The rise of accelerated underwriting (AUW) programs in life insurance has brought new challenges to understanding mortality risk, particularly for individuals who were previously declined coverage under traditional underwriting.
According to a recent whitepaper from PartnerRe, based on data collected by Milliman, the absence of direct mortality data for these individuals has left gaps in accurately assessing their risk.
Ehren Nagel (pictured right), PartnerRe's head of actuarial innovation, US life, noted that the emergence of AUW, which eliminates the need for traditional requirements like physical exams and blood tests, has allowed individuals who were once uninsurable to obtain coverage and enter the insured mortality pool.
This shift has introduced new uncertainties regarding the shape and severity of risks associated with these individuals.
Nagel explained that decline mortality has been an underexplored area in the life insurance sector, primarily because the industry historically has not tracked outcomes for individuals without active policies. This lack of data has prevented comprehensive studies on the mortality of those previously declined for coverage.
Another challenge has been the use of traditional underwriting manuals, which focus on segmenting insurable risks and do not provide insights into quantifying risks beyond the insurable range.
Additionally, the life insurance industry’s focus on refining segmentation within the healthiest 80% of applicants has diverted attention from examining thresholds for declinable risks.
The PartnerRe research suggests that mortality risks for previously declined individuals are more front-loaded compared to typical select period expectations, highlighting that traditional point-estimate scalars do not fully capture their risk profile.
While a 500% relative severity assumption for these risks may be suitable for long-duration life products, the impact can vary significantly for shorter-term structures.
The research further indicates that expected select mortality tables show lower mortality rates for females than males, making the relative impact of declinable risks more pronounced for females.
According to the whitepaper, the present value of mortality impact for these risks can range between 400% and 850%, suggesting that insurers should carefully consider how declinable risks affect pricing based on gender and product design.
Nagel stated that while the study provides a foundational analysis of declinable risks, it remains limited by a lack of direct data, relying instead on proxy approximations of traditional underwriting outcomes.
For life insurers seeking to better understand and mitigate decline mortality risk, Nagel emphasized the importance of adopting a data-driven approach. Improving data collection on declined applications and integrating this information into underwriting models can help insurers more accurately assess risk, potentially preventing adverse selection and enhancing portfolio performance.
Nagel suggested that insurers conduct regular audits of their AUW programs to quantify the effect of decline mortality on their portfolios. Continuous evaluation and timely adjustments to underwriting criteria can help insurers adapt to changing market conditions and improve risk management.
"As more data on decline mortality becomes available, insurers must remain proactive in refining their strategies, ensuring they can effectively manage this risk," Nagel said, adding that continuous learning and adaptation are essential to maintaining portfolio health.
The whitepaper concludes that further research into declinable risks is vital for the sustainability of AUW programs. PartnerRe advocates for an industry-sponsored study to provide a more accurate understanding of the decline risk pool.
Such research would support the ongoing improvement of life insurance distribution and the customer journey, helping insurers refine their approach to managing emerging risks.
"As a top-tier global life reinsurer, we continue to expand and develop our suite of mortality quantification and monitoring tools," Nagel said. "Our goal is to empower life insurance carriers to create data-driven, actionable insights around claim expectations and mortality slippage."
The findings underscore the need for the life insurance industry to address the uncertainties around declinable risks as AUW programs grow, ensuring that insurers can navigate these complexities and maintain the integrity of their portfolios.
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