028 Combined New Hlth05

Society of Actuaries
New Orleans Health/Pension Meeting

June 15 - 17
Session 28 PD
Long Term Disability Experience Committee Update
LTD Experience Committee
Agenda
•Recap of Experience Table Development
•Challenges Facing the Experience Committee
•Valuation Table versus Experience Table
•Measuring & Monitoring Claim Management Results
•The Challenge of Interpreting Results
SOA 2005 June Spring Meeting - 28PD, Long-Term Disability Experience Committee Update
1
Presenters
•Roger Martin, UnumProvident
•Rick Leavitt, Smith Group
•Tom Casalena, Reliance Standard
Participating Companies
AIG/American General Lafayette Life

American United Life Insurance Co. Liberty Mutual
Anthem Life Insurance Company MetLife Ins. Co.
Assurant Mutual of Omaha Insurance Co.
CIGNA Group Insurance Principal Financial Group
CNA Insurance Co Prudential Financial
Florida Combined Life Reliance Standard Life Ins. Co.
Genworth Safeco Insurance Co.
Guardian Life Insurance Co. Standard Insurance Co.
Hartford Life Insurance Co States West
Jefferson Pilot Financial UnumProvident Corp.
2
Experience Committee Members
Edd Bailey - Assurant Rick Leavitt - Smith Group

Dennis Brewer - Hartford Allen Livingood - UnumProvident
Warren Cohen - Relaince Standard Jack Luff - SOA
Tom Corcoran - Tillinghast Roger Martin - UnumProvident, Chairman
Pat Fay - MassMutual Chuck Meintel - JHA
Deb Fredricks - MetLife Eric Poirier - UnumProvident
Steve Garfield - Standard Ray Siwek - Prudential
Paul Hitchcox - ULR Nick A. Smith - CIGNA
Beth Horvath - Hartford Katie Ward - CIGNA
Profile of Initial Review

• 19 companies participating.
• More than 1.7 million claims submitted with more than 1.0 million currently in
experience study.
• Not all data submitted by each company was in sufficient detail to be included in
this initial review – most notable exclusion was by calendar year.
• 25 million months of claim exposure over 10+ calendar years.
• Dampening factors will be applied to reduce the influence of those companies
supplying the largest exposures.
• Initial variables reviewed include age, gender, elimination period, duration,
diagnosis of claim, definition of disability, and gross benefit amount.
• Analysis of raw recovery and death rates along with actual to expected ratios
relative to Table95A (t95a).
3
Recovery Rate - Company Distribution

100.00%
Min 25%-ile Median 75%-ile Max
10.00%
Termination Rate
1.00%
0.10%
0.01%
6
19 8
25 4
31 0
37 6
43 2
49 8
55 4
61 0
67 6
73 2
79 8
4
8
0
2
4
6
8
0
2
4
6
8
13 2
96
0+
1-
10
12
13
14
15
16
18
19
20
21
22
-1
-2
-3
-3
-4
-4
-5
-6
-6
-7
-7
-8
1
7-
24
Claim Duration
Recovery Rate - EP 180

5.0%
Actual Recovery
4.0%
Expected Recovery - t95a
Termination Rate
3.0%
2.0%
1.0%
0.0%
6 18 30 42 54 66 78
Monthly Claim Duration
4
Death Rate
1.4%
1.2%
Actual Death
Expected Death - t95a
1.0%
Termination Rate
0.8%
0.6%
0.4%
0.2%
0.0%
4 16 28 40 52 64 76
Monthly Claim Duration
Industry Termination Summary

200%
160%
141%
150% 141%
131%
% t95a
110% 114%
114%
108% 102% 103%
96%
100%
73% 97%
102% 96%
82% 79% 85% 88% 87% 83% 84%
79% 79% 77%
50%
1-3 mo 4-6 mo 7-9 mo 10-12 Yr 2 Yr 3 Yr 4 Yr 5-7 Yr 8-10 Yr 11- Yr 15+ All
mo 14
A/E Recovery A/E Death 'Combined' A/E Claim Duration
10
5
Recovery Rates by Calendar Year & Duration

