2030 Life Insurance Underwriting a Canadian Perspective JeanMarc

2030: Life Insurance & Underwriting, a Canadian Perspective Jean-Marc Fix FSA, MAAA VP R&D Optimum Re CLIMOA 2015 Quebec

Conflict of Interest • I am a full time employee of Optimum Re. • Although I have a vested interest in the future, I have no conflict of interest that impacts this presentation.

Agenda • • • The future Canadian The future Canada The future tech The future insurance company The future regulation The future insurance product The future acquisition process The future underwriter The future medical director

Future You At the conclusion of this session the future you will have an increased understanding of: • the demographic, economic and technological forces affecting life, health and disability insurance • implications for product design and underwriting • challenges and opportunities for the medical director in this new world order

Future Canadian • • How many? From where? Labor force Political consequences

1871

1921

1941

1951

1961

1981

2001

2011

2021

2031

Population Increase

Foreign Born

Born Where?

Atypical or New Normal?

2006

2031

Political Consequences What do YOU think?

Future Canada • Future economic environment • Future labour

Future Economic Environment • Aging population • Increasing focus on globalization • Changing nature of exports

Globalization “ Growth in imports and investments has outpaced economic growth, indicating that, in some ways, we are becoming more deeply integrated in global supply chains” (1) Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

US or Not? Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Not! Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Global Competition Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Exports Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Exports Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Imports Walking the silk road: understanding Canada’s changing trade patterns, Conference Board of Canada December 2012

Future Labour • Lower participation • From where? • Challenges

Highly Employed The state of the Canadian labour market, Finance Canada, 2014

Employment The state of the Canadian labour market, Finance Canada, 2014

Lower Participation The state of the Canadian labour market, Finance Canada, 2014

% Labor Participation over 55 Projected trends for Canadian labour force Canadian Economic Observer August 2011 Statistics Canada

Foreign Born in Labor force Projected trends for Canadian labour force Canadian Economic Observer August 2011 Statistics Canada

Productivity Challenge The state of the Canadian labour market, Finance Canada, 2014

Future technology • Communication • Data gathering and analysis • Medical

Com-puter-nication • Natural language processing • Machine learning

Communication Gather human experience Analyze human experience Use human experience

Data and Data Analysis • Wearables • Internet of things • Data is produced • Data is gathered • Data is sold BIG DATA • Computing storage and power can analyze big data

Medical • • • Understanding the genetic alphabet Precision medicine Organ replication Cell level manipulation Artificial/Human interface Anti aging medicine

Future Life Companies • How many? • Will the consolidation stop? • New entrants?

Number of Companies • 1990: 163 (1) • 2000: 120 (1) • 2015: 86 (2) (1) Canada Life and Health’s Insureres Factsheet Finance Canada (2) OSFI website

Market Concentration • 2011: top 5 have 61% of market (1) • 2013: top 5 have 60% of market • About the same since 2002 (but 43% in 1994) (2) • 2011: next 5 have 20% of market (1) • 2013: next 5 have 22% of market (1) (by premium), The Insurance and Investment Journal June/July 2014 (2) Canadian life and health insurers, Finance Canada 2002

Top 5 Risks Rank Canadian Insurance Industry Risk and Opportunities Survey KPMG May 2014 Item % 1 Regulatory and compliance burden* 86 2 Accounting and actuarial changes* 76 3 4 5 Low interest rates* 74 61 43 Increased regulatory capital Cost reduction pressures increasing operational risk exposures * also top 5 for P&C Insurers

Top 5 Opportunities Rank Canadian Insurance Industry Risk and Opportunities Survey KPMG May 2014 Item % 1 Improvement of operation process and technology* 68 2 Improved understanding of risk and capital* 65 3 4 Customer data analytics* 49 40 5 Cost reduction initiatives Customer self service technology* * also top 5 for P&C Insurers 40

Three Legged Stool of Profitability • Investment income • Mortality income • Expense improvement

