Speaker Name & Country : Haifei Chen, China

Topic: Critical Illness Product Development and

Claims Experience in China
 Table of Contents

China Market Overview

Why is CI Product Popular?

Experience and Risk Consideratons

Challenges&Opportunities

2
 China Market Overview
Life Insurance Companies Premium Income
1,800
Premium Income
1,600

1,400

1,200
RMB Billion

1,000

800

600

400

200

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Note: the figures for 2004-2010 were on statutory basis and before unbundling, while CIRC began to release the figures under New
PRC GAAP starting from 2011.
Source: CIRC Statistics

From 2005 to 2010, premium of China life&health insurance industry grew at 20% p.a.
Gross premium reached RMB1,586 billion in 2015, up by 25% compared with 2014

3
 Development

1988 1989 1991

1983 1985 1986 1987
USA, Cyprus, Greece,
1990 1992 1993 1995
China
Singapore, Germany,
South Africa UK Israel Australia Hong Kong, Malaysia, Switzerland, Taiwan Netherlands, France,
IndonesiaJapa Austria
New Zealand Thailand, Spain Italy, Belgium n

4
 Number of CI In-Force Policies as at 31/12/ 2012

South Indo-
Product Type Total China Hong Kong Malaysia Singapore Australia
Korea nesia
Traditional 96,583,394 88,419,388 2,063,908 2,506,105 2,034,346 857,649 697,294 305,123
Juvenile 2,277,905 2,102,986 108,942 10,884 50,217 2,953 1,923 1,074
Cancer 1,370,975 1,065,527 11,861 30,137 1,097 258,856 0 0
Female 501,068 190,241 156,925 115,042 34,238 410 2,952 0
Male 19,067 14,941 3,881 0 244 1 0 0
Total 100,752,409 91,793,083 2,345,517 2,662,168 2,120,142 1,119,869 702,169 306,197

Product Type China Hong Kong Malaysia Singapore

Traditional 96% 88% 94% 96%
Juvenile 2% 5% 0% 2%
Cancer 1% 1% 1% 0%
Female 0% 7% 4% 2%
Male 0% 0% 0% 0%
100% 100% 100% 100% Source:Gen Re DD Survey 2008-2012

5
 New Policies Written by Year
China
140,00,000

120,00,000

100,00,000

80,00,000

60,00,000

40,00,000

20,00,000

0
2004 2005 2006 2007 2008 2009 2010 2011 2012

Source:Gen Re DD Survey 2008-2012

6
 Average Sum Insured of In-Force Policies (in US$)

2,50,000
2,07,988
2,00,000

1,50,000

1,00,000

46,794 47,490 50,700

50,000
13,181
7,559 8,200
0
China Hong Kong Malaysia Singapore South Korea Indonesia Australia
Source:Gen Re DD Survey 2008-2012

7
 Average Sum Insured of New Business (in US$)
12,000
11,166
10,000 10,455
9,449
8,829
8,000 7,782

6,000
6,280
4,000

2,000

0
2008 2009 2010 2011 2012

China Malaysia Indonesia

Source:Gen Re DD Survey 2008-2012

8
 Table of Contents

China Market Overview

Why is CI Product Popular?

Experience and Risk Consideratons

Challenges&Opportunities

9
 Original Concept

You need insurance not only because you are going to die, BUT
because you are going to live.

Dr. Marius Barnard

10
 Dread Disease Fast Fact

Risks of suffering a DD Heart Attack

Annual probability of UK men aged 30-69 having a heart attack: 6 p.a.
Chances of survival are significant
Probability of UK men aged 30-69 surviving a heart attack:
for 24 hours: 62.5%
for 28 days: 50%
Probability of UK men aged 40-59 surviving a heart attack
for 5 years: 38%
for 10 years: 31.5%

Source: www.heartstats.org

11
 Dread Disease Fast Fact

Source: Steve Rowley, Gen Re U.S. Life/Health, Critical Illness Insurance Fast Facts

12
Dread Disease Fast Fact

Source: Steve Rowley, Gen Re U.S. Life/Health, Critical Illness Insurance Fast Facts

13
 Dread Disease Fast Fact
Probability of job loss among cancer Avg Time to Re-employment

patients:

47% experience job loss in Korea

Only 31% of these regained

employment over 5-yr period

Among those who did regain

employment.

Source: Park JH et al, Journal of Clinical Oncology, 2008

14
 Why is DD Bought?
Pay off the mortgage Increasing
life expectancy
Pay for expensive bills
Medical treatment
Rehabilitation Better Lifestyle
Home care treatment changes
Home modifications
Money to work less or temporarily stop working Increasing chance
Childrens education of suffering a DD

Affordable
Provide surrender value

15
 Why DD Insurance is Sold

Demand from agent and consumer

Easy to understand and affordable

Product diversification

Provide good return for insurance company

16
 Table of Contents

China Market Overview

Why is CI Product Popular?