2.5% 8%
7%
2.0%
Termination Rate - Yrs > 1
6%
Termination Rate Yr 1
1.5% 5%
4%
1.0% 3%
2%
0.5%
1%
0.0% 0%
90-92 93-95 1996 1997 1998 1999 2000 2001 2002
Yr 2 Yr 3 Yr 4 All Yr 1
Calendar Year
11
Death Rates by Calendar Year & Duration

1.00%
Termination Rate
0.75%
0.50%
0.25%
90-92 93-95 1996 1997 1998 1999 2000 2001 2002
Yr 1 Yr 2 Yr 3 Yr 4 All Calendar Year
12
6
Challenges Facing the Experience Committee
Initial Output:
Raw Experience Rates, tabulated by various segments
Desired Output:
Experience Report … what is important?
Experience Table
Valuation Table
13

Volatility of Results
Raw Termination Rates: Male/Age 40-44/EP 90/ All Diagnosis

6%
5% Recov
Death
4%
3%
2%
1%
0%
12 22 32 42 52 62 72 82
14
7
Raw Termination Rates: Male/Age 50-54/All EP's/Cancer

6%
5% Recov
Death
4%
3%
2%
1%
0%
12 22 32 42 52 62 72 82
15

How Much Smoothing ?
“We view graduation not merely as smoothing, but as the

more general process of estimating true rates which actually
prevail in the population…”
Kimeldorf and Jones “Bayesian Graduation”, TSA XIX 1967
12 Ages * 2 Genders * 7 Diagnoses * 3 Elims * 96 Durations *

2 Def of Dis = 96,768 buckets
Study includes: 382K recoveries and 127K Deaths
16
8
Additional Considerations
How to handle Settlements?
How to handle change in definition?
Mental/Nervous Limits?
+
Additional Data validation?
17

Definition of Disability
EP 90 Day Recovery Rates: Own Occ Test by Duration

3.0%
2.5%
24 Mo
UnLimited
2.0%
1.5%
1.0%
0.5%
0.0%
12 22 32 42 52 62 72 82
18
9
Claim Settlements
All Claims - Monthly Termination Rates

0.40% Recov
Death
0.35%
Settlements
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
48 54 60 66 72 78 84
19

Data Quality
Raw Death Rates: All Claims

1.1%
EP-90
1.0% EP-180
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
20 22 24 26 28 30 32 34 36
20
10
Valuation Table versus Experience Table
Reserve Margin:
87CGDT: Uses 90% of experience table term rates
Table95a: No Margin
Table 2005: ??
What is the right level of margin for a valuation table?
21
Valuation Table:
Accurate Reserves on an existing block of claims
(STAT? GAAP? TAX?)
Pricing Table:
Will accurately reproduce total claim cost given claim
incidence
Experience Table
Matches observed termination rates given study
methodology
22
11
Question:
When tabulating termination rates should you expose claims
from the beginning of the benefit period or from the date the
claims is submitted?
Answer:
Uh, it depends…
Do you hold a reserve on claims in the elimination period?
Do you hold a reserve for claims that are not approved?
Do you include in your termination study claimants that return
to work before submitting a claim?
23
One Approach:
No reserve on claims in the elimination period (captured in IBNR)
Pending claims get a denial rate times a full reserve
Termination study includes only claims with payments
Valuation Pricing
Expose Paid Claims from Expose all claims from
Submit Date benefit begin date
Do not include claims Claim incidence includes

closed when submitted all paid claims
24
12
Simple Model
Term Reporting Observations
Dur Rates Pattern
Almost 7% of claims
1 3%
close before they
2 10%
report
3 20%
4 11% 30% Claims on reserve have
5 10% 20% a reduced expectation
6 9% 8% of termination since
7 7% 3% they have already
8 6% 3% survived to that point
9 5% 2%
10 4% 1%
11 4% 1%
12 3% 0%
25
Claim Termination Rates

