In a new research paper, RGA experts Guizhou Hu and Taylor Pickett examine the impact of LabPiQture (LP), a commercial data product of ExamOne, on the mortality slippage of standard and better risk classes in non-fluid underwriting.
Once upon a time, being a standard risk in the underwriting process was the best you could hope for. It meant that your health was at the top of the group of insured lives being considered and eligible for the best rate, and that you would live all the way out to the prediction of the actuarial life tables. Now, life insurers have created a whole tier of preferred and super preferred pricing that makes a standard issue almost seem like a rated policy.
Preferred underwriting is simply the aggregation of risk into groupings, according to a set of predetermined criteria representing a certain level of risk. Historically, the insurance industry simply classified individuals as either standard or substandard risks.
The life insurance industry has relied mostly on the knock-out approach to underwriting preferred risks. When reviewing the thresholds for individual risk criteria, one may ask whether the system is too liberal – i.e., are we admitting too many questionable risks into our best classes? Yet industry experience seems to indicate that the system works well.
Life insurers adopted the Body Mass Index (BMI) in the 1980s to help determine an applicant’s weight class. According to the World Health Organization, an individual with a BMI of 30 or more is obese; if their BMI is over 40, the person is morbidly obese.
http://www.scor.com/images/stories/pdf/library/messengers/M3Q14_web.pdf (Article starts on page 7)
With decades of underwriting experience to research, the author reviews some of the criteria commonly used to try to answer the question: “We have done well in the past, but could the industry use its criteria to make risk selection more effective?”