Experience and Risk Consideratons
Conditions Covered and Definitions
Pricing
Underwriting
Claims

Challenges&Opportunities

17
 Conditions Covered and Definitions

The condition should be

Dreadful/ Not
critical/ anti-selective
traumatic Financial loss
expected

Reasonable chance Pricing basis

Easy to define and
of survival available
measure

18
 Conditions Covered and Definitions
Spread of Conditions

Initially,
Cancer, Stroke, Heart Attack, CABG
Then,
Kidney Failure, Major Organ Transplant, Multiple Sclerosis, Paralysis, Blindness
And then
Aortic Surgery, Loss of Speech, Loss of Hearing, Alzheimers Disease, Parkinsonss Diseases,
Severe Burns, Coma, Benign Brain Tumour, Terminal Illness, Chronic Liver Failure, Chronic
Lung Disease, Loss of Limbs, Aplastic Anaemia, Ulcerative Colitis, Motor Neurone Disease,
Heart Valve Surgery, Poliomyelitis, Muscular Dystrophy, Primary Pulmonary Hypertension,
Fulminant Hepatitis, Systemic Lupus Erythematosus, Encephalitis, Occupationally acquired
HIV, Creutzfeld Jacob Disease

19
 Conditions Covered and Definitions
A trend of competition on numbers
Many are rare and no claim
Perceived as more comprehensive coverage
Maximum No of diseases covered by year of product launch
100
90
80
70
60
50
40
30
20
10
0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

China Hong Kong

20
 Leading Causes of Claims - Male
Cause of Claim China HongKong Malaysia Singapore Indonesia Australia
Rank % Rank % Rank % Rank % Rank % Rank %
Cancer 1 57.7% 1 66.2% 1 44.7% 1 51.7% 2 28.3% 1 65.3%
Ischemic Heart Disease 2 19.2% 2 16.3% 2 35.0% 2 34.5% 1 44.0% 2 17.2%
Stroke 3 12.1% 3 7.9% 3 7.0% 3 6.9% 3 15.2% 3 4.6%
Kidney Failure 4 4.7% 4 2.4% 4 4.9% 4 1.8% 4 7.3% 8 0.6%
Heart Surgery 5 1.8% 5 1.5% 5 1.8% 5 1.1% 5 1.5% 5 2.7%
Paralysis 6 1.4% 9 0.4% 10 0.5% 6 1.0% 0.2% 0.1%
Chronic Liver Failure 7 0.5% 0.2% 0.2% 0.0% 8 0.4% 0.1%
Benign Brain Tumour 8 0.5% 6 1.4% 6 1.0% 8 0.6% 0.0% 6 1.2%
Total of top 10 98.5% 98.1% 97.1% 98.8% 99.1% 98.2%
Other than top 10 1.5% 1.9% 2.9% 1.2% 0.9% 1.8%
Total number of claims 276,335 5,893 6,938 8,541 1,497 1,071

Source: Gen Re DD Survey 2008-2012

21
 Leading Causes of Claims - Female
Cause of Claim China HongKong Malaysia Singapore Indonesia Australia
Rank % Rank % Rank % Rank % Rank % Rank %
Cancer 1 80.5% 1 89.1% 1 85.7% 1 88.3% 1 75.1% 1 87.1%
Stroke 2 7.3% 2 3.1% 2 3.7% 2 4.2% 2 8.3% 2 3.9%
Ischemic Heart Disease 3 4.0% 4 1.6% 3 2.8% 3 3.4% 3 6.2% 3 2.3%
Kidney Failure 4 3.1% 5 1.3% 4 2.6% 4 1.2% 4 5.2% 8 0.5%
Heart Surgery 5 1.4% 6 0.5% 7 0.6% 7 0.4% 9 0.5% 6 0.8%
Benign Brain Tumour 6 1.1% 3 1.7% 5 1.4% 5 0.8% 7 0.5% 5 1.1%
Multiple Sclerosis 0.1% 8 0.3% 0.2% 10 0.2% 6 0.6% 4 1.3%
Total of top 10 98.9% 98.3% 98.2% 99.4% 98.2% 98.4%
Other than top 10 1.1% 1.7% 1.8% 0.6% 1.8% 1.6%
Total number of claims 322,007 9,237 7,509 10,856 1,190 835

Source: Gen Re DD Survey 2008-2012

22
 Conditions Covered and Definitions
1 Malignant Tumour
China introduced in 2007 standard definitions for 25 2 Heart Attack
3 Sequela of Stroke
conditions 4
Major Organ Transplant or Hemopoietic Stem Cells
Transplant
Effective 1 August 2007 5 Coronary Artery Bypass Surgery
6 End Stage Renal Failure
Applicable to products of which the coverage is mainly for age
7 Loss of Limbs
18+ 8 Acute or Sub-acute Severe Hepatitis
9 Benign Brain Tumour
Critical Illness Product must cover Cancer, Heart Attack, CABG, 10 Chronic Liver Failure Decompensation Stage,
Stroke, Major Organ Transplant and Kidney Failure 11 Sequela of Encephalitis or Sequela of Meningitis
12 Deep Coma
If a disease with standardised definition is covered, the 13 Loss of Hearing
standardised definition must be used. 14 Blindness
15 Paralysis
Diseases without standardised definition can be covered, but 16 Heart Valve Surgery
must be ranked after the diseases with standardised definition in 17 Severe Alzheimers Disease
18 Major Head Injury
the policy wording. 19 Severe Parkinsons Disease
20 Severe 3rd Degree Burns
It also standardises the general exclusion clause - maximum 8
21 Severe Primary Pulmonary Hypertension
conditions 22 Severe Motor Neuron Disease
23 Loss of Speech
25 Aortic Surgery

23
 Conditions Covered and Definitions
Singapore (2016)
Standardised Cancer Definition A malignant tumour positively diagnosed with histological confirmation and
characterized by the uncontrolled growth of malignant cells with invasion and
China (2007)
destruction of normal tissue.
The presence of a malignant tumour is characterised by
The term malignant tumour includes leukemia, lymphoma and sarcoma.
progressive, uncontrolled growth, invasion and destruction
For the above definition, the following are excluded:
of normal and surrounding tissue. The malignant cells may
All tumours which are histologically classified as any of the following:
spread or metastasise to other organs of the body through
Pre-malignant;Non-invasive;Carcinoma-in-situ;Having borderline malignancy;
blood vessels, lymphatic vessels or coelom. The diagnosis
Having any degree of malignant potential;Having suspicious malignancy;
must be supported by pathological result and the tumour is
Neoplasm of uncertain or unknown behavior; orCervical Dysplasia CIN-1, CIN-2
classified as malignant by WHO's International
and CIN-3;
Classification of Disease (ICD-10).
Any non-melanoma skin carcinoma unless there is evidence of metastases to
lymph nodes or beyond;
The following diseases are excluded:
Malignant melanoma that has not caused invasion beyond the epidermis;
All Prostate cancers histologically described as T1N0M0 (TNM Classification) or
(1) Carcinoma in situ;
below; or Prostate cancers of another equivalent or lesser classification;
(2) Chronic lymphocytic leukaemia having progressed to
All Thyroid cancers histologically classified as T1N0M0 (TNM Classification)
Binet Stage A;
or below;
(3) Hodgkin's disease having progressed to Ann Arbor I;
All tumours of the Urinary Bladder histologically classified as T1N0M0 (TNM
(4) Skin cancers except malignant melanoma or skin
Classification) or below;
caners that have metastasised;
All Gastro-Intestinal Stromal tumours histologically classified as T1N0M0 (TNM
(5) Prostate cancers which are described as TNM
Classification) or below and with mitotic count of less than or equal to 5/50 HPFs;
Classification T1N0M0 or lesser classification; and
Chronic Lymphocytic Leukaemia less than RAI Stage 3; and
(6) Malignant tumour manifesting during HIV infection or
All tumours in the presence of HIV infection.
AIDS.
24
 Thyroid Cancer Incidence Rate China

0.35
18.6% p.a.
0.30

0.25

0.20

0.15
21.3% p.a.
0.10

0.05

0.00
2004 2005 2006 2007 2008 2009 2010 2011 2012

Female Male Source: Gen Re DD Survey 2008-2012

25
 Thyroid Cancer Incidence Rate China

1.80
1.60 18.6% p.a.
1.40
1.20 Korea
1.00 2008
0.80
21.3% p.a.
0.60
Korea
0.40 2008
0.20
0.00
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Male Female Projected-M Projected-F

26
 Thyroid Cancer Incidence Rate China

Beijing: Beijing Population Statistics

- Increased by 40% from 2011 to 2012,
this trend continues in 2013

Shenzhen:
- More than doubled from 2012 to 2014
- No. 2 for females in 2014

Hangzhou:
- No. 1 for females in 2014

27
 Critical Issues involved with Definitions
Industry promises to keep DD definitions unchanged for many years
into the future.
Do you know EXACTLY for what insurance coverage is provided?
How robust the DD definition is to possible future changes?
What could cost us if micro events are easily detected and not
excluded? Can they be excluded?
Is the industry prepared to pay large lump sums for events which are
not life-threatening or even disabling?

28
 What are the Risks - Pricing
Pricing risks
Source of pricing information
Pricing error
Unexpected deteriorating claims experience
Trend risks

29
 Sources of Information for Incidence Rates
Medical Statistics & Research/Population Statistics
Industry Table
Reinsurance Quote
Company Specific Experience

30
 Sources of Information for Incidence Rates
China Insurance CI Table (2006-2010)
Released in 2013
Two sets of ix and kx for the 6 core
diseases and 25 standardised diseases
respectively
As a benchmark for statutory valuation of CI
business

31
 Sources of Information for Incidence Rates
Company Specific Experience
160%

140%

120%

100%

Male
80%
Female

60%

40%

20%

0%

A/E ratio by companies Mainland China, Gen Re DD Survey 2008-2012

32
 Pricing Risks Risks of Error
The risk of wrong assumptions or conclusions in the product development
process
Inadequate or inappropriate statistics (younger and older age, under/over reporting)
Incorrect adjustments (insured lives, first-ever event, overlap, region difference)
Wrong assumptions (mismatch between definition and pricing)
Company specific experiences
Trend
Long-term guarantee

33
 A/E Ratio by Year China

Death with Acceleration Dread Disease

140% 1.4% p.a.
120%
100% 2.7% p.a.
80%
60%
40%
20%
0%
2004 2006 2008 2010 2012
Male Female
A/E ratios, Gen Re DD Survey 2008-2012, Mainland China
34
 A/E Ratio by Year China

Death Only
60%
-0.6% p.a.
50%

40%

30% -0.9% p.a.

20%

10%

0%
2004 2006 2008 2010 2012
Male Female
A/E ratios, Gen Re DD Survey 2008-2012, Mainland China
35
 A/E Ratio by Year China

Acceleration Dread Disease Only

100% 3.9% p.a.

80%
2.7% p.a.
60%

40%

20%

0%
2004 2006 2008 2010 2012
Male Female
A/E ratios, Gen Re DD Survey 2008-2012, Mainland China

36
 What are the Risks - Underwriting
Difficult to underwrite
Cancer risks are difficult to predict
Do you have pressure to relax your underwriting requirement?
Simplified underwriting for direct marketing, digital distribution, etc
Anti-selection

37
 Selection Effect (Death with Acc DD)
Male Female

Market Duration No. Of Claims A/E No. of Claims A/E

China 0 28,826 159% 21,544 124%
1 41,380 128% 32,700 106%
2+ 365,163 125% 335,835 109%
Hong Kong 0 418 67% 547 83%
1 479 67% 786 102%
2+ 4,690 79% 6,448 108%
Malaysia 0 276 105% 183 84%
1 316 105% 209 80%
2+ 8,296 110% 6,994 99%
Singapore 0 133 59% 148 72%
1 167 57% 214 80%
2+ 5,978 75% 7,654 92%

A/E ratios, Gen Re DD Survey 2008-2012, Mainland China

38
 What are the Risks - Claims
Difficult to assess claims
Early claims
High declinature rate
High ex-gratia claims
Product/Industry reputation risk

39
 Declinature Rate by Market and Duration

30%

25%

20%

15%

10%

5%

0%
China Hong Kong Malaysia Singapore Indonesia Australia

0 1 2+
Source: Gen Re DD Survey 2008-2012

40
 Reasons for Declinature

China
(38,141)

Hong Kong
(1,018)

Singapore
(690)

Indonesia
(2,018)

0% 20% 40% 60% 80% 100%

Non-disclosure Within waiting period Definition not met

Disease not covered Exclusions Other
Source: Gen Re DD Survey 2008-2012

41
Percentage of Ex-Gratia Claims by Calendar Year

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
2008 2009 2010 2011 2012

China Hong Kong Malaysia Singapore Korea

Source: Gen Re DD Survey 2008-2012

42
 Table of Contents

China Market Overview

Why is CI Product Popular?

Experience and Risk Consideratons

Challenges&Opportunities

43
 Opportunities&Challenges

Opportunities :
Growth in insurance industry
More Protection Products sales in the market
SA per policy continuously increases
Under-developed living benefit market, e.g. dread disease, long term care, disability, health
insurance
New distribution channels
Introduce new products

44
 New Dread Disease Products

Severity Based Dread Disease

Multiple Pay Dread Disease

Reinstatement of Death Cover after Dread Disease

Mortgage Dread Disease

Dread Disease Regular Benefit

Waiver of Premium Dread Disease

45
 Opportunities&Challenges

Challenges:
More Guaranteed/soft-guaranteed
Fierce Rate Competition leads to lower profit margin
Fierce competition leads to more and more conditions to be covered
Request on higher and higher non-medical limit
Jumbo case with extremely high sum assured
Knowledge and (system) support on the alternative distributions: digital, internet, app, etc
Simplified underwriting

46
 Conclusion

There is a BRIGHT future for

New Dread Disease Products!

Avoid the pitfalls and

manage the risks carefully!

47