12%
Reserve Claims
10% All Claims
8%
6%
4%
2%
0%
4 5 6 7 8 9 10 11 12
Claim Duration (Mo)
26
13
Impact on Reserve Factor

60
55
50
Reserve Factor
45
40
35 Experience Table
Valuation Table
30
4 5 6 7 8 9 10 11 12
Claim Duration (Mo)
27
Valuation Pricing or Experience:

Exposure designed to All paid claims count
match claims on reserve towards incidence
Selection of exposure Expose all claims from the
depends on reserve beginning of the benefit
methodology period
** Match your Method ** We do not care when a
claim is submitted, only
how many months are paid.
28
14
… but Reality is always more complex

Claim termination rate depends on when the claim was
submitted.
Valuation method will work in aggregate, but will not work
for specific claims.
Simple method will over reserve for late reports and under
reserve for early reports
For pricing reserves pay attention to total benefit paid. Make
sure the termination rates produce accurate total claim cost.
29
Other Issues:
Your company has a practice of closing out claims early with a lump
sum payment spanning several months. (Advance Pay and Close).
Question: should claims be exposed to the claim closure date? Or to
the end of the benefit period?
Valuation Experience
What is your practice? Do you We do not care when the claim was
release reserve when the claim is closed, only how much the claim
closed? was paid.
Count as full termination at the end
Experience table will under reserve
of the paid benefit (Experience
remaining claims
Committee Method
30
15
Handling of Advanced Pay and Close:

Two Options for Valuation
1. Hold a full reserve until the end of the paid benefit period
and use the pricing table approach of counting exposure
(Advanced Closures are used as a benefit management tool,
but have little impact on current reported income)
2. Release the reserve when the claim is closed and count each
closure as a fractional closure in that duration
Caution: Material change in practice may render current

termination rates inappropriate
31
Measuring & Monitoring Claim Management Results

Examples of Metrics and Related Uses
Overview
• A/E Termination Rates
• Net Closure Rates
• Percentage of Claimants Receiving SS Awards
32
16
A/E Termination Rates: Uses
• Assess Reserve Adequacy
• Develop Pricing Assumptions
• Measure Loss Experience
33

Net Closure Rates: Uses
• Explain Variances in Financial Results
• Assess Claim Management Performance
34
17
Percentage of Claimants Receiving SS Awards:

Uses
• Assess Claim Management Performance
• Assess Financial Costs
• Assess the Productivity / Value of SS Advocacy
35

A/E Termination Rates:
• Sample Report Template
• Measurement Considerations
• Parameters Under Study
36
18
Sample Template #1
Actual to Expected Termination Results
Summary by Selected Variables: Claim Count Basis
for Claims Terminated Through 12/31/2004 , Developed Through 03/31/2005
Selected Paramater
Rolling N-year Observation Period

Selected Paramter Exposure (yrs) by Duration Month A/E Ratios by Duration Month
Classifications <12 [12,24) …….. Total <12 [12,24) …….. Total
37

Sample Template #2
Quarterly Trend Summary of A/E Termination Results
Count Basis Net Benefit Basis

Selected Database Observation Rolling Rolling Rolling Rolling Rolling Rolling
Parameter Ending Ending 1-year 4-year 6-year 1-year 4-year 6-year
3/04 12/03
6/04 3/04
9/04 6/04
12/04 9/04
3/05 12/04
38
19
Examples of Measurement Techniques
A/E Termination Rates: Parameters Under

Study
• Primary
– Aggregate, EP, Gender and Diagnosis
• Secondary
– Gross Benefit, Net Benefit, Benefit %
– Own-OCC period, Age Group, Industry
– Case Size, Occupation and Other
39

