The Protective Value Study of the MIB Checking Service for Group Voluntary Life Insurance As seen in OTR March 2014 Volume 30 Number 1 www.ontherisk.com IN THIS ISSUE www.alu-web.com Carotid Artery Stenosis 28 membership in Risk Assessment in Applicants with Coarctation of Aorta 34 M. Wetzel H. Bhatia Chronic Myelogenous Leukemia A Success Story 44 J.C. Holowaty, Y. Piperdy www.ahou.org and The Relevance of Naturopathic Medicine to Underwriting 61 R. Fernandes And More... www.ciu.ca ISSN 0885-4416 Copyright 2014 Printed in U.S.A. Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting (http://www.ontherisk.com/).
THE PROTECTIVE VALUE STUDY OF THE MIB CHECKING SERVICE FOR GROUP VOLUNTARY LIFE INSURANCE Sylvain Goulet, FCIA, FSA, MAAA Principal Eckler Ltd. Toronto, ON syg@eckler.ca Carmela Tedesco Vice President LOGiQ3 Corp. Toronto, ON carmela.tedesco@logiq3.com Overview MIB has published studies demonstrating its protective value in both the individual fully underwritten life insurance market 1 2 In the latter half of 2013, MIB engaged underwriting to determine the protective value that MIB s Checking Service brings to individually underwritten group voluntary insurance products sold through the work- employee and dependent applications for insurance, with average face amounts applied for of $163K, standard underwriting evidence obtained included a MIB with protective value only in cases where it was the sole alert that triggered an investigation resulting in a decision other than issue, and it also employed a Similar to previous studies, this study validates the strong protective value of MIB and its role in ensuring tective value differs when compared to past studies due to the nature of the group voluntary insurance on an accept/decline basis, with no opportunity to risk, whereas carriers selling individual insurance permit underwriting outcomes ranging from table difference by setting the risk tolerance for accept at levels ranging from 150% to 200% of standard duration; the ultimate age for individual coverage ance coverage in this study ended at age 67, with con- 2 Executive Summary The protective value that MIB s Checking Service brings to the North American insurance industry is widely acknowledged and plays a vital role in ensuring its member companies can offer and consumers can purchase affordable life and health insurance protection. Despite this widespread belief, MIB considers it important to independently quantify the value of its services for its members. MIB does this by periodically conducting protective value studies using independent actuaries and consulting underwriters. This article summarizes MIB s most recent study of a voluntary group product sold through the workplace and underwritten using higher for group insurance because they are driven not only by the consumers buying habits, but by employment duration and carrier changes made by The Approach During the design phase of this study, the study team decided to develop the protective value information from a candidate record set of all applications submitted to the subject companies over a period of 12 calendar months to provide a typical snapshot of plications were selected to represent individually underwritten group voluntary insurance from the larger the MIB Checking Service, provides an alert to the group insurance carrier that prompts further investigation and leads to an underwriting action other ON THE RISK vol.30 n.1 (2014)
than an approval, and the estimated present value 3 Year-to-year savings were calculated in today s given today s economic environment, and taking into account reasonable anticipated lapse rates of the poli- provided by the subject companies and were used in Background on the 20,000 cases, the study was able to focus the review on cases where there was demonstrable MIB prompted an alert to the group carrier advising it of previously unknown information (medical or non- general, the alert allows the group medical under- received from MIB when the applicant did not declare for each particular case in terms of the additional tioning, the group medical underwriter can determine if the information is satisfactory for risk selection and whether a decision can be made, or if additional underwriter the opportunity to properly assess the Most group carriers will consider accept risks from In the course of the study, when an applicant did not determined that these situations warranted inclusion in the study due to the potential mortality impact of the impairments that were previously reported on the in the risk selection process, the applications would cases were found to be impactful to the carriers block of business, and this is where the protective value becomes apparent and relevant to group voluntary Method conservative approach was taken to apply assumptions about the probable mortality impact based on the applicant s current age and details of the MIB alone; however, for the purposes of this study, and to establish a probability of mortality, the information Certain conditions that are chronic and progressive in nature, such as heart disease and diabetes, portend to an outcome that is easier to conclude based on the impairment code, whereas challenges arise in assessing the outcome of impairments that are acute in nature, and represent what might be termed a de- risk is the impairment risk posed by history of alcohol, drug or driving issues; it is entirely possible that the condition could have been resolved and, depending on the time frame since resolution, could have been if it was resolved, why did the applicant not reply to - decline, depending on severity, time since diagnosis/ treatment and relapses, but for the purposes of this study it was decided to conservatively classify these were applied the appropriate probable outcome, in the absence of current information, based on the following criteria: current age of the applicant and the MIB impairment, including the modifying degree Observations tion developed through the MIB codes was apparent Actuarial Methodology Employed In determining the protective value of MIB s Checking - pany and plan, and actuarial assumptions are key in ON THE RISK vol.30 n.1 (2014) 3
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varying the assumptions from the study s reasonable basis in order to assess their impact, and to present pected mortality savings as a result of using MIB s MIB Cost = the fully burdened cost of using MIB In other words, for every $1 of MIB cost, the NPVI - the NPVI, the margin must be over $1 in order to Fitting the Data ensure that the sample selected was a good represen- does not permit a full documentation of these results; however, the following graphs illustrate two of the various criteria used in the study to ensure that both the sample data and the selected declined cases (or Other criteria included average age, average face amount, face amount distribution, percentage of spouse coverage for the sample group and the not Key Assumptions Key assumptions used in the actuarial calculations are: is reasonable to assume that a portion of those impaired lives will convert when they have the percentage of those applicants converting to a testing, the study has replaced these weights by a risk tolerance to accept at levels ranging from has assumed that any not placed cases would be at the 200% level unless LOGiQ3 had additional - - ON THE RISK vol.30 n.1 (2014) 5
*The values included in this table, and their impact on protective value, inform the X-axis of the following two graphs [see next page]. Because the fully burdened MIB cost varies for ume, the study determined an assumption based the study has also assumed a reasonable salary base for the underwriting staff to use the MIB On the above basis, the NPVI is 15.20, meaning that for every $1 of MIB cost, the Net Protective Value is 67, with no conversions of any kind beyond age 67, the NPVI is 9.83 includes all sensitivity tests to demonstrate and compare the impact of the most important assumptions, 6 ON THE RISK vol.30 n.1 (2014)
Conclusions - - this level clearly demonstrates the value of using In reality, underlying assumptions would vary is clear that, under all sets of reasonable assump- References 1 Published in the March 2000 edition of ON THE RISK 2 Published in the September 2010 edition of ON THE RISK direct and indirect costs incurred by the subject companies in their use ON THE RISK vol.30 n.1 (2014) 7
About the Authors Sylvain Goulet, FCIA, FSA, MAAA, - Carmela Tedesco - - - Please e-mail us at, or call your MIB sales representative 8 ON THE RISK vol.30 n.1 (2014)