
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Dementia Antiselection

• Bad risks chase out the good (asymmetric
  information).
• Proportion of dementia claims among claims
  incidence

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LTC Pricing
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Price Structure

• Mixed pricing
• Supplementary cost of women
• Possible imbalance of the portfolio
• Application of a couple
• Technical discount
• Commercial discount

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Risk Modeling

• Longevity of non-dependants
• Incidence of long-term care
• Longevity of dependants

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Statistical Data

• Data from experience portfolios
• Population data
• Specific studies and surveys
• PAQUID monitoring a cohort for 15 years

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Price Structure

• Non Guaranteed rates
• Essential for building the product
• Lowers the cost of uncertainty

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The follow-up of pricing assumptions

• in life-death, 1 survival law
• Denied (or not) by the total number of Death if
  100 Deaths expected during the year, to have only
  60 death deny the Mortality Table.
• In LTC , 3 laws
• (Healthy Survival Dependency entrance
  Dependant Survival)
• Denied (or not) by the watched prevalence

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Multi-states Model
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Incidence law influence of sex and age
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Life expectancy for dependants time influence
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The two pitfalls annual premium and age (at
inception) will this trend remain valid in 30
years?
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The two pitfalls Mathematical Reserve f(age
reached) will this trend remain valid in 30
years?
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Pricing Balance Technical Aspect

• technical assumptions
• mortality of the valid
• probability of entering in dependency
• mortality of the dependants
• other assumptions
• Administration fees,
• Technical rate for the actualization of the
  future payments
• (contractual increase rate of premiums and
  annuities)

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Pricing Balance Technical Aspect

• Need of using prospective tables
• passed statistics enable quoting... the past
• predictable increase in life expectancy ...
• a) of the valid
• b) of the dependants
• what will be the evolution of entering in
  dependency ?
• supposed stability in time ?

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Pricing Balance Technical Aspect

• Prevalence law
• proportion of dependants in the general
  population at each age
• more easily measured
• most part of the public data available
• enables adapting external data (public or
  market) to the observations made by the company

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Reserves

• Expected evolution of the reserves

Case of a woman who underwrites her LTC Product
at 50 y.o.
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Parameters sensibility

• Example influence of the incidence

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Parameters sensibility

• Example influence of the financial income

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Specific Risk for Korean Market

• Surrender Value for Product over 7 years.

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LTC a product, which needs to be handle carefully

• A new product on a new market
• Specific pitfalls for LTC
• Korean Market specificities
• Needs specific conditions (waiting period, non
  guaranteed rates)
• Needs specific follow up