Net Closure Rates:
40
20
Sample Template #1
LTD Net Closure Rates *
By Calendar Quarter and Duration
Aggregate Results
Basis : Count Basis

Se le ct C ount O f O pe n C laims as of BO P By Cale ndar Q uarter C lose d Claim % by Cale ndar Q uarte r
Duration Range s 1q05 2q05 3q05 4q05 Total 1q05 2q05 3q05 4q05 Total
Basis : Re serve - We ighte d

Se le ct Total O pe n Re se rve s as of BO P By C ale ndar Q uarte r Re serve Change % by C ale ndar Q uarte r
Duration Range s 1q05 2q05 3q05 4q05 Total 1q05 2q05 3q05 4q05 Total
* Ne t of Re -ope n claims
41

Sample Template # 2
LTD Net Closure Rates *
Summary by Selected Variable
for Claims Terminate d During Q 105
Selected Paramater
Basis : Count Basis

Selected Paramte r Count O f O pen Claims as of BO P By Duration Closed Claim % by Duration Normalize d
Classifications [0,6) [6,12) …….. Total <12 [12,24) …….. Total Totals
Basis : Re se rve We ighte d

Selected Paramte r Total O pe n Reserve s as of BO P By Duration Reserve Chg on Closures % by Duration Normalize d
Classifications [0,6) [6,12) …….. Total <12 [12,24) …….. Total Totals
42
21
Net Closure Rates: Parameters Under Study
• Primary
– Aggregate, Duration and Calendar Period
• Secondary
– Gross Benefit, Net Benefit,
– Diagnosis, Claim Office, Other
43

Percentage of Claimants Receiving SS Awards:
44
22
Sample Template #1
LTD Social Security Offsets *
By Calendar Quarter
Developed Through 03/31/2005
Percentage of Claimants Receiving Awards

Quarter Gender Duration
Ending Male Female < 24 Months>= 24 Month Total
2Q2000
3Q2000
|
|
1Q2005
* Includes Actual and Estimated Awards
45

Sample Template # 2
LTD Social Security Offsets *
By Company, Duration, and Gender
As of 03/31/2005
Select Parameter:
Males Females Total Male and Female

Duration # Claims # Awards SS Offset % # Claims # Awards SS Offset % # Claims # Awards SS Offset %
<6mo
[6,12)
|
|
Total
<24 mo
>=24 mo
* Includes Actual and Estimated Awards
46
23
% of Claimants Receiving SS Awards:

Parameters Under Study
• Primary
– Aggregate, Gender, Duration and Calendar
Period
• Secondary
– Claim Office, Other
47
The Challenge of Interpreting Results

Examples Of Potential Challenges
• Internal/External Reasons
• Significant Variance By Company
• Converting Termination A/E into Implications for

Reserve Adequacy
• Adequacy Weighted A to E
48
24
Internal / External Reasons
• Data Integrity Issues
• Changes in Claims Administrative Systems
• Changes in Claims Administrative Practices
• Changes in Business Mix
• Economic Forces
49

Internal/ External Reasons
Some Action Steps For Consideration:
• Incorporate Routine Data Audit Checks
• Meet Regularly with the Disability Claim Managers
• Normalize Results for Comparison Purposes
• Assign Credibility Statistics to the Metrics
• Review Specific Case Outliers
• Compare to Industry Benchmarks
50
25
Variance by Carrier
Study Shows Significant Variance by Carrier

High Terms early followed by low terms in later durations
…. Or Vice Versa
Causes?
Claims Management Business Mix
Approval Rate Blue versus White
Timing of Process w/ STD?
How Aggressive?
Quality of Data?
Caution:Aggregate Results may not match your company’s experience
51

Termination A to E Report
Total Terminations: Report 1 Total Terminations: Report 2

