Study Notes and Published Refences - Note SN 8I-204-01 - REPORT OF THE SOA TASKFORCE ON PREFERRED U/W
Overview
- based on 10 year term (level prem)
- generally experienced more insureds qualifying for pref non-smoker risk class than expected
- less qualifying for pref smoker than expected
- not takes generally lowest for most restrictive pref ns and highest for least restrictive std smoker
- most freq used risk criteria
- personal history
- diabetes
- heart disease
- cancer
- elevated cholesterol
- Lifestyle criteria
- alcohol and other substance abuse
- some allow exceptoins to pref risk criteria
- blood pressure and build
- family history
- slight variations in one criteria
- cholesterol level
- majority of respondents use captive or independent agents to sell pref risk products
Background
- pref risk class - risk class w/ better expected mortality from gruop of non-substd applicants
- std class - residual non-substd applicants
- pref risk class if very varied, even w/in same co
- varys between products and even generations of same product
- established by splitting an aggregate risk class into two or more risk classes
- common formulas
- q_pref = (1-discount)*q_agg
- q_std = [q_agg - q_pref*%qualifying]/[1 - %qualifying]
- two critical assumptions - based on pref u/w criteria chosen
- what discount to give to pref u/w class
- consider
- agg mort used
- screening tools used
- strictness and level of criteria used to qualify for pref risk class
- co's practices on u/w exceptions
- % of applicants desired to qualify for pref risk class
- stricter u/w -> better discount
- usually 10-20% range
- % expected to qualify
- normally cos determine this and adjust u/w criteria to make it happen
- the lower the assumption, the more aggessive the discount can be
- more applicant & producer dissatisfaction w/ lower assumption
- additional pressure on U/W to make exceptions
- possibly higher than expected not-taken rate
- important for actuarial/u/w/mktg to be involved and understand
- # applicant for pref class (initially) may be higher than expected b/c producers tent to bring better risks forward
- % placed in pref class initially exceeds expectations as well for same reason and higher not-takens
- other reasons for getting disproportionate share of pref or std risk class
- producer's client base
- specific criterion much different from what other cos use
- u/w concessions
- unreasonable initial expectations
- Why have new risk classed developed
- legitimate descrimination
- equity considerations
- mktg tool <- main reason
- most often developed for competitive reasons and/or defensive purposes
Results
- Risk Classes
- trend toward using more pref risk classes
- Percentage Expected to Qualify adn Percentage Actually Issued by Risk Class
- on avg, more policies issued in most restricive NS class than originally expected to qualify
- slightly less policies in most restrictive smoker class than originally expected to qualify
- if actual results appreciably different from expected, maybe investigate reasons
- possible explanations:
- agent selection
- improper initial assumptions
- u/w exceptions which allow more issues in pref risk class
- not takens in std risk class (which distorts the % placed in pref risk class)
- Not Taken Rates
- most restrictive NS (5%) < agg smokers < most ristrictive smoker < least restrictive NS < least restrictive smoker (24%)
- applicants dissatisfied w/ risk class may look elsewhere for better rating
- Expected Mortality
- in general, pref risks had decreased expected from prev study
- possible reasons
- tighter pref u/w
- shift from NS to NT
- better than expected early dur experience
- competitive mkt pressures
- Ratio of Std To Pref Mort
- Max IA and Min Face Amt Limits
- usually around 70/75 for pref class
- min face usually 100,000 for pref class
- Age and Face Amt for U/W req
- features that influence what reqs used
- company's mkt
- distribution system
- specific criteria that must be met to qualify on a pref risk class basis
- mortality expectations
- competitive environment
- u/w philosophy and expertise
- other fin objectives
- Common Reqs
- Blood Profile $100k+ sometimes lower over 20 tests
- DBS infrequent
- Oral Fluid (OFT) infrequent can test for HIV, continine and cocaine
- Urine $100k+ usually in combo w/ blood - tests fro continine, cocaine, diabetes, kidney probs
- Cotinine $100k+ as part of urine or OFT
- Cocaine $100k+ as part of urine of OFT
- Illegal drugs infrequent
- NonMed <$100k limits increasing w/ PHI, MVR adn agent collected fluids
- ParaMed $100k+ & older ages
- Medical $500k+ & older ages
- APS older ages adn $500k
- MVR about half $100k+
- ECG older ages
- PSA about half older ages
- HIV $100k and about half < 100k
- Collection of Fluids
- considerations when using other than paramed or med to collect
- legal liability
- chain of custody considerations
- confidence in quality of test results
- producer/consumer reaction
- must weigh cost savings against these issues
- Indicators Being Used as Preferred Risk Criteria
- Three broad categories of application info
- personal history
- family history
- lifestyle considerations
- some important info is verified independently from app
- sometimes favorable info could offset unfavorable
- personal history considered more important than family history
- personal history and lifestyle most freq used criteria
- Personal History
- except for cholesterol, at least half cos preclude applicant from qualifying for pref risk class for bad info on personal history
- diabetes/heart disease/high cholesterol/non-skin cancer/stroke/hypertension/melanoma/treatment for hypertension/mental-nervous/non-melanoma skin cancer/treatment for cholesterol/prescription drugs
- Family History
- heart disease/cancer/stroke/diabetes/hypertension/non-accidental early death
- heart disease is only family history that is an automatic preclude - approx 1/2 cos
- most base family history on occurence of death, not diag
- other factors
- whether natural parents or natural parents & siblings included
- # incidences of death or diagnosis allowed
- age limit for incident of death or diag
- offsetting family history w/ good applicant health or neg stress test in last year
- using gender specific cancers only
- Lifestyle
- MVR and body fluids verify lifestyle items
- if declined, will reconsider after they discontinue adverse activity for period of time
- alcohol abuse/illegal drugs/driving/DUI/aviatoin/avocation/hazardous sports/other tobacco/cigarettes/occupation/foreign residence/foreign travel/felony conviction/regular excercise
- all but exercise used regularly
- drug and alcohol abuse were automatic out
- Driving Record and DUI
- normally no more than 2 or 3 moving violations in 3 year peroid
- no DUI w/in last 3-5 years
- Cigarette and other tobacco use
- usually no usage in last 12-36 mo
- Differences in Criteria by Smoking Status
- rarely - blood pressure, build & cholesterol
- Diff in criteria by gender
- Other criteria use to Determine Pref
- Ranges of Criteria in Use (to qualify for Pref)
- total cholesterol - usually around 250 (220/240/250)
- Total Cholesterol/HDL-C ratio - 5.0/5.5/6.0
- GGT (tests for liver damage) - 65 units/liter
- SGOT (myocardial infarction/hepatitis) - 40/41 units/ml
- SGPT (liver enzyme - hepatitis) - 45 units/ml
- PSA (prostate) - 4.0 ng/ml
- Preclusion from Pref Risk Class due to lab test result
- approx 2/3 based on Tot-C/HDL-C
- < 1/2 on other criteria
- Blood Pressure
- considered a coronary risk factor - 140/90 as max untreated BP
- about 1/3 preclude individuals w/ treated hypertension
- remaining allow treated BP in range
- Height and Weight
- approx 1/2 do not automatically exclude if out of range
- Debits
- ome co's don't allow credits for pref u/w, some do
- max debits usually <= 25 (after credits)
- most <= 50 before credits
- U/W guidelines for Exceptions
- approx 1/4 ahve written guidelines for exceptions
- virtually all cos allow u/w judgement to pref qualification
- Exceptoins to Pref Criteria
- most allow exception if overall risk profile would still qualify for pref risk class
- Additional Comments
- one co has agent "IOUs" baed on production
- can be redeemed to reduce prem rating by up to 2 tables
- Dist Channels
- must used indepenant agents and captive agents
- about half use multiple dist channels
- Effect of Introduction of Pref Risk Class
- approx 2/3 saw increased production
- caveat - toher factors couls also affect sales
- Illustration Restrictions on Pref Risk Classes
- virtually all allow best class to be illustrated
- some discourage illustrating initially
- other allow, but must also illustrate on std class at same time
- some require field u/w assessment before allowing pref illustration
- Application for Pref Risk Class
- approx 10% require applicant to apply for best class to receive it
- Pref Risk Classes on OTher Products
- most cos w/ pref class have it on products in addition to 10yr Term
- Review of Pref Risk Criteria
- how often to review
- approx 1/2 review at least annually
- Future Changes in Pref Criteria
- approx 15% had plans to change pref criteria
- > 1/2 no plans
- rest didn't know
-
Copyright © 2004 Steve Welander.
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