Resources

Longevity Underwriting versus Life Underwriting

I’m frequently asked to describe some of the differences between underwriting for the issuance of a life insurance policy and the underwriting 21st Services does for longevity analysis.

Of primary consideration is the fact that a person of any age – but particularly a senior citizen – needs to be in good or excellent health in order for a life insurance company to deem them “insurable.” People with modest health impairments may be considered insurable, but their premium payments will be higher due to increased mortality risk (the risk of dying earlier than anticipated) associated with their medical conditions. People with significant health issues may be rated heavily or be considered uninsurable altogether; the latter outcome is more typical, especially in older age categories.

Because of the fact that the life insurance industry typically only insures healthy individuals, they have comparatively less experience in underwriting those individuals with significant health impairments or those individuals in the latter decades of life – particularly those people in their 70s, 80s and above. Because of this, they don’t have a lot of mortality information about specific medical impairments from their own underwriting efforts.

This is where 21st Services excels. 21st got its start in the life settlement business, and the impaired senior market is the backbone of that business segment. With our background in “substandard” risk, we have more than a decade’s worth of health data relating to specific medical impairments in the latter decades of life. This mortality data can be evaluated by individual impairment or by whole groups of medical conditions to evaluate any possible impact on how long you’re likely to live. As well, our systems can account for someone of average (or standard) health and those individuals in extremely good (or preferred) health.

Point of view is another difference between life underwriting and longevity analysis. Life insurance carriers are concerned about what happens if a person dies too soon because if that happens they will have to pay off the beneficial interest in the policy before they have collected enough premiums to make the transaction profitable.Therefore, life insurance mortality tables and the underwriting manuals used by the insurance industry are slanted to protect their interest.

Longevity analysis, however, is a more realistic look at how all of your personal medical history, family history, social habits and functional status actually affect how long you’re going to live – as well as the statistical odds that you will reach certain age thresholds.

Why is this important? As you’re working with your financial or insurance professional, your goal should be effective planning so that you don’t outlive your assets. In the past, there really haven’t been any effective tools to help figure out those variables in any meaningful way. That’s why I’m really excited about our electronic Customized Longevity Planning Report (eCLPR) that gives you and your planner a credible analysis by which to make financial decisions.

Evolution or Revolution?

The life insurance industry has been around for centuries. In the United States in the mid-1700s, Presbyterian synods in New York and Philadelphia created funds to protect widows and children of Presbyterian ministers; this was quickly followed by a similar fund by the Episcopalians. By the mid 1800s approximately 20 life insurance companies had been founded, but many of those subsequently folded. In the 1840s, some of the stigma associated with “anticipating death” diminished and the industry grew, fueled by high death rates associated with a great fire in New York City and later by Chicago’s great fire. By the early 1900s, people wanted some protection against accidental death, and many fraternal organizations provided coverage for their members. Growth in the 1900s was fueled by two world wars and the desire to protect widows and children against losses from war.

Early life insurance underwriting focused more on the occupation of the proposed insured rather than their medical history. Underwriting in this manner makes sense because the intent of the policy was to protect against the accidental death of the insured, typically from work-related hazards or accidents.

More modern underwriting methods developed after the introduction of antibiotics around the World War II era. The first attempts at medical underwriting required the use of Attending Physician Statements (APS) in which the attending physician wrote out a summary of their patient’s health, which was then evaluated and gauged by the life insurance company underwriter.

Even more recently, technology developed to allow inexpensive photocopying which meant that actual medical records, rather than a physician summary, were used for the underwriting process. This, of course, meant that the insurance underwriter was required to evaluate much more complex data, diagnostics tests and laboratory reports.

The longevity analysis products offered by 21st Services have their roots in underwriting for the life settlement transaction. This type of underwriting has moved at a revolutionary pace compared to the slow evolution of life insurance underwriting.

As a bit of background, the first life settlement transactions occurred in approximately 1989 and involved individuals with terminal or life-threatening medical conditions, almost always individuals with HIV or AIDS. HIV underwriting was fairly predictable and was typically done in a subjective manner by doctors, nurses or statisticians without the benefit (or need) of base mortality tables. The underwriting environment changed in approximately 1995 when a new class of anti-HIV drugs was developed, called protease inhibitors; these drugs dramatically shifted the mortality profile of individuals with HIV/AIDS. Death rates dropped dramatically before leveling off in about 2000, where they essentially remain today.

In the late 1990s and early 2000s, the current life settlement marketplace emerged, comprised of senior insureds in their latter decades of life – some with health impairments that would suggest substandard risk and others who lead active, vital lifestyles consistent with preferred risk.

It was at this period of time that 21st Services revolutionized underwriting for the life settlement transaction by introducing the industry’s first rules-based underwriting model (MedDiag), which attached specific weightings (or debits) to medical impairments, which were then used to offset base mortality tables. Review of the medical charts to identify the insured’s impairments was performed by underwriters, typically sourced from the life insurance industry.

Several years later, 21st again raised the bar by introducing its second-generation model which was substantially more sophisticated at evaluating each insured’s medical history in co-morbid fashion with offsets for family medical history, social habits and functional status. A new definition of “standard for age” emerged, and a preferred class of individuals was identified and underwritten as such.

Subsequent table changes have occurred as new data becomes available – not only from the Society of Actuaries, but by our own mortality experience.

I am amazed at how rapidly the underwriting process for longevity analysis has evolved and improved when compared to the centuries-long history of life insurance underwriting. Are we finished? No. Other enhancements and modifications will be made as warranted, and we are extremely excited about our sponsorship of a massive study of de-identified Medicare records which will be discussed in future blog entries.

Introduction

I’d like to introduce a new feature of our redesigned website: A blog that we’ll call MedDialog – a word play off the name of our proprietary underwriting system, called MedDiag. I plan to update this blog at least twice monthly, or possibly more frequently when there are lots of topics to talk about.

Topics will be wide-reaching and cover any number of topics such as

• updates on our underwriting system or mortality tables
• topics of discussion from meetings of our Medical Advisory Board
• summaries of presentations from members of our Medical Advisory Board
• new underwriting products offered by 21st Services (such as the new eCLPR)
• new uses for longevity information
• updates on the massive mortality study that we’re sponsoring through Chronic Disease Research Group (CDRG) using data from de-identified Medicare records over an almost two-decade period of time
• information gleaned from medical journals regarding diagnostics, advances in treatment, improvements in mortality for any of the medical impairments that affect the senior population we underwrite
• answers to some of the most frequently asked questions I get as Chief Underwriting Officer of 21st Services
• and thoughts from our Chief Actuary, Vince Granieri