First step toward the Underwriting October 5, 2015 Naoyuki Tsukada Senior Underwriter FUWJ Assistant Manager of Underwriting Team Life Underwriting and

First step toward the Underwriting

October 5, 2015

Naoyuki Tsukada Senior Underwriter FUWJAssistant Manager of Underwriting TeamLife Underwriting and Planning Dept.The Toa Reinsurance Company, LimitedJapan

The Toa Reinsurance Company, Limited

4/1998 joined GE Edison Life junior underwriter

1/2004 transferred to Taiyo Life junior / senior underwriter

1/2007 transferred to Toa Reinsurance Company senior underwriter

2/2011 get the title “ fellow of UWAJ* “ 4/2011 member making the qualification exam of UWAJ*　　　　　　　　　　　10/2015 today

Naoyuki Tsukada

* UWAJ : Underwriters Association of Japan

ជម្�បសួ�រ ។

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The purpose of this seminar

I came to shake hands to Cambodia

Let’s study significance of risk selection

Let’s understand the mission of underwriting

Let’s take the first step toward the underwriting

Let’s shake hands with the surrounding underwritersto develop the underwriting market

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Chapter 1 : Risk selection

Chapter 2 : Basic of underwriting

Chapter 3 : Medical underwriting method

Conclusion

Table of Contents

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What is risk selection ?

Chapter 1

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What is the risk for life insurance ?

The risk for life insurance is the factor which occurs insurance event

Risk factors are Death or Hospitalization or Surgery etc caused by Disease or Accident

Life insurance must consider the probability that these risk factors occur

Incidence rate become stable that the number is bigger ( law of large numbers )

Keep actual incidence rate within expected incidence rate

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Go on to the next page

The factors increasing incidence rate

The factors increasing incidence rate are

• Age

• Gender

• Occupation

• Avocation / Hobby

• Residence

• Lifestyle

• Disease

• Heredity / Family History

• Application

• Anti-selection

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Age

young or elder•Mortality rate is increasing higher with age

Gender

male or female•Mortality rate of female is lower than male in Japan

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Occupation

hazardous or not•Accident risk and Mortality risk are increased by

work environment•Possibility of moral hazard by work environment

Avocation / Hobby

hazardous or not• Sky diving, Car race, Scuba Diving, Snow mountain climbing

etc


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(No.91 in 1993, Journal of Japanese Insurance Medicine )

Mortality ratio by occupations in Japan

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Residence

climate / lifestyle / industry•The area having diet style of high salt content is high

incidence rate of cerebrovascular disease

Lifestyle

smoke / alcohol / food•Smoke is risk of pulmonary disease, cancer etc•Alcohol relates liver disease, pancreatitis etc

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Disease

fatal or not•Physical state, past and current medical history of

applicants

Heredity / Family History

cancer / diabetes mellitus etc•Several disease are associated with family history


12



Application

face amount / policy plan•High amount may be high mortality•Mortality vary from premium payment mode

Anti-selection ( Adverse selection )

fraud, moral hazard•Bad healthy people tend to want to buy life insurance


13





Mortality ratio of suicide by each amount

year

MortalityRatio

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The Toa Reinsurance Company, Limited 15


Average hospitalization days by each hospitalization cover per 1 day

HospitalizationDays

Hospitalization cover per 1 Day

Japanese Yen





Mortality ratio of Medical exam by each premium payment mode


MortalityRatio

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Significance of risk selection

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Life insurance must keep actual incidence rate of risks within estimated incidence rate

If the risks over estimated incidence rate occur under the same premium rate, Life insurance company may go bankrupt

So, Life insurance company must give the entire group of same risk class fair deal

If the insurer do not select applicants, the insurer will be selected to the contrary

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Anti-Selection ( Adverse selection )

•Healthy people normally doesn’t feel needs of life insurance

Not healthy people tend to want to buy life insurance

•The applicants can choose life insurance freely

High incidence rate people may apply by choice

Stabilize the incidence rate and keep fairness of premium payment

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Which man does look like a bad man ?

Left man ? Right man ?

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The fact is ・・・

left man may be a bad man or both ?

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For risk selection

Medical Underwriting

•Physical state, past and current medical history of applicants

Non-medical Underwriting

•Occupation, Avocation, Financial, Moral risks etc

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Basic of Underwriting

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Chapter 2


Life table

Mortality costs represent expected cost of paying the death benefit on the number of deaths within an insured group over a period of time.

Actuaries determine this probability by analyzing data in standardized life table of national population, or owncompany’s mortality data.

Japanese standardized life table of life insurance, male

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Agex

Number of survivorslx

Number of deathdx

mortality rateqx

Life expextancyex

40 97,391 144 0.00148 39.6741 97,247 157 0.00161 38.7242 97,090 171 0.00176 37.7943 96,919 186 0.00192 36.8544 96,733 204 0.00211 35.92


Calculation of premium for death benefit

Face amount : 1,000,000 Yen, male age 40 in Japan

Principle of equivalence•Premium and Benefit should be equal

P : PremiumL : Number of survivorsd : Expected number of deathq : Expected mortality rate (= d/L)

P x L = Face amount x dP = Face amount x d/LP = Face amount x q

Premium = 1,000,000 Yen x 0.00148 = 1,480 Yen

Principle of equivalence

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Underwriting Philosophy

Accept the applicants as many as possible

Law of large numbers

Give the entire group of same risk class fair deal

Principle of equivalence

Offer the more lower premium to the applicants

Give the chance to accept the insurance to people who had given up to be insured

Avoid Anti-selection

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Risk classification

Standard Substandard PostponeDecline

● Standard class is also broken down into Preferred class

How do medical underwriting give the applicantsa fair deal ?

Medical underwriting use the medical state of the applicants to classify into the 3 classes

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Life expectancy

Healthy group lives longer

45.70 years 46.49 years 47.01 years

General Population Insured StandardInsured Preferred

Non-smoker

39.41 years 40.15 years 41.56 years

General Population Insured StandardInsured Preferred

Non-smoker

Japanese life expectancy of age 40 - male

Japanese life expectancy of age 40 - female

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Risk classification

It’s unfair that both healthy group and not healthy group are same premium

Not healthy group doesn’t live longer than healthy group

Healthy group will pay the premium for a long time,but Not Healthy group will not

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How does Underwriting categorize risks ?

Risk classification

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Risk classification

Mortality Ratio for lifeMorbidity Ratio for health

Underwriting requirement

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Risk classification

Mortality Ratio for lifeMorbidity Ratio for health


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Mortality ratio

Mortality Ratio (MR) is ratio of Actual mortality rate divided by Expected mortality rate x 100%

MR = Actual mortality rate / Expected mortality rate x 100%

* Actual mortality rate = Actual number of death / number of survivors

* Expected mortality rate = Expected number of death / number of survivors

MR = Actual number of death / Expected number of survivors x 100%

If Actual mortality rate is within Expected mortality rate,UW can get the mortality profit

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80% 124% 125% 500% >500%

Mortality ratio

Almost Japanese company’s case

Categorize the applicants into Standard, Substandard, Postpone or Decline classes

From MR100 to MR124 is Standard class

Standard Substandard PostponeDecline

● Standard class is also broken down into Preferred class

MR

100%

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Rating for medical underwriting

UW must categorize the applicants as to each risks

Life expectancy of insured in Japan at age 40

Substandard class must pay additional premium according to MR

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MR Male Female

100 40.15 years 46.49 years

150 36.26 years 42.96 years

200 33.52 years 40.41 years

250 31.40 years 38.39 years

300 29.68 years 36.72 years

350 28.24 years 35.29 years

400 27.00 years 34.04 years

450 25.92 years 32.93 years

500 24.96 years 31.93 years

Life Expectancy


Mortality Ratio

MR is based on insurance experienced studies and or medical literature, current clinical informationon prognosis of disease

Minor increase in MR is generally classified intoStandard class

Living insurance is generally more conservative thanlife insurance

MR vary from standardized mortality rate (= pricing)

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Morbidity ratio for health insurance

Morbidity Ratio is ratio of Actual morbidity ratedivided by Expected morbidity rate x 100%

If Insured accept the exclusion, insured doesn’t need to pay extra premium (insurer may not rate extra morbidity ratio)

Exclusion is hospitalization cover to exclude the claimpayment of disease or injury regarding one or moreparticular body parts

Exclusion = Body parts x year


Example of exclusion list, body parts

Eye Ear Nose Oral cavity Parotid gland / Salivary gland Thyroid Pharynx / Larynx Bronchi / Lung Esophagus Stomach / Duodenum Liver / Gallbladder / Bile duct Pancreas Kidney / Urinary duct Small intestine / Colon Bladder / Urethra

Prostate Testis Breast

Uterus Ovary / Fallopian tube appendix

Spine Hip joint, left or right Knee joint, left or right

etc


Risk classification

Mortality RatioMorbidity Ratio


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Medical evidence

UW need underwriting requirement to get the medical evidence

Medical underwriting use the medical evidence for risk classification

Medical evidence

•Past and current personal medical history

•medical examination, Laboratory test Build, Blood Pressure, Urinary test, ECG, Blood test etc

•Family history

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Medical underwriting requirement

Underwriting questionnaire

Medical Examiner’s reportincluding ECG and or Blood test

Paramedical report (In Japan, Health interviewer)

Routing Check-up

APS (Attending Physician Statement)

Laboratory report

Other specified tests

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Medical underwriting requirement

Mortality ratio of standard class each UW requirement in Japan


MortalityRatio

MR become low with more information

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Medical underwriting method

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Chapter 3


What organs are important ?