Duration Actual Expected A to E Duration Actual Expected A to E
Year 1 6,152 5,127 120.0% Year 1 4,101 5,127 80.0%
Year 2 1,801 1,637 110.0% Year 2 1,473 1,637 90.0%
Year 3 1,017 1,130 90.0% Year 3 1,243 1,130 110.0%
Year 4 379 421 90.0% Year 4 506 421 120.0%
Year 5 206 187 110.0% Year 5 206 187 110.0%
Year 6 147 147 100.0% Year 6 147 147 100.0%
Year 7 103 114 90.0% Year 7 103 114 90.0%
Year 8 76 95 80.0% Year 8 90 95 95.0%
Year 9 58 83 70.0% Year 9 83 83 100.0%
Year 10 47 67 70.0% Year 10 67 67 100.0%
Year 11+ 219 364 60.0% Year 11+ 383 364 105.0%
Total 10,205 9,373 108.9% Total 8,124 9,373 86.7%
Question: What are adequacy implications of the two reports?

For the entire block? For New Claims?
52
26
Impact of 10% drop in Termination Rate

Duration of the Adjustment ===================>
Dur of
Claim Yr 11+ Yr 10 Yr 9 Yr 8 Yr 7 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1
Year 1 0.30% 0.08% 0.09% 0.11% 0.14% 0.20% 0.35% 0.51% 1.00% 1.87% 1.30%
Year 2 0.35% 0.09% 0.11% 0.14% 0.17% 0.23% 0.41% 0.61% 1.19% 0.87%
Year 3 0.46% 0.11% 0.14% 0.17% 0.21% 0.30% 0.52% 0.75% 0.64%
Year 4 0.56% 0.14% 0.17% 0.21% 0.26% 0.35% 0.63% 0.39%
Year 5 0.64% 0.17% 0.20% 0.25% 0.31% 0.43% 0.34%
Year 6 0.75% 0.20% 0.24% 0.30% 0.37% 0.23%
Year 7 0.98% 0.24% 0.30% 0.36% 0.20%
Year 8 1.16% 0.29% 0.35% 0.21%
Year 9 1.49% 0.35% 0.21%
Year 10 1.74% 0.22%
Year 11+ 2.15%
Illustrative Purposes Only: Actual Impacts depend on

demographics of your block and the expected termination rates
53

Adequacy Implications of Report 1

Termination Report Entire Block Claims in Year 1
Adequacy Adequacy
Adequacy Adequacy
Duration A to E Variance Impact per 10% Impact per 10%
Impact Impact
Variance Variance
Year 1 120% 20% 0.13% 0.26% 1.30% 2.59%
Year 2 110% 10% 0.36% 0.36% 1.87% 1.87%
Year 3 90% -10% 0.42% -0.42% 1.00% -1.00%
Year 4 90% -10% 0.31% -0.31% 0.51% -0.51%
Year 5 110% 10% 0.27% 0.27% 0.35% 0.35%
Year 6 100% 0% 0.19% 0.00% 0.20% 0.00%
Year 7 90% -10% 0.16% -0.16% 0.14% -0.14%
Year 8 80% -20% 0.16% -0.32% 0.11% -0.23%
Year 9 70% -30% 0.15% -0.45% 0.09% -0.28%
Year 10 70% -30% 0.14% -0.43% 0.08% -0.23%
Year 11+ 60% -40% 0.82% -3.26% 0.30% -1.22%
Total 109% 9% -4.46% 1.20%
54
27
Adequacy Implications of Report 2

