Home > News > 2001 > March 2001 > Individual Income Protection Experience 1995 - 98
Individual Income Protection Experience 1995 - 98
This article appeared in the March 2001 edition of The Actuary magazine.
Pete McGurk, Secretary of the IP Sub-Committee of the Continuous Mortality Investigation Bureau and partner in our Life insurance consultancy team, reports on the latest available experience. This article appeared in the March 2001 edition of The Actuary magazine.
Lengthy delays in publishing results had become an undesirable feature of the CMI's Income Protection (formerly PHI) investigation. It is therefore pleasing to report that, after introducing some more flexibility in the data requirements and some hard work from our contacts in contributing offices, the IP investigation is quickly getting up-to-date on data collection and analysis. This is evidenced by the results of the individual IP investigation for 1995-98, which were sent to CMI members in September 2000. This article gives a short commentary on the results. A more detailed commentary will appear in a forthcoming CMI Report (these now appear on the profession's website in advance of the "blue books").
The data
It is also pleasing to report that the volume of data submitted to the investigation has increased substantially over the course of the quadrennium. The volume of in-force policy data increased by a factor of 44% over the period. Furthermore, the increases were most marked in areas where data had been previously sparse, e.g. deferred period 52 weeks and occupational class 2-4. As this increase only happened in the later years of the quadrennium, the effect is somewhat watered down for this quadrennium but should impact substantially in future if levels are maintained.
Changing office mix
The good news on data volumes does have a flip side. The experience of offices varies enormously. Figure 1 shows an example of this for inceptions in respect of deferred period, 13 weeks, Class 1 males. Each of the seven offices shown has at least 30 actual inceptions so the variation is not due to tiny data volumes. The value of actual/expected inceptions varies from about 40% to 150%. Clearly, if the proportion of data contributed by each office changes from one period to the next, any change in underlying morbidity may be masked as a result. The most dramatic changes to the mix of business are caused by offices which join or leave the investigation from one year to the next. This article therefore shows the "raw" results for all offices, split by occupational class, for 1995-98 but also shows a comparison of results for the last three available quadrennia for a sub-set of those offices that contributed to the investigation throughout the 12 year period. This eliminates a major cause of distortion but other factors may still distort any underlying trends in morbidity, e.g. changes in data volumes per office, changes to underwriting and claims control practices etc.
1995-98 results by occupational class
The methods of analysis are those described in detail in CMI report 15. These compare actual claim inceptions and terminations, by recovery and death, with those expected on the basis of the graduations of the male Standard experience for individual IP policies for 1975-78 as set out in CMI R. 12. This comparison basis is referred to as SM1975-78.
CMI has been collecting data split by occupational class since the start of the 1991-94 quadrennium. Offices submit data using their own internal class coding. These are then converted by CMI to the most appropriate of the four CMIstandard classes for analysis purposes. The classes are described fully on p4 of CMI R. 17 and range from the non-manual Class 1 to the heavy manual Class 4.
The data analysed by occupational class is a sub-set of the overall (Aggregate) data consisting of UK policies subject to no identifiable underwriting exclusions and no special benefit types (e.g. lump sums). This is known as the Standard* data.
The Standard* data is sub-divided between data from the four occupational classes and a diminishing "Class Unknown" category where offices cannot supply occupational class information.
Prior to 1991 offices submitted no occupational class information but were asked to indicate whether a policy was occupationally rated or not. This indication field has been retained in the data requirements alongside the occupational class field to see how the two correspond. The "old" occupational rating field was used to define the Standard data sub-set along with the same criteria used to define the Standard* sub-set. The Standard sub-set has been used for many years to reduce heterogeneity in the Aggregate data. It is itself therefore a sub-set of the "newer" Standard* sub-set but leaves out those policies which are shown as occupationally rated. Comparison of the "occupational rating" field with the occupational class field for recent data shows that not all Standard data is Class 1 but the great majority appears to be Class 1. The main use of Standard data is for historical comparisons with results prior to 1991 where occupational class information was not collected.
Table 1 shows the overall inception results for the 1995-98 Standard* experience for both males and females, split by occupational class. Table 2 shows the equivalent results for termination by recovery. Terminations by death are far fewer in number and are not discussed here for reasons of brevity.
The key features of the results are as follows:
- female inception experience continues to be much heavier than male experience
- inception rates generally increase with occupational class from Class 1 to Class 4
- there appears no evidence of any pattern for recovery rates to vary by occupational class
- female and male recovery rates are much more comparable than inception rates
Comparison with earlier experience
The above information relates to 1995-98 all office data. It is of natural interest to actuaries how this compares with previous experience. As explained above, the change in the mix of contributing offices can lead to misleading comparisons. For this reason we have chosen to isolate the combined experience of those offices that were present throughout the period 1987-98 and compare the experience of three quadrennia. The Standard sub-set is used which enables us to include data prior to 1991 and eliminates distortions caused by offices starting to supply occupational data at different times.
Table 3 shows, for each combination of sex and deferred period, the number of actual inceptions and the percentage of actual/expected (A/E) inceptions for the group of offices in respect of each quadrennium. It also expresses the A/E figures for the two later quadrennia as a percentage of the 1987-90 figure. The results for males show a decreasing trend for the shorter deferred periods and an increasing one for the longer deferred periods. For the 13 week deferred period, inception rates reduced in 1995-98 after increasing in 1991-94. For females, decreasing trends are evident for the 4 week and 13 week deferred periods but the picture is less clear for the other deferred periods.
Table 4 shows the equivalent figures for claim termination by recovery. This indicates a trend towards declining male recovery rates for all deferred periods apart from 1 week. The female results are less conclusive.
A final word
The investigation would not be possible without the commitment, resources and hard work put in by the offices that contribute data. We are very grateful to the offices concerned. Clearly, armed with up-to-date data, there remains great scope for further research into this complex and interesting area of the insurance industry.
Figure 1
Table 1
Individual IP, Standard* Data, Claim Inception Experience 1995-98
Comparison basis: SM1975-78
Table 2
Individual IP, Standard* Data, Claim Termination Experience (Recoveries) 1995-98
Comparison basis: SM1975-78
Table 3
Individual IP, Standard Data, Claim Inception Experience 1987-90, 1991-94, 1995-98
Combined experience for those offices contributing throughout 1987-98
Comparison basis: SM1975-78
Table 4
Individual IP, Standard Data, Claim Termination (Recovery) Experience 1987-90, 1991-94, 1995-98
Combined experience for those offices contributing throughout 1987-98
Comparison basis: SM1975-78
This article appeared in the March 2001 edition of The Actuary magazine.
Pete McGurk, March 2001.