Critical Illnesses: What can Insurance Claims tell us?
We often fear things we do not know. This is nowhere more evident than in the case of critical illnesses, such as cancer, heart attack or stroke. In our previous posts, such as Cancer: What’s My Risk, and Heart Attack & Stroke: What’s My Risk?, we delved through the statistics amassed by the National Registry of Diseases Office (NRDO) on the incidence of cancer, heart attack and stroke in our population. Narrowing our definition of these three critical illnesses to the more severe forms, e.g. Stage 3 and 4 diagnoses of cancer, STEMI heart attacks and haemorrhagic strokes, to conform to what the definitions of critical illnesses used in the insurance industry are, we found that the incidence of these critical illnesses are of the roughly the same level as the likelihood of death from any cause.
For example, a man between 50-59 years off age has a 0.35% chance of death in a year, and a 0.46% chance of having with one of these critical illnesses. Or a woman, 60-69 years of age has a 0.49% chance of death in a year, and a 0.50% chance of having one of these critical illnesses. So from a population perspective, if we now understand the risks of death (thank to the life tables and mortality statistics produced yearly) we should be able to understand and deal with the risks of critical illnesses rationally.
But there is always still a nagging doubt about these illnesses at the back of our heads. And all too often, we hear from our relatives or financial advisers that “so-and-so has cancer, the poor thing”. And we are often encouraged to ensure we are well insured for these critical illnesses. So what does it look like from the critical illness insurance claims perspective?
Critical Illnesses: What can Insurance Claims tell us?
Critical Illness Insurance
Insurance for critical illness has been around for quite a while, ever since the mid 1990s. So it stands to reason that there is a long track record of claims critical illness from which we can better understand the likelihood of being ill. It is not always easy to get hold of this data. But fortunately enough, Income Insurance does publish some of their life insurance claims data and this serves as a source of information from which we can better understand critical illness incidence.
The published life and critical insurance data comes in two forms:
- A consolidated total number of claims and sums claimed
- A more detailed listing of large claims (over S$100,000) where the reason for the claim, and age of the claimant are also provided
While it is ideal to work with all the data, what is useable is really only the large claims data. On average the large claims account for:
- 18% of all death claims and 31% of all critical illness claims
- 68% of the sums claimed for both death and critical illnesss claims
At the very least, we can say that the large claims are representative of the coverage in life insurance! The larger amounts claimed make it less likely that these are short term insurance benefits which may be tagged along with travel insurance or other forms of short term insurance, and hence more likely to be purchased consciously.
The data currently available from Income Insurance spans the period Jan 2019 to Jun 2023. This includes 1,162 large life insurance claims for death and 1,622 large critical illness claims. However, we are not the first to look at this data. Smart Wealth previously looked at the data for the period Jan 2016 to Jun 2019. So, if we merge their results with the currently available data, we get a grand total of 1,564 life insurance claims for death and 2,223 critical insurance claims to work with, covering the period Jan 2016 to Jun 2023, some 7.5 years in total.
Let’s start by looking at hat those 2,223 critical illness claims over 2016 to 2023 can tell us.
First of all, let’s look at how old the claimants were when they were struck with critical illnesses:
Critical Illness Insurance Claims by Age Group
Source: Income Insurance
We can see that the peak age for critical illness insurance claims is during the ages of 40’s, 50’s, and 60’s with the claims during the 50’s being the highest. This is somewhat counter-intuitive as the the data from the National Registry of Diseases Office (NRDO) clearly show that the risks of critical illnesses continue to increase with age. But it is easily explainable. As the cost of insuring for critical illnesses is fairly high, especially to an advanced age, most people are advised to purchase insurance coverage only for their prime working and earning years, which is likely to be until the age of 60 or 65 only. Hence the scarcity of critical illness insurance claims by people in their 70’s or 80’s.
But this chart also tells us that the claims for people under the age of 40 are pretty few. This part matches the data from the National Registry of Diseases Office (NRDO) data. Critical Illness incidence is quite similar to the incidence of death, rising inexorable as we age. However, the chance of either death or critical illness is quite low in our youth. Or at least until we hit our 40’s, for the young at heart.
Net, if you are worried about critical illnesses, you should be insured for it by your late 30’s. This gives you coverage in your 40’s and 50’s. While it may be cheaper on an annual premium basis to get coverage earlier in life, say in your 20’s, you might end up paying a lower premium for longer (when the risk of critical illness is low, especially in you 20’s and 30’s), and hence more overall on a present value basis.
What are the critical illnesses that are most often claimed for? Which are the ones we really ought to worry about? Well the answer is in the chart below:
Critical Illness Claimed for
Source: Income Insurance
It is well known that cancer, heart attacks and strokes account for around 90% of all critical illness insurance claims. This is borne out by the claims data between 2016 to 2023, shown by the red bars. For example, cancer alone accounts for more than 75% of all critical illness insurance claims. Heart attack accounts for 9% and stroke, 4%.
But when we cross check this against the data from the NRDO (shown by the blue outlines), we see that the pattern of claims differs somewhat from the population incidence of critical illnesses. For example, based on the incidence rates of the 3 main illnesses, we would expect cancer to account for around 58% of all critical illness cases. Yet cancer is over-represented in the claims data. While heart attacks and strokes seem to be under-represented. We shall return to this anomaly in a while, but for the moment, it looks like cancer is more of a risk to our lives than we would expect! Or, it could mean that cancer is far easier to claim for compared to the other illnesses.
The data on insurance claims from Income Insurance also include life insurance claims arising from the death of the insured. Let’s take a look at them to see what we can learn about critical illness and mortality.
Cause of Death
First up, let’s take a look at the causes of death when a life insurance insurance claim is made. This is shown in the chart below:
Cause of Death
When we look at the insurance claims data (shown in red above), and compare them to the national statistics from the Ministry of Health (in the hollow bars), we can see a curious discrepancy. For the insured, cancer is a far more common cause of death (40.7%) compared to the national average (27.8%). Conversely, heart attack and stroke have a lower incidence in the insurance claims statistics compared to the national average. This is identical to the pattern across cancer, heart attack and stroke which we see for the critical illness claims. Could this be because the life insurance claims are for older people, and hence more prone to diseases like cancer?
We take a look at this below, where we show the age of the claimant when the life insurance claims are made:
Life Insurance Claims by Age Group
Source: Income Insurance
One of the things that is striking about this chart is how the risk of death increases sharply in the 40’s, 50’s and 60’s, compared to the 20’s and 30’s. Also, the peak claim ages are a full ten year more than those for critical illness insurance. As with critical illness insurance, the claims data tells us that it is important to make sure we have insurance in our 40’s (and hence start coverage by our late 30’s). But excessive purchases of life insurance in the 20’s and 30’s might end up being very costly for the little risk offset it provides.
Another thing which stands out is how much it differs from the actual mortality trends in the population. We can chart out the population mortality rates based on the life tables from the Department of Statistics.
Population Mortality by Age Group
Source: Department of Statistics
From the life insurance claims, we see that some 70% of all mortality related claims are made by the age of 70. Yet in the population data, see that cumulative mortality by age 70 is not even 20% of the population! Clearly, the vast amount of life insurance is taken out to cover the year of employment for most people, and ends in their mid 60’s, hence the pattern of claims we see. Also, this means that the anomalous amount of cancer cases we see in the claims data is not due to a larger number of older customers.
What can Insurance Claims tell us about Critical Illnesses?
So, at the end of the day, what can insurance claims tell us about critical illnesses? Looking at the insurance claims data, across both critical illness and life insurance, we can safely say:
- Insurance claims start going up sharply when we are in our 40’s. That’s when the risk of death and illness rises for many of us (perhaps also due to lifestyles too). If you are looking to purchase insurance, make sure that your coverage is in place by you late 30’s. Conversely, getting insurance earlier does not do much except to cost more over time. However, people get insurance earlier in case they become uninsurable later in life, so this is a balance between costs and benefits
- Insurance claims for critical illness tends to be highest in the 50’s. Fortunately, for most people, the peak earning years in their careers start sometime in their 40’s, so it is important to ensure that enough goes into savings in their 40’s rather than spending on hedonistic lifestyle inflation so as to ensure that you are never really caught unawares
- Cancer is the top cause both for critical illness claims and for death. Make sure you test for cancer markers regularly! Of course, what this may mean is that you might be able to detect the cancer in the early stages, and hence not be qualified to make a critical illness insurance claim. But better to to healthy than to benefit from an insurance claim!
What is harder to figure out from the insurance claims data is why cancer seems to be so prevalent both in critical illness and life insurance claims. There can be a number of possibilitities:
- Perhaps there is some sort of adverse selection at work, whereby people at higher risk of cancer tend to purchase insurance more often!
- Or perhaps there is some sort of bias in Income Insurance’s customer base, perhaps older, less healthy etc. Or it could be that the sample over 2016 to 2023 (1,564 life insurance claims and 2,223 critical insurance claims) is simply unrepresentative
What we do know is that Income Insurance’s customer base for critical illness insurance is indeed different from other larger insurers. the table below show the claim rates for critical illnesses across the different insurers over the period 2015 to 2022, based on the returns submitted to the MAS:
Critical Illness Insurance Claim Rates 2015 – 2022
|Insurer||Average Lives Covered per year||Average Annual Claims Rate|
|AXA (now HSBC)||102,492||0.13%|
Given the pattern of claims, it is likely that some of the insurers with higher claims rates tend towards having a small number of older customers. While those with lower claim rates have younger customers and/or faster overall growth in number of customers. However, the overall claim rates also seem to indicate that the risks of critical illnesses are fairly low, as we see in Cancer: What’s My Risk, and Heart Attack & Stroke: What’s My Risk?.