28 th India Fellowship Seminar Topic Long Term

28 th India Fellowship Seminar Topic: Long Term Care – An emerging need, learning from international markets and product road map Guide Name: G R Surya Kumar Presenters Name: 1. Nikhil Kamdar 2. Joanne Buckle 3. Ritu Kotnala Date: November 10, 2017 Mumbai Indian Actuarial Profession Serving the Cause of Public Interest

Agenda 1. Long Term Care – An emerging need 2. Learning from international markets 3. Product road map 4. Issues and concerns for actuarial profession www. actuariesindia. org 2

What is Long Term care (LTC)? Continuing Personal Care / Nursing Care Living Cost / Housing costs / personal care Not Particularly Concerned with Curing www. actuariesindia. org LTC For those who are unable to look after themselves Home / Day care center or in a state sponsored / care home setting 3

Demographic Trend of population - Ageing • Older People, particularly the very old are the fastest growing population segment in the country. • While the Indian Population was expected to increase by 40% between 2000 and 2050 , the number of older people (aged 60+ ) is expected to increase by 354% during the same period. Proportion of population over age 60 is expected to increase up to 18% by 2050 and over 33% by 2100 www. actuariesindia. org 4

Long Term care – Increase in Demand www. actuariesindia. org Increase in life expectancy Migration of young people from rural India to Urban India Emergence of Nuclear families Changing role of women in families Shifting disease profile for that require long term care Poverty at old ages 5

Supply side factors influencing the need for LTC Limited health care facilities Government expenditure Lack of Insurance Products Lack of trained / specialized manpower www. actuariesindia. org 6

Long Term care – An Emerging need Question : - Why has no Insurance company in India has come up with a long term care product so far? • • • Morbility projections are difficult to project over long term compared to Mortality. Required trained and specialized Intermediaries to sell these products. Medical advancements and Medical inflation Significant work needs to be done in public and private hospitals to provide long term care. Lack of regulations for health service providers. Capital requirement for the product will be high compared to traditional medical Insurance products which are sold in India. Still more focus on medical care rather then nursing care in India. There are few day care centres in India. Lack of trained nursing staff specialized in long term care. www. actuariesindia. org 7

Lessons learned from overseas LTC markets: UK LTC is extremely expensive and almost no-one saves or buys insurance for LTC 1. partly because most people believe it is covered by the NHS(it is not) 2. partly because it is expensive and requires much cash to be put aside over a long time frame 3. There is a disincentive to save, because if you have few assets or income, the state will pay. In effect if you take out a policy, you are penalised and have to pay for what others get for free. Two distinct products were sold historically (but never successful) a) pre-funded care products. Indemnity to pay for care home, but otherwise similar to a pension (you pay a premium each month and upon ADL triggers, the plan pays out an annuity for as long as you need care. b) Immediate needs annuity – you convert a pot of cash or housing equity into an annuity to cover care needs at the point of needing care. www. actuariesindia. org 8

Lessons learned from overseas LTC markets: UK Prefunded policies • fair pricing was an issue, because the market was so small, the risk margins were huge (high levels of uncertainty) , which penalises first customers and potentially stunted the market • extremely difficult to keep within sensible loss ratio bands because of variability of experience • adding a margin on each assumption amounted to enormous overall margins and very expensive products • products did not always provide full indemnity for care home fees, which raised issues of whether products could be viewed as meeting customer needs • If people did not need care, policies were perceived as unfair because they gave nothing back. www. actuariesindia. org 9

Lessons learned from overseas LTC markets: UK Immediate needs policies: • dealing with frail, elderly people and their relatives at point of need when they have limited options or time to examine the options. • annuity based on current interest rates and or/current house value, which means that customers who needed care in a depressed housing market or low interest environment were penalised. • very limited indemnity against future cost inflation (same issue as medical inflation, tends to be higher than CPI and hard to hedge against) • actuaries found it hard to design suitably simple products for this consumer group to understand, with suitable levels of risk protection • the needs of insurance companies and the public interest may conflict www. actuariesindia. org 10

Lessons learned from overseas LTC markets: US Risk Insurer management of risk Comments LTC morbidity was higher than expected Primary management lever is rate increases Critical to continuously monitor Morbidity trends positive (variable by company) Persistency different from assumption Primary management lever is rate increases Primary reason for most rate increase filings Current pricing lapse rates very low – therefore more limited downside risk Mortality becoming more known Interest Rate Risk Hedging opportunities Product design Limited ability to receive rate increases based on interest rates different than expected (also depends on loss ratio) Regulatory Risk Limited ability to manage Regulatory risk relative to rate increases is a major concern for many companies Concern over limitation on product innovation and reserve and capital requirements www. actuariesindia. org 11

