GAIC5Oct04

Information about GAIC5Oct04

Published on October 31, 2007

Author: Janelle

Source: authorstream.com

Content

Insurance markets & genetics – a former actuary’s view:  Insurance markets & genetics – a former actuary’s view Guy Thomas www.guythomas.org.uk Topics:  Topics Market variations in insurance premiums over time between companies Risk selection: when in Rome…? Adverse selection is not adverse Adverse selection – theory & evidence Propitious selection Adverse selection & large policies What HGC & GAIC should do Variations in premiums over time & between companies:  Variations in premiums over time & between companies Term assurance: Typical standard rates down ~30% over 5 years to 2003… …then up ~20% during 2003 1st to 10th cheapest typically ~35% Critical illness (guaranteed rates) Typically down ~20% over 3 yrs to Dec 2002… …then up 50%+ in 2003. Source: Swiss Re. All premium rates from The Exchange (electronic quotation system for independent financial advisers ):  Source: Swiss Re. All premium rates from The Exchange (electronic quotation system for independent financial advisers ) Average of ten lowest rates for term assurance, 1999-2004 – each line is different age/sex/term/smoking/sum assured combination – each line indexed to 100 in Spring 2003 160-- 130-- 100-- | | Feb 99 Mar 04 Slide5:  Lowest rates for term assurance, 1999-2004 – ie same graph as above, but lowest instead of “lowest ten” rates – overall a similar story (slightly less increase in past year => spread of lowest 10 has increased in past year – also evident on next slide). 160-- 130-- 100-- | | Feb 99 Mar 04 Source: Swiss Re, The Exchange Source: Swiss Re, The Exchange:  Source: Swiss Re, The Exchange Ratio of tenth lowest to lowest rate for term assurance, 1999-2004 – each line is different age/sex combination (all 15yrs, £100k, non-smoker) – (grey line is a representative index for range of age/sex combinations) 1.6-- 1.3-- 1.0-- | | Feb 99 Mar 04 Slide7:  Is “spread” of 10 lowest rates due to permanent clientele effects? – table shows lowest (top) to 10th lowest term assurance rates in Sept 2003 – numbers are rankings of same companies in lowest 10 as at Sept 2004 – “N” = no longer in “lowest 10” in Sept 2004 …No obvious evidence of a permanent structure in “lowest 10” Source: Money Management magazine. All rates non-smoker, £100K sum assured. Critical illness (guaranteed rates):  Critical illness (guaranteed rates) Source: Lifesearch (independent financial advisers). Cheapest rate taken from The Exchange. Changes in CI prices (guaranteed rates):  Changes in CI prices (guaranteed rates) Sources: Redmayne (reassurance advisers), Lifesearch (independent financial advisers), trade press cuttings. These sources usually quote a single number as an “average” or “typical” change. “Costs” of possible adverse selection from ban on access to genetic tests:  “Costs” of possible adverse selection from ban on access to genetic tests All theoretical estimates seem trivial (in practice, immeasurable) cf. the variations just discussed. All theoretical estimates for % costs are “risk premiums” – need to halve again to compare with “gross premiums” actually paid by customer (typically ~50% of gross premium is expenses and commission). Risk selection customs: when in Rome…?:  Risk selection customs: when in Rome…? Example 1: Irish health insurance Voluntary insurance – NOT social insurance – coverage ~50% Effectively no underwriting – 3 key features – Community rating – same premium irrespective of age, sex, health Open enrolment – cannot decline anyone, and can leave and rejoin Lifetime cover – insurer obliged to renew each year (Possibility of “risk equalisation” payments…but much debate….regulations since 1996...no payments made to date.) When in Rome…(cont.):  When in Rome…(cont.) Consultation in Ireland in 2002: should age classification be introduced? Society of Actuaries in Ireland said yes Some insurers (eg BUPA Ireland) said no!....“…a hypothetical fear of a ‘vicious cycle’ destabilising the markets has not been substantiated in Ireland. No evidence exists for it...” Example 2: life insurance, UK v France UK: different rates for males/females. France unisex. Recent EU proposals (now shelved) to mandate unisex rating: actuaries across Europe could not agree what to say! When in Rome…(cont.):  When in Rome…(cont.) Example 3: UK health insurance Generally unisex, 10-year age bands, insurer can load premiums, apply exclusions or decline. Why different from life? Why different from Ireland? In summary, huge variations between markets and countries, with no obvious rationale. Several years ago, one could already see that even if genetics became vastly more predictive, access to genetic test results would not be needed to make insurance work. Adverse selection is not adverse:  Adverse selection is not adverse “Insurance bought by people who are likely to need it.” From a public policy viewpoint this is a positive effect (Note: I assume a benevolent policymaker. Some may have other objectives). Possibility of negative second order effects (ie adverse selection “spiral”)…but only if adverse selection is severe. Optimal (“adverse”) selection = the level which maximises the “overlap” of loss events (eg deaths) and insurance coverages – ie high enough that many higher risks are covered – but not so high that an “adverse selection spiral” develops. As an insurer, my objectives are quite different…and may be furthered by minimising the “overlap” of loss events & insurance coverages. “Insurance sold to people unlikely to need it.” Adverse selection – theory:  Adverse selection – theory Lack of obvious evidence of adverse selection “spiral,” even in quite extreme circumstances (eg Irish health insurance). Why? For an adverse selection “spiral” to get started, need insurance purchasing decisions to respond to price and risk differences – For given price, buy more (or more likely to buy) if risk is higher = risk elasticity of demand substantial and positive For given risk, buy less (or less likely to buy any) if price is higher = price elasticity of demand substantial and negative. Any evidence on risk and price elasticities? Adverse selection – evidence:  Adverse selection – evidence Evidence 1: crude experiment: UK critical illness sales in 2003 compared with 2002: Premium rates up 50%+ (see earlier) Number of policies sold down…but only 9% (Source: Swiss Re) At least for overall sales, it seems there is a limited response to price…. price elasticity over this range ~ -0.2. Evidence 2: “Price elasticity of demand for term insurance and adverse selection”(Pauly, Lemaire et al, 2003): Estimated individual response to price/risk changes (for those who buy at least some insurance) from yearly renewable term assurance data in United States Risk elasticity ~ +0.2 Price elasticity ~ -0.4 Their comment: both small, and risk elasticity smaller…(implies adverse selection story doesn’t get started.) Insurance purchase paradigm = meet protection needs at minimum cost, NOT increase wealth. Propitious selection:  Propitious selection Insurance purchase may sometimes be associated with lower risk, not higher risk. UK example: “Uninsured drivers are nine times more likely than insured drivers to have been convicted of a serious driving offence.” (ABI press release 11/8/04). Life, CI insurance examples?...probably…conjectures… Actuaries have no word to describe this =>neglected (sort of Sapir-Whorf hypothesis!). As a public policymaker, would hope that propitious selection weaker than adverse selection – otherwise the wrong people are buying insurance! Adverse selection and large policies - the one-shot gambler:  Adverse selection and large policies - the one-shot gambler Suppose premium assumes risk of claim p=1% Suppose genetic test tells me my real risk is p* =4% So “invest” in a £1m policy? If I could make the bet on 1,000 identical lives, maybe yes But in real life I can only make it once… …and I need to pay the large premium (£10,000)… …and it’s almost certain I just lose the premium I would never make such a bet! Ditto for wide range of plausible p, p* (Only starts to become attractive if p*>75% say) Insurance purchase paradigm = meet protection needs at minimum cost, NOT increase wealth needs (family structure, mortgage debt etc) dominate the decision price/risk “mis-pricings” are not exploitable by a “one-shot gambler”. (these observations consistent with financial advisers’ actual practice.) Slide19:  “Bans have already been imposed in some other countries….laying the way open for people with knowledge of their genetic condition to take advantage of insurance companies, thus pushing up the cost of insurance for everyone.” ?? ….Enoch Powell? What should GAIC do?:  What should GAIC do? Historically GAIC has attracted considerable (sometimes unfair?) criticism (eg Select Committee, press comment). Underlying reason: many people profoundly disagree with the GAIC project of legitimising genetic discrimination in insurance. It will get worse! – most people aren’t aware of the numbers yet! GAIC should draw ministers’ attention to the emerging dissonance between the numbers and the broad concepts underlying GAIC eg concept that genetic discrimination is “necessary” in insurance eg concept that genetic discrimination can be legitimised by “science” (very old mistake…made many times, in many contexts, in past 100 years…) Otherwise?... time for another Select Committee enquiry. What should HGC do? :  What should HGC do? Stop drifting! Draw attention to the emerging dissonance between the numbers and the broad concepts underlying GAIC. Advocate a statutory ban on asking for genetic test results at least as stringent as current moratorium no exceptions for so-called “information gathering” What would make me think again? obvious evidence of an adverse selection spiral (ie persistently declining coverage & increasing prices) in socially valuable markets. What will you do? :  What will you do? GAIC/HGC meeting 7/04:Question to panel: “Is there any evidence that would convince you to advocate a statutory ban? Is there any evidence that could change your mind?” Response: (Long pause)….“You have to realise that the insurance industry has a lot of political influence.” Structural bias…

Related presentations


Other presentations created by Janelle

web2001 5 potato fungicide
31. 12. 2007
0 views

web2001 5 potato fungicide

Acupuncture
04. 01. 2008
0 views

Acupuncture

Networking Devices
01. 01. 2008
0 views

Networking Devices

Som de Cinema
24. 10. 2007
0 views

Som de Cinema

Cataract  History  05
02. 05. 2008
0 views

Cataract History 05

GEC NEVC 0ct 06
28. 09. 2007
0 views

GEC NEVC 0ct 06

LECTURE 7
03. 10. 2007
0 views

LECTURE 7

TS2 2 1
04. 10. 2007
0 views

TS2 2 1

saferoom
07. 10. 2007
0 views

saferoom

cpt
16. 10. 2007
0 views

cpt

Presentation media use
17. 10. 2007
0 views

Presentation media use

MosbysNursingCONSULT Training
29. 09. 2007
0 views

MosbysNursingCONSULT Training

maws3 5883
23. 10. 2007
0 views

maws3 5883

Presentacion PPP Panama
22. 10. 2007
0 views

Presentacion PPP Panama

sankar jag
29. 10. 2007
0 views

sankar jag

G020213 00
29. 10. 2007
0 views

G020213 00

jan20wrf
03. 10. 2007
0 views

jan20wrf

Contexto Latinoamericano 2005
22. 10. 2007
0 views

Contexto Latinoamericano 2005

BLRB08 2 rbs
11. 12. 2007
0 views

BLRB08 2 rbs

CrystalPP
12. 10. 2007
0 views

CrystalPP

07 Pilz
19. 10. 2007
0 views

07 Pilz

Lec3 APS301 Slideshow
25. 10. 2007
0 views

Lec3 APS301 Slideshow

Hill Ch 003 part 3 03
31. 10. 2007
0 views

Hill Ch 003 part 3 03

Foolish Fragments
01. 11. 2007
0 views

Foolish Fragments

pp hematoma
06. 11. 2007
0 views

pp hematoma

file0068
06. 11. 2007
0 views

file0068

Biodiesel Production
07. 11. 2007
0 views

Biodiesel Production

turkey presentation
21. 11. 2007
0 views

turkey presentation

Turkey and the EU
23. 11. 2007
0 views

Turkey and the EU

chap14 07
14. 12. 2007
0 views

chap14 07

The Clash of Civilizations
23. 12. 2007
0 views

The Clash of Civilizations

grace agnew
20. 11. 2007
0 views

grace agnew

IX Aerosol
03. 01. 2008
0 views

IX Aerosol

Malignant Wounds
05. 01. 2008
0 views

Malignant Wounds

224 121676
07. 01. 2008
0 views

224 121676

Monday lab ppt presentation
10. 10. 2007
0 views

Monday lab ppt presentation

Sailor Relationship Management
08. 10. 2007
0 views

Sailor Relationship Management

Schischke Penang Label v2
01. 10. 2007
0 views

Schischke Penang Label v2

tomography
15. 10. 2007
0 views

tomography

Flowering2
17. 12. 2007
0 views

Flowering2

INMET training course v4
28. 12. 2007
0 views

INMET training course v4

landmarks And Monuments
12. 10. 2007
0 views

landmarks And Monuments

EARSS december 1 06
19. 10. 2007
0 views

EARSS december 1 06

Presen 1
10. 10. 2007
0 views

Presen 1

P6S1
16. 02. 2008
0 views

P6S1

mtgbog07 smith
19. 02. 2008
0 views

mtgbog07 smith

Viktoras Seskauskas
28. 11. 2007
0 views

Viktoras Seskauskas

Canadian literature powerpoint4
12. 03. 2008
0 views

Canadian literature powerpoint4

ses3 1545 Sethu Raman
30. 09. 2007
0 views

ses3 1545 Sethu Raman

A105 024 Cosmo
16. 10. 2007
0 views

A105 024 Cosmo

communication 2
27. 11. 2007
0 views

communication 2

Performance of DFT
31. 10. 2007
0 views

Performance of DFT

