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November 10, 2004 at 07:00 PM
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What the life insurance industry needs to do to make risk assessment consonant with the expectations of senior management, producers and customers compels the industry to rethink its approach to underwriting.
What worked in the age of paper is grossly incompatible with the 21st century.
Consider the use of screening treadmill electrocardiogram (ECG) stress tests. These are the most costly and second slowest of all underwriting requirements. Further, the primary abnormalities that underwriters hone in on with stress ECGs focus on stable (not vulnerable) coronary diseasea significant disadvantage because vulnerable plaque is what leads to most of the shorter duration claims.
Today, the imposing drawbacks to stress testing now can pass quietly into the mists of history. These are being replaced by a comparatively inexpensive set of blood tests, ones that include proven markers for vulnerable arterial obstructions.
Also, the routine chest X-ray is nearly extinct in risk appraisal. (Its about time, considering clinical medicine abandoned it some two decades ago!)
Meanwhile, in the wake of the HIV pandemic, the deployment of screening blood profiles expanded exponentially. It quickly became routine for underwriters to test blood at face amounts of $100,000 or even less. This practice must now be re-examined.
First off, blood test starting points should be raised significantly under age 40, because the major markers of early duration (trauma) mortality that underwriters can screen for are better managed by oral fluid.
The great advantages of oral fluidbesides pinpointing tobacco users and cocaine abusersare (1) that producers can collect samples conveniently and (2) the oral fluid test is far more client-friendly than a needle stick.
Another consideration is the inverse relationship between positive cotinine (smoking), cocaine and HIV tests, and face amount applied for. Bottom line: The smaller the policy, the higher the percentage of positive tests. An actuarially sound argument can be made for extending oral fluid screening well under current thresholds at ages 18-39. (Indeed, this underwriter believes screening with oral fluid should start at ages 13-17 as well).
At ages 40-65, protective value studies by industry experts show that the $100,000 face amount is a valid starting point. However, over age 65, consideration needs to be given to both modifying profile components and also screening more widely.
