The speed of the life insurance industry can be excruciatingly slow. But as new technology emerges, the more agile insurers will move to harness it in the hopes of enhancing existing product lines or constructing new ones altogether. So too is there a need to attract new markets and generations to buy in to life insurance – the baby boomer population is aging, and perhaps that pool of insurance clients has become a bit exhausted.
With the vast majority of the insured population being over the age of 45, the focus must eventually shift to a younger demographic. What are some of the ways that insurers are approaching this? What new products are being employed to appeal to older or substandard risk populations? In this blog I’ll explore what’s making waves in the sea of life insurance ahead.
2016 Insurance Milestones
2016 saw its fair share of milestones in the insurance world. A few notable highlights include:
- A surge in the use of wearable tech
- (Most) insurers switching to Non-Smoker class rates for marijuana users
- The offering of life coverage to HIV-afflicted clients in North America
What is on the horizon for HIV coverage?
While there was a lot to take in, I want to hone in on the HIV milestone. Although HIV coverage is still new to the USA & Canada, other parts of the world have been dabbling in it for longer. I believe that one unique approach may come to define a wave of new products for covering substandard risks in the future.
HIV, when insured on the traditional cookie-cutter insurance plan, is an expensive purchase for the consumer. Historically being an uninsurable risk and even now viewed as a highly substandard one at best, clients suffering from the chronic viral infection are still faced with an economically impractical choice: is the cost worth it?
Is there a better way to approach HIV cases?
Recent data shows that the best-case HIV patients can live close to a standard life expectancy – which is an average of 75 years. Additionally, AIDS-related causes of death – once accounting for the majority of fatalities in this population – now cover just 16% of the death rate3. While still a significant number by any means, there is a clear takeaway: those who are compliant with treatment are living longer, and the leading causes of death (cancers, cardiovascular disease) begin to mirror those of the general population. So, is there a better way to broach this insurance market?
What can we learn from adherence programs in South Africa?
Queue the dawn of adherence programs, which have started in South Africa – an insurance market that has given the world historic innovations over the years. Adherence programs effectively take a substandard risk population and select the best risks out of that pool to provide coverage to. Perhaps more importantly, they ensure that the best risks selected at the time of initial underwriting remain in that class.
Comparing HIV coverage to other risks
Think of how any risk is priced. Let’s use Coronary Artery Disease (CAD), as an example. A population of 65-year-olds with histories of CAD, treated with stenting or bypass surgeries, stable for 5+ years, and with good medical follow-up may be in the realm of 200% mortality.
This rating assumes that some individuals will show excellent compliance with treatment and good lifestyle modification, and through that may exceed the inherent life expectancy that comes with a 200% rating.
On the other hand, some clients may do just the opposite and pass away sooner than anticipated. In a game of averages though, the 200% rating will hold true for an insured population that includes thousands of people.
How is HIV underwritten?
Now examine how HIV is underwritten. We look at a person’s course of infection, their CD4 lymphocyte counts at the time of the application, exclude intravenous drug use and hepatic co-infections, and deem the best risks to be appropriate for coverage. Under an adherence program, those clients are required to submit their blood work, on regular intervals, to their insurance carrier for analysis.
Again, we’re looking for their CD4 lymphocyte counts here – ideally should be greater than 500/mL3 whereas a range of 200-500 would be consistent with an intermediate degree of infection. A CD4 count below 200/mL3 is one of the AIDS-defining features, and should not be seen as favourable to underwriting. If the client is able to demonstrate good, consistent control of their disease on their routine labs, then they continue paying discounted premiums and keep their policy in good standing.
Would an adherence program work for diabetes?
You can setup the same type of model program to cover other risks, such as diabetes. AllLife4 is one such carrier to look to for more information. Diabetes has long been an insurable risk – and can even be Standard in the older age category. But for younger individuals to carry the diagnosis, particularly under 50, it remains in a substandard class.
Underwriting diabetes is not unlike HIV in principal: we look at the course of the person’s disease, their hemoglobin A1c (the gold standard test for measuring diabetic control), and rule out macrovascular complications. The best risks are insured, and under an adherence program are required to send in their blood work at regular intervals.
If they remain in good health, their hemoglobin A1c should reflect this: the range of “good” control is usually held to be between 6.0-8.0%, or the lower the better (non-diabetics will have A1c readings well below 6.0%). If the client can demonstrate that they remain in this range, their policy remains in good standing and their premiums discounted.
Simplifying underwriting through classified risks
The idea with both examples is that we’ve selected the best risks from each category and then reduced the ongoing underwriting of them to simple lab values – whether it is the CD4 lymphocyte count or the hemoglobin A1c. Non-adherence to these guidelines or a failure to demonstrate good control of their illness can be dealt with in a few ways: either by escalating premiums or enforcing probationary periods for their policies, in which a client will have a set window to re-establish good control.
Next up: how is the life insurance industry approaching millennials?
These are a few examples of the changes our industry is experiencing when it comes to selecting risks. In part two of this blog I’ll be exploring how insurers are approaching the younger, healthy markets. A topic that is currently being tackled by InsurTech enthusiasts at Cookhouse Lab. Stay tuned, and in the meantime get refreshed on our other HIV blogs: