6 Long-term Care Product Considerations - Pang Chye

Long-term Care Product Design and Risk Management PAMJAKI seminar on the role of commercial insurance in aging population and long term care 24 November 2021 MILLIMAN LIMITED

About Milliman

Premier Global Brand in Insurance Consulting Largest global firm ▪ Well established, respected brand firm has 70 years of experience in life and health insurance ▪ Specialist practices in Life, Health, Property & Casualty, Employee Benefits, consulting Investment Consulting and Financial Risk Management High recognition of ▪ The largest global firm in life insurance and health consulting our quality in the industry worldwide ▪ Extensive presence and client network provide access to deep market insights and company developments High credibility among all our ▪ 60 offices in Americas, Europe, Asia and Australia clients ▪ More than 3,400 employees, including 1,100 qualified consultants and actuaries ▪ Consulting services on health issues to clients in more than 30 countries on six continents ▪ Asia Pacific team over 300 staff ▪ Revenue of more than USD 1 billion in 2020; over USD 400 million from healthcare ▪ Internationally regarded for the independence and high quality of our work Private | Confidential | Internal Use Only 3

Extensive LTC Experience Ministry of Health, Singapore ▪ Provided technical support to MOH since 2010 with regards to Singapore’s national long term care insurance schemes: ElderShield and CareShield Life ▪ Reviewed current experience culminating in the proposed buy-back of the existing ElderShield portfolios from three private insurers ▪ Some of the work scope we performed for MOH includes: Comprehensive portfolio review Experience studies Product design and pricing Review of underwriting and claims operations Premium impact analysis Fund solvency projections Fund financial projections Due diligence Risk monitoring strategy Review of IT system considerations 4

Significant Health Project Experience in Asia We highlight selected health projects that our consultants and advisers have worked on in Asia: ◼ We have ◼ Operational ◼ We have ◼◼ WWeehhaavvee ◼ In-depth market ◼ We have ◼ We are engaged ◼ We have consulted to the review and due consulted to the ppeerrffoorrmmeedd research consulted to HA by the Ministry of performed three largest diligence of two of largest writer of eexxtteennssiivvee and FHB on Health to extensive claims health insurance the five largest health insurance ccllaaiimmss ◼ Fraud, Waste healthcare perform a experience companies in group medical in Taiwan, eexxppeerriieennccee and Abuse financing issues comprehensive reviews and China on insurers. helping it review rreevviieewwssaanndd analytics using since 2003, review of developed product design, and re-price its ddeevveellooppeedd Machine culminating in our ElderShield, the detailed pricing pricing, ◼ We have entire suite of ddeettaaiilleeddpprriicciinngg Learning work on the HPS national Long bases, using solvency consulted to a health insurance bbaasseess,,uussiinngg in 2010 Term Care Generalised monitoring, number of products GGeenneerraalliisseedd ◼ Team members scheme Linear Models, valuation of associations, LLiinneeaarrMMooddeellss,, bring experience ◼ We have been for the entire claim liabilities, leading group ffoorrtthheeeennttiirree as Chief consulting to ◼ We have spectrum of and determining medical insurers ssppeeccttrruummooff Actuaries major writers of consulted to the health insurance economic value and some of the hheeaalltthhiinnssuurraannccee overseeing large PMI in Hong largest four of products, of the operations leading hospitals, pprroodduuccttss,, PMI portfolios, Kong on pricing the five largest including dental including Siloam iinncclluuddiinnggddeennttaall claims experts and product insurers in products. and Ramsay pprroodduuccttss.. managing claims design, trouble- Singapore on hospitals. for over 20 shooting, review MediShield and 5 insurance of claim files and ElderShield ◼ We have reviewed companies, and hospital the portfolio former CEO at a discharge experience of hospital group summaries three of the five largest group medical insurers. ◼ We have and developed a claims benchmarking tool for profiling providers and managing TPAs for a leading group medical insurer.

Nature of Long Term Care Insurance

Nature of LTC Insurance Overview ▪ Complex models ▪ Multiple assumptions ▪ Very long term product ▪ Large reserves built up ▪ Capital intensive 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 For a cohort of policyholders, reserves build over time until claims start being paid at the older ages and reserves start as policyholders start to leave the books. 7

LTC Modelling ▪ Multi-state model: movement of lives between healthy, disabled state and dead/terminated states Multi-State Model Healthy - (Total Death – Disabled Death) + Healthy - (Total Death – Disabled Death) + Healthy Recovery – Newly Disabled - Lapse Recovery – Newly Disabled - Lapse Disabled Incidence Incidence Incidence Recovery Recovery Recovery Dead / Dead / Dead / Terminated Terminated Terminated Disabled + Newly Disabled – Disabled Disabled + Newly Disabled – Disabled Death – Recovery - Terminated Death – Recovery - Terminated Total - Total Death – Lapse - Terminated Total - Total Death – Lapse - Terminated Total In-force In-force In-force Year 1 Year 2 8

Key Assumptions Disabled Lives Mortality ▪ Active lives mortality: vary by age and policy 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 duration Claim Duration ▪ Disabled lives mortality: vary by disabled age and Disabled Age 40 Disabled Age 60 Disabled Age 70 Disabled Age 80 claim duration Active Lives Mortality ▪ Mortality improvement ▪ Morbidity ▪ Morbidity improvement ▪ Recovery ▪ Lapse ▪ Investment return ▪ Cost of care (if in-kind benefit) ▪ Wage (if benefit is indexed to wages) 40 42 44 46 48 50 52 54 56 58 Attained Age Year 2002-2006 Year 2007-2011 Year 2012-2016 9

LTC – Long-term Nature Reserve Key risks given the long term nature of the product ▪ Investment risk ▪ Longevity risk ▪ Uncertainty of cost of care ▪ Pricing risk 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 Baseline Lower Inv Rate Scenario Lower Mort Rate Scenario 10

Product Considerations

Product Design Premiums ▪ Non-guaranteed Key Principals ▪ Guaranteed with profit-share ▪ Level vs indexed Benefits ▪ Duration of premium payment ▪ Benefit eligibility ▪ 2ADLs vs 3ADLs ▪ with dementia vs without dementia ▪ Cash benefit vs. reimbursement of expenses ▪ Fixed cash benefit vs. indexed ▪ Cost sharing on reimbursement of expenses ▪ Benefit duration - fixed periods (e.g. 5 years, 10 years) vs lifetime ▪ Elimination period ▪ Hybrid LTC/accelerated death benefit: riders to life insurance 12

What’s Happening in the US (1) ▪ Premium rate increases due to underpricing before 2000s, i.e. underestimating assumptions such as lapse and life expectancies, and overestimating interest rates Rate Increases in the US Average Approved Rate Increase 5% - 9% 6% 10% - 19% 29% 31% 20% - 29% 30% - 39% 9% 40% - 49% 14% 50% - 59% 3% 60% + 9% 15% 20% 25% 30% 35% 0% 5% 10% Percentage of Responses 13

What’s Happening in the US (2) ▪ Reduced benefit option (RBO) to prevent significant premium rate increases ▪ Daily benefit reduction ▪ Reduce/eliminate inflation protection ▪ Benefit period reduction ▪ Eliminate optional riders ▪ Elimination period lengthening ▪ Coinsurance ▪ Inclusion of wellness programs in LTC policies (regulation-making stage): LTC insurers see some value in approaching policyholders prior to catastrophic need ▪ Strategy: Improve customer health; provide equipment, devices or other services ▪ Goal: to delay or prevent catastrophic LTC ▪ Approach: 1) Claims management for active claims 2) Pre-claim population management ▪ Model: a near-term LTC model instead of a long-term one used for pricing/reserving ▪ Predict if an individual will have a claim in the near future (e.g.,12 to 24 mths) ▪ Predictive factors: age, sex, current marital status, socio-economic status, health status, access to health and services, family / friend / community social networks, and others 14

Thank You Pang Chye [email protected]