investment strategy
09. 04. 2008
0 views

investment strategy

Analyst meet
17. 04. 2008
0 views

Analyst meet

Sess 1 Zhang Xizhen
10. 10. 2007
0 views

Sess 1 Zhang Xizhen

2205 Joao Carlos
26. 11. 2007
0 views

2205 Joao Carlos

Single Payer101
07. 05. 2008
0 views

Single Payer101

dentalhealth
08. 05. 2008
0 views

dentalhealth

AACBelecs2004
08. 05. 2008
0 views

AACBelecs2004

Extending the SpanishWordNet
31. 10. 2007
0 views

Extending the SpanishWordNet

SCOPE991001
02. 05. 2008
0 views

SCOPE991001

SupportGroup031106
02. 05. 2008
0 views

SupportGroup031106

Martina OConnor
02. 05. 2008
0 views

Martina OConnor

dns pres michaelson roots
30. 10. 2007
0 views

dns pres michaelson roots

m101
09. 10. 2007
0 views

m101

CaseEUvirtuellefabrik
15. 10. 2007
0 views

CaseEUvirtuellefabrik

hou leong
10. 10. 2007
0 views

hou leong

DeSangroValencia
31. 10. 2007
0 views

DeSangroValencia

Intro to Pod biomech
30. 04. 2008
0 views

Intro to Pod biomech

wspa07 23
26. 03. 2008
0 views

wspa07 23

95 Romi 25mag
19. 10. 2007
0 views

95 Romi 25mag

Tue1530 137
09. 10. 2007
0 views

Tue1530 137

Helping students help themselves
30. 10. 2007
0 views

Helping students help themselves

XPath
18. 10. 2007
0 views

XPath

GSB presentation4
29. 12. 2007
0 views

GSB presentation4

tornado sample slides
02. 10. 2007
0 views

tornado sample slides

vbq
09. 10. 2007
0 views

vbq

sullivan list
08. 10. 2008
0 views

sullivan list

Moore Plasma Circulation ESSE06
02. 11. 2007
0 views

Moore Plasma Circulation ESSE06

biod145 lecture4 bb
16. 10. 2007
0 views

biod145 lecture4 bb

Final Spring 2003 Presentation
06. 03. 2008
0 views

Final Spring 2003 Presentation

Provisu SSIM2006
19. 10. 2007
0 views

Provisu SSIM2006

WDHSJuly505
20. 02. 2008
0 views

WDHSJuly505

30th Anniv USSP
17. 10. 2007
0 views

30th Anniv USSP

Prion2005
15. 10. 2007
0 views

Prion2005

imperialism 2
22. 10. 2007
0 views

imperialism 2

Lipchitz AFDonCatRisk
23. 10. 2007
0 views

Lipchitz AFDonCatRisk

Cumberland
26. 11. 2007
0 views

Cumberland

606
16. 11. 2007
0 views

606

eceatcz
20. 03. 2008
0 views

eceatcz

upa nyc jonathan bloom
04. 10. 2007
0 views

upa nyc jonathan bloom

ssuo robo3
15. 11. 2007
0 views

ssuo robo3

nuccio lanza
15. 11. 2007
0 views

nuccio lanza

Haroldo Sustainab Develop 0607
30. 10. 2007
0 views

Haroldo Sustainab Develop 0607

presentation eichhorn jan
16. 11. 2007
0 views

presentation eichhorn jan

ling411 23
19. 11. 2007
0 views

ling411 23

DYB US PRC
16. 10. 2007
0 views

DYB US PRC

PHN0202a
13. 03. 2008
0 views

PHN0202a

10 2205 HISTORIA EUA
13. 11. 2007
0 views

10 2205 HISTORIA EUA

ChineseAmericans
30. 10. 2007
0 views

ChineseAmericans

apgrid ggf4
09. 10. 2007
0 views

apgrid ggf4

kur
26. 10. 2007
0 views

kur

HIS104 Lecture05
31. 10. 2007
0 views

HIS104 Lecture05

Harvard Presentation
12. 10. 2007
0 views

Harvard Presentation

wilhelmson
02. 10. 2007
0 views

wilhelmson

MLI Site Visit 4 98 overview
29. 09. 2007
0 views

MLI Site Visit 4 98 overview