When It Comes To Illness The Choice Of Benefit Is Critical June 2011

When it comes to illness, the choice of benefits is critical

Agenda

• Critical illness incidence

• Current take-up

• Why critical illness cover

• Survival rates

• Unique Myriad solutions

• 5 things to discuss with your client

• Opportunities

Technology is doing a better job of keeping us alive. New risk benefits

provide a gateway to this technology

Critical illness incidence

Critical illness incidence

• A 25-year-old non-smoking male has a 24% chance of cancer, heart attack or stroke before age 65

• If he is a smoker, he has a 49% chance before age 65

• 60% chance in his lifetime

Critical illness incidence

• 34% of critical illness insurance claims by males begin prior to age 55

• 58% of men and 79% of women over age 65 will need some type of chronic illness care during their lifetime

Current take-up

Current take-up

• Latest insurance gap study Higher earners 50% underinsured for disability Only looked at replacing income Once-off costs ignored

• Swiss Re survey – only 1 out of 10 individual policies have critical illness benefit

Back to basics : Why critical illness cover?

Medical expenses

• Initial expenses

• Ongoing longer term expenses Chronic conditions

“I have a good medical aid and therefore my medical expenses

are taken care of”

3 reasons why this is a myth

Reason 1: Benefits limited

• Major medical benefit - comprehensively covered

• Day to day benefits out of savings

• Chronic Benefits Prescribed Minimum Benefits – 26 conditions More expensive options – extra conditions included

• Nursing care Nursing home and private nursing – limited

The cost – some examples

• Severe stroke Initial rehab costs

Lifetime chronic medicine cost

• Lifetime cost of disease (R500k to R1m)

• Alzheimer’s Caregiver costs

Chronic medicine cost

• Lifetime cost of disease (R1m+)

US example

• The average couple’s medical out-of-pocket expenditures

Years before death of spouse Percentage of income

5 – 7 years 15%

3 years 25%

Final year 50%

The Health & Retirement Study: Growing Older in America

Reason 2: Cost and cover guarantee

• Medical aid inflation averaged 10% over the past 10 years compared to CPI of 6%*

• No premium guarantee

• Especially problematic in retirement

• Pressure on benefits

• NHI on the way

*Council of Medical Schemes 2010 annual report

Reason 3: Freedom to choose treatment

• Medical aids need to approve all treatments before they pay

• Time to market

• Red tape

• Limits on cancer treatment

• Cutting edge treatment - expensive

Non-medical expenses

• Family support

• Lifestyle adjustments House Car

Reduction in income

• Voluntary or compulsory

• Not always a case of disability Cancer Heart attack

Survival rates

“10% of us will die suddenly, the rest will suffer long protracted

deaths”

Heart disease mortality rates have fallen sharply…

Breast cancer incidence rates are rising whilst mortality is falling…

5 year survival rates from female breast cancer

Source data: London School of Hygiene and TropicalMedicine, Office for National Statistics, 2005

5 year survival rates from female breast cancer diagnosed 1991-2003, England & Wales

“Cancer will be as controllable as diabetes by 2050.”

Professor Gordon McVie

Director of the Cancer Research Campaign and one of Britain’s leading experts in the field.

“95% of cancers will be controllable by 2054.”

Professor Karol Sikora

Medical Director of CancerPartnersUK which is creating the largest independent cancer network in the UK.

Unique Myriad solutions

Conventional solutions fall short

• Critical illness benefits ideal for short term expenses

• Expensive solution for long term

• How much is enough?

Short term expenses

Long term expenses

?

Extends critical illness payout to last a lifetime

Specified moderateto severe critical illness event

Extra 10% every 5 years

Provides additional funding for illnesses with a long-term lifestyle impact

Longevity Protector – Critical illness

Cost-effective Longevity Protector

• 10% to 15% extra premium

• Assuming client lives for 25 years, to match Myriad’s benefit amount will require a 50% increase in benefit and premium

“If you want to provide for the cost of living long with an illness, the Longevity Protector is five times

more cost-effective than conventional critical illness

benefits”

Case study 1

R37 000

R52 000

R70 000

R250 000

Chris, age 45, takes out an Elevated Comprehensive Critical Illness Benefit of R250 000 with level premium and a 10% voluntary premium increase.

Diagnosed with Parkinson’s

Age 45

5 things to discuss with your client

Myriad solution

• Focus on the big three

• Breadth of cover

• Payout levels

• Best of both worlds

• Free cover for children

• Building block approach

Building blocks in action

5 things to discuss with your client

• Traditional or tiered

• Cover for minor illnesses

• Stand-alone or ancillary

• Level or compulsory premium

• Longevity benefit

The need

• Providing for additional expenses

• Providing for a drop in income

Traditional or tiered

• Traditional (Elevated): More cover earlier

• Tiered (Comprehensive): More cover for severe conditions (matching lifestyle impact)

Drop in income Additional expenses

Elevated

Comprehensive

Drop in income Additional expenses

Ancillary

Stand-alone

Stand-alone or ancillary

• Ancillary: Settling liability on first of critical illness or disability

• Stand-alone: Reinstatement Benefit level funding Longevity protection

Drop in income Additional expenses

Compulsory

Level

Level or compulsory premium

• Compulsory Settling liability pre-retirement

• Level Needed for whole of life

Drop in income Additional expenses

No longevity benefit

Longevity benefit

Longevity benefit?

• No longevity benefit Settling liability (once off)

• Longevity benefit Needed for whole of life Ongoing expenses

Opportunities

Opportunities

• Address the medical aid shortfall

• Position critical illness benefits as a means to extend lifespan

• Include critical illness benefits in retirement planning

• Add longevity protection as part of the package

Conclusion

• High likelihood

• High survival rates

• Associated costs

• Low take-up currently

• Optimal solution