Unum

Michael O’Donnell

Chief Medical Officer

Medicine & Its Impact on Protection Insurance

What’s the Chief Impact of Medicine?

Popluation by age in the UK (Females) 1901-2025

0

5

10

15

20

25

30

35

Under 16 16-24 25-34 35-44 45-54 55-64 65-74 75 and over All ages(=100%)(millions)

Agebands

Perc

en

1901 1931 1961 1991 2000 2011 2025

Popluation by age in the UK (Males) 1901-2025

0

5

10

15

20

25

30

35

40

Under 16 16-24 25-34 35-44 45-54 55-64 65-74 75 and over All ages(=100%)(millions)

Agebands

Perc

en

1901 1931 1961 1991 2000 2011 2025

Incapacity StabilisingIncapacity Benefits and Severe Disablement Allowance Recipients 1981-

2000

0

500

1,000

1,500

2,000

2,500

1981-82 1986-87 1991-92 1996-97 1998-99 1999-00

Year

No

of

Reci

pie

nts

Medical Innovations of the 20th Century• X Rays

• Radiotherapy

• Electrocardiograph

• Plastic surgery

• Antibiotics

• Antidepressants

• Drugs for hypertension

• Drugs for heart failure

• Open heart surgery

• Cervical cytology• Chemotherapy • Drugs for arthritis• Joint Replacements• Heart bypass surgery• Endoscopy• CT & MRI imaging• Cure for peptic ulcers• Microsurgery• Human Genome project

What Has This Meant for Critical Illness?• Many illnesses are less critical

– Declined claims– T&P an even more difficult definition– Does it do what people expect and what is it

for?

• New ABI definitions

Is Treatment Getting More Expensive?• Hysterectomy £4,500• Cataract & lens implant £2,500• Hip Replacement £8,500• But all much cheaper abroad• Herceptin £21,000• Avastin (bowel cancer) £2,400 pcm• ß-interferon (MS) £10,000 per year• NHS Lists falling and new doctors being

recruited from overseas - downward pressure on doctors’ pricing

Fields Of Research • Genetics /

cancer– Screening– Gene therapy– Stem Cells

• Surgery– Microsurgery– Transplants

• Therapeutics– Pharmacology

– Stem cell therapy

• Investigations– Laboratory

– Radiography

Is Screening Always Good For You?• Blood Pressure

• Blood sugar

• Cervical cytology

• Mammography

• PSA

• X-rays

• Whole body scanning (CT/MRI)

What Makes a Good Screening Test?• Simple

• Safe

• High sensitivity (no false reassurance)

• High Specificity (no false positives)

• Early detection of problem leads to prevention or effective treatment

• Medical tests for underwriting need to follow these rules

Gene Therapy

• Still in its infancy

• Very few success stories

• Difficult to insert genes (use a virus)

• Problems with immune reactions

• Problems with degradation of inserted genes

What Are Stem Cells?• Immature or undifferentiated cells.• Ability to become a number of different types of

mature cells.• The fertilized egg is the most immature and least

differentiated cell with the greatest potential.• Bone marrow cells are intermediate.• It is possible to persuade mature cells to revert

to being stem cells – but this needs caution (cancer).

What Are Stem Cells?

Microsurgery• Most eye surgery uses microscopes• Restoration of severed limbs since 1980’s• Laparoscopic surgery / arthroscopy• Use of remotely controlled mini-robots is just

starting– In May last year a heart valve was repaired using a

remotely controlled micro-robot

• Microsurgery has fewer complications– Smaller incisions– Shorter stays– Less time off work

Laparoscopic Cholecystectomy (Simulation)

Problems With Microsurgery

• Equipment expensive• Great skill needed to operate

– Slow and expensive to train staff– Recruitment difficulties

• Complications can be difficult to put right• All technologies get cheaper and easier

with time (except, perhaps medical ones for some reason)

Transplants• Cyclopsorin and tacrolimus have reduced

rejection rates• Kidney, heart, liver well established – islet cell

transplants may be a way forward for diabetes• Main problem is shortage of donors• Mechanical assist devices appear to let heart

recover from insults such as damage from viruses

• Best hope for future may be to regenerate new organs using stem cell technology

Pharmacology• Designer drugs

• Improved molecular biology– More rapid development of new drugs

– Better prediction of side effects

– Less need for animal experimentation

• HIV as an example

• MRSA as a warning

Problems Ahead!• Obesity

• Alcohol

• Antibiotic resistance

• Changes in disease pattern with climate change

IP (1)Incapacity Benefits and Severe Disablement Allowance Recipients 1981-

2000

0

500

1,000

1,500

2,000

2,500

1981-82 1986-87 1991-92 1996-97 1998-99 1999-00

Year

No

of

Reci

pie

nts

What’s on the Horizon?

• Stricter test for incapacity benefit• Better training for GP’s• Emphasis on occupational rehabilitation

– More onus on employers to rehabilitate– Fewer long term claimants– More opportunities for IP

• Development of more short term products– Cheaper– Simpler claims assessment– Good if combined with serious illness cover

The Challenge for Protection Insurers• Develop products that people need

• Listen to customers– Group– Individual– Brokers

• Is the Gold Standard product always the best?

www.protectionreview.co.uk

The Protection Review Conference

Protection Review Conference

Innovation – what innovation?

Roger Edwards , Product Director, Bright Grey

So how innovative

are we at the moment?

So how innovative are

we at the moment?

Spiral of price competition

Short term need to meet targets beats long term desire to innovate and be different

Prices fall further

Ambitious plans to grow market share

Industry infra-structure geared to price only

Protection markets

Income Protection

Critical Illness

Term

Life cover for less than 26p per day

When it comes to protection are retailers behaving like retailers?

Will price continue to fall?

12%

20%3%

65%

Commission Expenses Risk Profit

Better mortality

Psuedo - preferred lives

Tele-underwriting

Reassurance deals

Online transactions

Offshore admin

Persistency initiatives

Difficult to break out

Prudential Flexible Protection Plan

• Same market

• Alternative to CI

Virgin Cancer Plan

• New market?

• Alternative to CI

What advisers recommend?

Given regulation, advice justification, reasons why, threat of legal action

Existing CI• Cheap rates• Comfortable with cover• Proven concept• Millions paid in claims

Impact based CI• Higher rates• New definitions• Unproven concept• No claims history

Is innovation taking too big a risk?

Short term•Sales

•Profit/share price

•Tactics

•Safety in similarity

Long term•Strategy

•R&D

•Innovation

•New product lines

Difficult to break out

•Can you launch something new into the adviser channel and expect instant success?

•How many companies will take a long term view?

•More than one company launching something new might work – but what about the Competition Act?

To summarise the current environment

• Doing the same things

• To the same people

• With the same products

• Using the same processes

So how innovative

are we at the moment?

So is it really possible to innovate?

How to change the current environment

• Doing the same things• To the same people• With the same products• Using the same

processes

•Do different things•To people who are NOT currently customers•With different products•Using different

processes

Evolution or revolution?

Innovation

We couldn’t do that

because……

The Reassurers won’t let us do that….

That’s a daft idea…..

My only concern is

that…..

Innovation

• Are we designing products for consumers or our distribution channels?

• Bells and whistles that let our consultants get one up on the competition or benefits of real value to the consumer?

• Recent examples– silent heart attacks

What is a protection product?

a piece of paper to

file away and forget

about?

compensation for life

changing events?

a promise to pay money when

something horrible happens?

peace of mind?

debt repayment?

The traditional protection product

product•Piece of paper

•Promise to pay after a horrible event

•Just money

The problem

product•Exciting•Status - you can polish it

•Material goods

•It’s an experience!

Reality

productcomms apply claim

the customer product experience

•perception •experience •piece of paper•promise to

pay after a horrible event

•just money

•experience

Where to innovate

productcomms apply claim

Innovation needn’t be confined to the product – think about all the proposition touch points

comms

Communication

• Create a better perception• Engage with the Government

– Education: on school syllabus, free consumer guides– Cultural influences

Affordability

Information overload

•Innovation on advice

•Navigate through the massive maze

Don’t understand it

SACIC

TPD

ACIC

PMI

PTD

PHI

IPGPR

MER

LTA

Perception

“In the event that you procure one item, as defined by the appropriate boxed quantity and confirmed by the electronic point of sale supervisor, we will assist you in the procurement of a second item, as defined by the appropriate boxed quantity, for no charge, that is, no monetary transaction, as defined by an exchange of currency, would be needed”

“Buy one get one free”

Communication innovation

•What about 24 hour protection channel?

•What about advertising on DVDs?

•What about the flavour of the month boy/girl band promoting protection?

•Include a protection podcast on each new iPod?

apply

Apply

1992 App • 1992 application form– 2 pages

• 2004 industry average– 32 pages

Are we doing preferred lives?

• Even more intrusive questions

• Less people accepted at ordinary rates

• Preferred lives products through the back door

• Length of process leading to reduced mortgage protection sales?

GP report

•Expensive•VAT•The Holy Grail is a replacement for the GP report•…or to do away with it all

together

Do we have the bottle to replace the GP report?Is the industry

obsessed by removing every possible

risk from writing risk products?

Application innovation

• What about blood spots and saliva profiles?

• What about drop ins to Boots for medicals?

• What about microchips embedded into the back of the neck?

• What about full medical details on the new Government Identity Card?

product

Consumer needs

Debt repayment

Income replacement

Decreasing life

Level life

Family income benefit on death

Income protection for occupational disability

CI??

Innovative products

• What about IP - when are we going to fix it?

• Is evolution of CI restricted to illness definition nitpicking?

• What about hybrid products?

• What about ‘Impact Based Cover’?

• What about a replacement for TPD?

• What about protection in a box or on a smartcard?

Lessons for the IP market?

•Benefits payable for full term or age 60•Own occupation cover•Tick box application – no

underwriting•Everyone pays the same rate

Wow!

But…..

•3 year pre-existing conditions

•Stress, backache or nervous disorder.

Longer term

MPPI IP

Is the answer MPPI+ or IP-

Mortgage Brokers

Financial Advisers

claim

Claims

•Long-winded process – often a repeat of initial underwriting

•Private detectives

•Treating people like people, not policy numbers

•Clarity – “We are declining your claim because of caveat emptor and uberrima fides.”

More than money

•More than just a hand out– Helping Hand– Best Doctors– HCML

•Real valuable service to all customers and their families

•Money when needed and pro-active help

•“Best advice” benefit to the adviser

•Repositioning protection to be help first, money second

Claims innovation

• What about paying them (ha ha!)?• What about no financial underwriting at claim for IP?• What about immediately paying 5% of every critical

illness claim? Or cover their monthly outgoings until the decision is made?

Summary

productcomms apply

the customer product experience

•perception •experience •piece of paper•promise to

pay after a horrible event

•just money

•experience

claim

Summary

• Do different things– Not just price– Not just stealing existing market share

• To people who are NOT currently customers– Other markets– Other distributors

• With different products– New product models tailored to market niches– New propositions

• Using different processes– Simplified underwriting– Easy application