Most careful things for medical underwriting is

dysfunction of important organs for our living

Material matter of Medical underwriting

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1947 1955 1965 1975 1985 1995 2005 2014

Mortality rate(per 100,000)

Cancer

Cardiovascular disease

Pneumonia

Cerebrovascular disease

AccidentSuicideLiver diseaseTuberculosis

TuberculosisPostwar sanitary conditions

Cerebrovascular diseasedevelopment of antihypertensive

Pneumonia Aging Society ?(Japanese Health, Labour and Welfare Ministry)

Japanese trend in major cause of death

Japanese major cause of death

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(Japanese Health, Labour and Welfare Ministry)

Yellow is important organs

Japanese major cause of death in 2014

Japanese major cause of death

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TOP10 Cause of death Mortality rate %

1 Cancer 293.5

2Cardiovascular

Disease 157.0

3 Pneumonia 95.4

4Cerebrovascular

Disease 91.1

5 Old Age 60.1

6 Accident 31.1

7 Renal Failure 19.8

8 Suicide 19.5

9Aortic AneurysmAortic Dissection

13.1

10 COPD 12.9

TotalTOP10 Cause of death Mortality rate %

1 Cancer 357.8

2Cardiovascular

Disease 151.2

3 Pneumonia 106.1

4Cerebrovascular

Disease 90.1

5 Accident 37.0

6 Old Age 30.0

7 Suicide 27.6

8 COPD 21.3


10 Liver Disease 16.4

MaleTOP10 Cause of death Mortality rate %

1 Cancer 232.5

2Cardiovascular

Disease 162.5

3Cerebrovascular

Disease 92.0

4 Old Age 88.6

5 Pneumonia 85.2

6 Accident 25.6


8Aortic AneurysmAortic Dissection

12.1

9 dementia 11.8

10 Suicide 11.7

Female



Cancer has systemic risks and occurs to every part of the body, develop metastasis

The disease in Brain or heart, Lung, Kidney, Liver may lead to fatal

If these organs become dysfunction, the insurance event

may occur easily

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Cancer in Japan

Incidence casesMortality

Number of new incidence cases and mortality (x100)

(GLOBOCAN 2012, International Agency for research on Cancer, WHO)


Cancer in Cambodia

Incidence casesMortality

Number of new incidence cases and mortality (x100)

(GLOBOCAN 2012, International Agency for research on Cancer, WHO)



Another cause of dysfunction of organs

•Standpoint of time

Acute : Injury Physical / chemical cause (burn injury, Drug, Poison) Infection (bacterium, virus )

Chronic: Arteriosclerosis Cancer Chronic inflammation, Chronic infection Autoimmunity

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For Medical insurance

The disease of high mortality ratio are usually high morbidity ratio

The disease which is not important for life insurancemay become important for medical insurance



Top 10 disease of medical insurance’s claim payment number in Japan – male –

No 0-29 30-39 40-49 50 over

1 appendicitis anus disease another digestive disease another digestive disease

2 another respiratory disorder another digestive disease anus disease benign or unkown neoplasm

3 another digestive disease gastric / duodenal ulcer gastric / duodenal ulcer gastric / duodenal ulcer

4 gastric / duodenal ulcer appendicitis benign or unkown neoplasm cerebrovascular disease

5 anus disease another liver disorder another liver disorder ischemic heart disease

6 another liver disorder another respiratory disorder disc hernia anus disease

7 disc hernia disc herniabilestone /gallbladder and bile disorder

another liver disorder

8 pneumonia pneumonia appendicitisbilestone /gallbladder and bile disorder

9musculskeletal system disorderconnective tissue disease

benign or unkown neoplasmurinary tract stonekidney stone

diabetes mellitus

10 benign or unkown neoplasmurinary tract stonekidney stone

another respiratory disorder pneumonia

Age




Top 10 disease of medical insurance’s claim payment number in Japan – female –

No 0-29 30-39 40-49 50 over

1pregnancy / delivery andcomplication

pregnancy / delivery andcomplication

benign or unkown neoplasm benign or unkown neoplasm

2 appendicitis benign or unkown neoplasm another digestive disease another digestive disease

3 benign or unkown neoplasmbreast andreproductive disorder

bilestone /gallbladder and bile disorder

bilestone /gallbladder and bile disorder

4 another digestive disease another digestive disease anus disease cerebrovascular disease

5 another respiratory disorder appendicitis another liver disordermusculskeletal system disorderconnective tissue disease

6 pneumonia pneumonia gastric / duodenal ulcer pneumonia

7breast andreproductive disorder

another liver disorderbreast andreproductive disorder

another liver disorder

8 another urinary tract disorder anus diseasepregnancy / delivery andcomplication

eye disorder

9 another liver disorderbilestone /gallbladder and bile disorder

musculskeletal system disorderconnective tissue disease

gastric / duodenal ulcer

10musculskeletal system disorderconnective tissue disease

another respiratory disorder appendicitis another respiratory disorder

Age of Female



How does Underwriting assess the medical evidence ?


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Underwriting manual

Underwriters use underwriting manual

Underwriting manual indicates the extra mortality ratio of each disease by age or gender, elapsed years, with or without operation etc

Example of Disease A

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Fully recovered < 40 < 50 < 60 60 or olderWithin 1st year PP PP PP PP

2nd year +300 +250 +200 +1503rd year +250 +200 +150 +1005th year +200 +150 +100 +757th year +150 +100 +75 +50

10th year +100 +50 +25 0 Thereafter +50 +25 +25 0

Age


Numerical rating system


This system is devised by Dr. Oscar H. Rogers andMr. Arthur Hunter, actuary of NY life in 1919

This system is used all over the world now

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Base Rating is 100% : Standard class

•Actual mortality rate = Expected mortality rate

•Actual number of death = Expected number of death

The factor affecting MR is Extra Mortality Ratio (EM)

•The factor increasing MR add EM

•The factor decreasing MR deduct EM

Total Mortality Ratio (TM) = Base Rating + EM

MR = Actual mortality rate / Expected mortality rate x 100%

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Example : male at age 40 in Japan

•Hypertension, 165 / 94 mmHg

•Diabetes Mellitus, HbA1c 8%

EM

•Hypertension is 50%

•Diabetes Mellitus is 75%

TM = 100% + 50% + 75% = 225%

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Incidence number(per 1,000)

Systolic Blood presure mmHgTotal Cholesterol mg/dlImpaired Glucose ToleranceSmokeLVH, ECG

(Framingham Study, Kannel WB. Risk factors in hypertension. J Cardiovasc Pharmacol 1989)

Incidence risk of cardiovascular diseaseFemale of 40 age for 8 years

TM may not be simple addition

Each risk factor has synergetic effect

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Insurance medicine vs Clinical medicine

Insurance medicine is academia to predict the incidence rate of insurance event based on the medical data and insurance statistics

Clinical medicine is academia to relieve a current patient’s pressure

Clinical medicine consider the present, Insurance medicine consider the future

The result of assessment about medical status is different from Insurance medicine and Clinical medicine

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Example of Insurance and Clinical Medicine

Cold (rheum)

•Clinical Medicine

If patient doesn’t have serious symptoms, the doctor considers a cold and cure in a few days

• Insurance Medicine

The underwriter considers that the symptoms like a cold is possibility of a sign of serious disease and may postpone to accept the applicant until recovery

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Example of Insurance and Clinical Medicine

5-year survival rate of A disease is 99%

•Clinical Medicine

The doctor thinks no problem because A disease was treated appropriately and 5-year survival rate is 99%

• Insurance Medicine

If standardized mortality rate of male at age 40 is 0.001 and age 44 is 0.002, 1 person died in 1,000 people in 5 years

1 patient of A disease dies in 100 patients in 5 years

A disease at age 40 has 10 times risk of death compared to standard group

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Conclusion

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Conclusion


Conclusion

Accept the applicants as many as possible

Give the entire group of same risk class fair deal

Offer the more lower premium to the applicants

Give the chance to accept the insurance to people who had given up to be insured

Avoid Anti-selection

Keep actual mortality rate within expected mortality rate

Keep the death benefit

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The underwriter is goal keeper of risk selection

Conclusion

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Conclusion

The recipe for underwriting …

Underwriting

Actuary

Sales

marketing

… 　 is their relationship

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Conclusion

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Conclusion

I came to shake hands to Cambodia

Let’s study significance of risk selection

Let’s understand the mission of underwriting

Let’s take the first step toward the underwriting

Let’s shake hands with the surrounding underwritersto develop the underwriting market

68


Conclusion

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Thank you !!

Documents

First step toward the Underwriting October 5, 2015 Naoyuki Tsukada Senior Underwriter FUWJ Assistant Manager of Underwriting Team Life Underwriting and