Termination Report Entire Block Claims in Year 1
Adequacy Adequacy
Adequacy Adequacy
Duration A to E Variance Impact per 10% Impact per 10%
Impact Impact
Variance Variance
Year 1 80% -20% 0.13% -0.26% 1.30% -2.59%
Year 2 90% -10% 0.36% -0.36% 1.87% -1.87%
Year 3 110% 10% 0.42% 0.42% 1.00% 1.00%
Year 4 120% 20% 0.31% 0.62% 0.51% 1.02%
Year 5 110% 10% 0.27% 0.27% 0.35% 0.35%
Year 6 100% 0% 0.19% 0.00% 0.20% 0.00%
Year 7 90% -10% 0.16% -0.16% 0.14% -0.14%
Year 8 95% -5% 0.16% -0.08% 0.11% -0.06%
Year 9 100% 0% 0.15% 0.00% 0.09% 0.00%
Year 10 100% 0% 0.14% 0.00% 0.08% 0.00%
Year 11+ 105% 5% 0.82% 0.41% 0.30% 0.15%
Total 87% -13% 0.85% -2.15%
55

Impact on Reserve Level of 10% drop in Terminations

2.0%
1.8% Entire Block
1.6% Claims in Year 1
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11+
Illustrative Purposes Only. Actual Impacts depend on

demographics of your block and the expected termination rates
56
28
Total A to E does not always align with reserve adequacy

Other Issues:
Claims in termination report may not be consistent with
claims used in a run-out study
Future may not match the past
Changes in external factors
Changes in claim practice
Data quality is an important issue
Reserve adequacy depends on more than claim terminations
Run-out Tests are the Best Method to Ensure Reserve Adequacy

57
Long Term Disability Experience Committee

Update
Questions ??
58
29

028 Combined New Hlth05

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

028 Combined New Hlth05

Transféré par

Droits d'auteur :

Formats disponibles

Society of Actuaries

New Orleans Health/Pension Meeting

LTD Experience Committee

•Recap of Experience Table Development

•Challenges Facing the Experience Committee

•Valuation Table versus Experience Table

•Measuring & Monitoring Claim Management Results

•The Challenge of Interpreting Results

•Roger Martin, UnumProvident

•Rick Leavitt, Smith Group

•Tom Casalena, Reliance Standard

LTD Experience Committee

AIG/American General Lafayette Life

Experience Committee Members

Edd Bailey - Assurant Rick Leavitt - Smith Group

LTD Experience Committee

Profile of Initial Review

Recovery Rate - Company Distribution

Min 25%-ile Median 75%-ile Max

LTD Experience Committee

Recovery Rate - EP 180

LTD Experience Committee

Industry Termination Summary

Recovery Rates by Calendar Year & Duration

LTD Experience Committee

Death Rates by Calendar Year & Duration

Challenges Facing the Experience Committee

Raw Termination Rates: Male/Age 40-44/EP 90/ All Diagnosis

Raw Termination Rates: Male/Age 50-54/All EP's/Cancer

Challenges Facing the Experience Committee

How Much Smoothing ?

“We view graduation not merely as smoothing, but as the

12 Ages * 2 Genders * 7 Diagnoses * 3 Elims * 96 Durations *

Challenges Facing the Experience Committee

EP 90 Day Recovery Rates: Own Occ Test by Duration

All Claims - Monthly Termination Rates

Challenges Facing the Experience Committee

Raw Death Rates: All Claims

Valuation Table versus Experience Table

Valuation Table versus Experience Table

Do not include claims Claim incidence includes

Valuation Table versus Experience Table

Claim Termination Rates

Impact on Reserve Factor

Valuation Table versus Experience Table

Valuation Pricing or Experience:

… but Reality is always more complex

Valuation Table versus Experience Table

Handling of Advanced Pay and Close:

Caution: Material change in practice may render current

Measuring & Monitoring Claim Management Results

• A/E Termination Rates

• Net Closure Rates

• Percentage of Claimants Receiving SS Awards

A/E Termination Rates: Uses

• Assess Reserve Adequacy

• Develop Pricing Assumptions

• Measure Loss Experience

Measuring & Monitoring Claim Management Results

Net Closure Rates: Uses

• Explain Variances in Financial Results

• Assess Claim Management Performance

Percentage of Claimants Receiving SS Awards: