CMI Working paper 50

CMI Working paper 50 presents claim diagnosis rates for accelerated critical illness insurance, on a 'lives' basis, based on data for nearly 20,000 claims settled in 2003 to 2006. Four sets of rates are included in the paper: for males and females, and for non-smokers and smokers; these have been named:

• ACMNL04
• ACMSL04
• ACFNL04 and
• ACFSL04

Each table has separate rates at durations 0, 1, 2, 3, 4 and 5+ for ages 18 to 65 and ultimate (durations 5+) rates for ages 66 to 110.

Only the rates at ages 30 to 60 have genuine credibility as insured rates. At these ages the derivation of these diagnosis rates is based on the methodology set out in
Working paper 43 in which diagnosis rates were derived using data for claims settled in 1999 to 2004. The 2003-2006 dataset is more recent, covers a shorter period and is more stable in terms of contributing offices than the dataset used in Working Paper 43, however both are very immature in terms of age and duration. Although this may distort the shape of the rates, the Committee considers the production of a formal table to be worthwhile, particularly because of the substantial differences in the shape of these rates by age from currently available tables of critical illness rates. The derivation of rates at these ages uses a similar approach to that set out in Working paper 43.

The Committee has also extended the rates to younger and older ages to produce a full age-range table that can be used in the pricing and valuation of whole-of-life policies and (the small proportion of) term and endowment assurance policies that cover individuals outside the age range for which we have credible data volumes. We have adopted a pragmatic means of extending the age range of the rates and it is important for actuaries to recognise that these rates are not based on credible volumes of data.

The Committee intends to recommend the final 2003-2006 diagnosis rates contained in this paper as formal tables for adoption by the Actuarial Profession after publication of a subsequent paper, containing additional analyses to aid understanding of the AC04 rates.

The AC04 rates themselves are also available in a spreadsheet.

The rates are by no means the only sets of rates that could have been derived from the data. Consequently the Committee is again making available to member offices spreadsheets containing summarised data that will allow practitioners to experiment with alternative approaches. For more information please click here.

The Committee is not undertaking a formal consultation exercise on the rates derived in this paper but, as always, the Committee welcomes feedback. Feedback on further work is invited by 19 March 2011 to be reflected in the next paper.