Lessons learned from overseas LTC markets: US The SOA surveyed 29 companies who have exited the LTC market recently • Initially, had measured the market success by growth. Secondly, by profits. Caused issues with actuaries being under pressure to sign off prices lower than “technical “ prices to full growth. • All reasons for exiting: not hitting profit objectives (72%), concern about getting needed rate increases (62%), new assessment of the risk (52%), lack of confidence in ability to manage risk (48%), capital requirements (48%). Had actuaries communicated the full extent of risks and management understood those risks? . Potential miss-matches between pricing basis and underwriting practice? • 62% of companies took rate increases before exiting, and 55% changed product design to build in margins. • Only 10% have not taken rate increases www. actuariesindia. org 12

Lessons learned from overseas LTC markets Public interest considerations are important as well as technical actuarial pricing • equity and equality • intergenerational fairness Almost all health insurance implies some level of cross subsidy from rich to poor and healthy to sick. • risk-rated premiums - the sick will pay more. If they are also poorer, they are unlikely to be able to afford premiums. • income–related premiums, the richer will pay more, but unless they pay a lot more, they will not be able to subsidise the poorer people. Long term care insurance is especially difficult because of the interaction with social safety nets. • Actuaries must understand the social benefits available and ensure they are not inappropriately encouraging people to give away those safety nets. • Multidisciplinary teams to design and price. The target market is critical to define www. actuariesindia. org • If the market is high income people, it will be viewed as a luxury good and can be risk-rated and lightly regulated. • If mass market and a substitute for government social benefits, LTC insurance would need to be heavily regulated from a pricing perspective and unlikely to be risk-rated. If participation is voluntary, by buying LTC insurance, you may be cutting yourself off from state benefits (where they exist), which creates a disincentive and raises questions about appropriateness of sales to people on the borderline of means-tested benefits. 13

Product Road Map Residence Assistance with ADLs Affordability Needs Medical & nursing care www. actuariesindia. org Preserve independence & autonomy 14

Existing work by Government of India RASHTRIYA VARISHTA JAN SWASTHYA YOJANA (RVJSY) • Special initiatives to improve the quality of life of the population aged 75 years or older National Programme for Health Care for the Elderly (NPHCE) • Provide accessible, affordable, and high-quality long-term, comprehensive and dedicated care services to an ageing population • Create a new “architecture” for ageing • Build an enabling environment for “a society for all ages” • Promote the concept of active and healthy ageing in the health system of India National Policy on Older Persons (NPOP) • Recommended an inflation-linked pension for all older persons living below the poverty line. Maintenance and Welfare of Parents and Senior Citizens Act • Defined the responsibilities of the family and the State in providing care for older persons www. actuariesindia. org 15

Collaborative actions required Government Private Players www. actuariesindia. org Society 16

Role of the Government Policy and regulatory initiatives Financing initiatives Delivery initiatives www. actuariesindia. org 17

Role of the health insurers Creating long-term, dedicated insurance products Innovative insurance offerings • Cater to the differentiated needs • Micro insurance products for low-income groups • Products that include flexible payment and coverage components Innovative mechanisms to share risk • Co-payment of costs between insurers and other entities • Evaluating means to cover certain pre-existing conditions www. actuariesindia. org 18

Role of Private healthcare delivery players Availability Improve three aspects of healthcare Quality www. actuariesindia. org Cost 19

Role of Actuaries Quantitative analysis • • Consider relationship between benefit design and cost Develop relevant data/information Identify cost-saving approaches Evaluate uncertainty and understanding of risks Benefit design • Help minimize moral hazard anti-selection Contribute to policy discussions www. actuariesindia. org 20

Continuous assessment required Coverage Benefit design Risk & cost management www. actuariesindia. org Affordability Sustainability Appropriateness & quality Unintended consequences 21

Issues and concerns for actuarial profession Product design • • • Meeting all needs of target market? Tackling intergenerational fairness? Public interest and interaction with state benefits? Simplicity with limited “small print” Pricing basis – risk rated or income rated? Willingness to pay? Distribution & sales • Need to be sold through specialized intermediaries only. • Ensuring the target market understands the product and any limitations Monitoring & product governance • • www. actuariesindia. org Frequency of product review with limited experience Testing of customer needs and ongoing target market analysis. What customer feedback is feasible? Ensuring a full range of management information for decisionmaking 22

Citations 1. SDD-SPPS project working papers series: long-term care for older persons in Asia and the pacific http: //www. unescap. org/sites/default/files/SDD%20 Working%20 Paper%20 Ageing% 20 Long%20 Term%20 Care%20 Singapore%20 v 1 -3. pdf 2. Ensuring care for the golden years – Way forward for India https: //www 2. deloitte. com/content/dam/Deloitte/in/Documents/life-scienceshealth-care/in-lshc-ficci-elderly-care-noexp. pdf 3. Global Perspectives on Long-Term Care by IAHHS http: //www. actuaries. jp/meeting/kokusai/20170913. pdf www. actuariesindia. org 23

Questions? www. actuariesindia. org 24