Interest Rates: New Normal? IMF

Mortality Improvement

Mortality Projection J Oeppen & J Vaupel

Mortality Improvement L Adam, ARCH 2013

Expense Improvement: Choice 1 Technological efficiency gains

Expense Improvement: Choice 2 Staff cuts

Life Insurance- a History • In the beginning there was Whole Life • 1970 s: unbundling of mortality and savings elements: Term and UL • Today: term and many flavors of UL but WL still here

Future Insurance Regulation O M ! E R

Future Insurance Product • Same – Mortality driven – Mortality and investment driven – Non life products: critical illness & long term care (& disability) • Newish – Combination products – [advanced life deferred annuities]

The Customer • How often do you have to do this to get any product: – Wait for a salesperson – Give blood- literally – Hand a cup of warm urine to a stranger or a business associate – Give access to all your medical records – Fill a ten page intimate questionnaire – Pay a premium that may change randomly when the product is issued – Wait 45 days for your product – Still not be clear even after your purchase what is it you bought…

Blue Sky • • Download an app on your phone Play with the products Select the product Click buy. You are covered!

Bluer Sky • Revise your premium daily depending on your behavior

UL – a Cautionary Tale • Concept introduced in 1971 by then CIA President G. R. Dinney • A product child of the ‘ 60 s • 1975 Tillinghast president James Anderson: Cannibal Life • Introduced in 1979 by Life Insurance Company of California • Anderson’s vision came true – Except changes in distribution

Underwriter Rank Occupation Outlook 1 Mail carrier -28. 32 2 Meter reader -23. 10 Insurance underwriter -6. 13 Physician (GP) 19. 13 199 Home health aide 43. 71 200 Interpreter/translator 44. 50 Bad … 11 … 164 … Good Jobs Rated Almanac 2015 http: //www. careercast. com/jobs-rated-report-2015 -ranking-top-200 -jobs

Underwriter • By the book underwriter will become an endangered species • What if the book can read itself?

Underwriter • Based on the facts • Can present a coherent story out of complex details • Underwriter as artist

Underwriter & Future Tech • • • Inform Triage Keep track Decide? Document

Successful Underwriter • • • Knowledgeable Communicator Engaged Lifelong learner -> relevant Tech savvy

One Remaining Issue Beginner HOW? Advanced

Future Medical Director • • • Not just EKG reading anymore Up-to-date knowledge Complex multi disease interactions Create tool logic or give feedback on tools Executive skills – Communication skills – Influencing skills – Open mind – Proactive

Current You Hopefully you now have an increased understanding of: • the demographic, economic and technological forces affecting life, health and disability insurance • implications for product design and underwriting • challenges and opportunities for the medical director in this new world order

Questions?

Jean-Marc Fix, FSA, MAAA Jean-Marc is Vice President, Research & Development for both Optimum Re Insurance (US) and Optimum Reassurance (Canada). Jean-Marc joined the Optimum Group in 1997. He is responsible for the research framework underlying the evaluation and development of innovative products. He is also responsible for the updating of Optimum’s Underwriting Manual, both for life and critical illness. Jean-Marc has over 25 years of experience in the life insurance industry and is a Fellow of the Society of Actuaries as well as a member of the American Academy of Actuaries. Jean-Marc has extensive experience in all actuarial as well as many of the non-actuarial aspects of life insurance and Critical Illness product development. He has spoken on a variety of underwriting, product design, claims and reinsurance topics as they relate to actuaries, underwriters and medical directors. He has written articles for On the Risk as well as various actuarial publications. He is currently active in a number of SOA committees and Project Oversight Groups centering on mortality and underwriting as well as being a member of the Reinsurance Section Council Research team and the Longevity Advisory Group. Jean-Marc graduated Summa cum Laude from Whittier College with a BA in Mathematics and minors in Computer Science and Chemistry.