AAIM 2015

Mike Fulks

Life’s Big QuestionsLife’s Big QuestionsLife’s Big QuestionsLife’s Big Questions

1. 200% of what exactly?

2. If it is $10 for 3, why not $5 for 6?

3. Why not use a +50 rating to cover the

tail on a cancer risk?

4. Where do ratings come from?

Talking the Talk

• Mortality Ratios

Mortality %

100%

150%

200%

300%

400%

500%

Uninsurable

Debits 0 50 100 200 300 400 Often > 1 year survival

Table

STD T-2 T-4 T-8 T-12 T-16 T-U

STD T-B T-D T-H T-L T-P T-U

• Flat Extras

One extra death/1,000 lives roughly equals $1/ $1,000 of risk amount

Expected Mortality Tables

Lowest Mortality

3x

2x

Highest Mortality

Annuity

Proprietary Life table usually a % of basic tables

Industry-experience basic tables ’75-80, 2001, 2008 VBT

Employed Group Health

General Population from appropriate years

Industry Life tables

Valuation basic tables (VBT)

– https://www.soa.org/member use menu to Research and

Publications for 2008 and 2001 and other useful material

– Based on experience studies and projected improvement

– 25 year select period where impact of underwriting

diminishes year by year followed by “ultimate”

– 2008 with preferred and limited-underwriting tables

– 2014 VBT with additional features in development

Select and Ultimate MortalityEffects of selection on mortality, male insured lives 1955-60.

U.S. white male 1st policy year 16th policy year

Age Group

Deaths/ 1,000

Deaths/ 1,000

Ratio to US pop

Deaths/ 1,000

Ratio to US pop

35-39 2.5 0.9 36% 1.6 64%

40-44 4.1 1.5 37% 2.7 66%

45-49 6.9 2.2 32% 5.1 74%

50-54 11.6 3.2 28% 8.3 72%

55-59 17.3 4.3 25% 13.3 77%

60-64 26.9 6.7 25% 21.6 80%

65-69 39.3 10.2 26% 33.0 84%

70-74 56.2 14.8 26% 50.0 89%

Adapted from Medical Selection of Life Risks, 4th edition

1 1 1 13

8

22

55

0

10

20

30

40

50

60

70

80

10 20 30 40 50 60 70 80 90

De

ath

s/ T

ho

us

an

d/ ye

ar

Age

Expected Mortality Curve for

Standard Male Insureds(70% of '75-80 basic)

1 1 1 1 3

8

22

55

16

44

4 4 45

12

32

0

10

20

30

40

50

60

70

80

10 20 30 40 50 60 70 80 90

De

ath

s/T

ho

us

an

d

Age

Standard

200%

400%

Mortality by % of expectedTable Ratings

Life Expectancy, years remainingMale Insureds (70% of ‘75-80 basic)

Age

STD

100%

T2

150%

T4

200%

T6

250%

T8

300%

T12

400%

T16

500%

60 23 19 17 15 14 12 11

65 19 15.5 14 12 10.5 9 8

70 15 12 11 9 8 6.5 5.5

75 12 9 8 6.5 6 4.5 4

80 9 7 5.5 5 4 3 2.5

85 7 5 4 3.5 3 2 1.5

90 5 3.5 3 2.5 2 1.5 1

0

100

200

300

400

500

600

700

800

0 1 2 3 4 5 6 7 8 9 10

Years

Cancer

CAD

Standard, 100%

Mo

rtali

ty%

100%

-200%

Underwriting Principle #1

Early vs. Late mortality or recurrence

10

30

58

7068

59

46

34

26.5

21.2 20 19.8

10.2 10.5 11 11.612.5

13.2 14.215.2 16.2

17.5 18.8

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8 9 10 11

Recu

rren

ces/1

,000/y

ear

Years

Flat extras for Cancer Mortality (Recurrence or Mortality)

Cancer

Standard 58 yo male

30- 15=15

24- 16 = 8

21- 17 = 4

Roughly 27 deaths in

3 years or 9 per year

plus a small tailPostpone

10

30

58

7068

59

46

34

26.5

21.220 19.8

10.2 10.5 11 11.6 12.5 13.214.2

15.216.2

17.5 18.8

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8 9 10 11

Re

cu

rre

nc

e/1

,00

0/y

ea

r

Years

Flat extras for Cancer Mortality (or Recurrence)

Cancer

Standard 58 yo male

Postpone for

first 7 years

9 deaths/yr for

3 years plus a tail

≈ $10 dollars/1,000

10

30

58

7068

59

46

34

26.5

21.220 19.8

10.2 10.5 11 11.6 12.5 13.214.2

15.216.2

17.518.8

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8 9 10 11

Recu

rren

ce/1

,000/y

ear

Years

Flat extras for Cancer Mortality (or Recurrence)

Cancer

Standard 58 yo male

Postpone for

5 years rather

than 7

0

10

20

30

40

50

60

70

80

90

10 20 30 40 50 60 70 80 90

Death

s/T

ho

usan

d

Age

Principle #2 Mortality Curves Table vs. Perm. Flat Extra

400%

$20/thousand

Standard

COPD & CAD

CLL, HCM &

Renal Trans.

Underwriting Principle #3

Know when to make an offer based on

limited information

• What is your business model?

– Fully underwritten to final expense; agency to brokerage

• What is the potential range of risk for this finding:

– Narrow (or no change in result), where more info not useful;

– Wide, where more info. absolutely needed?

1,000 applicants with non-specific T wave abnormalities on their EKGs.

You propose to rate everyone with this finding at +50 to cover the extra mortality.

I propose to use all available history, age, sex and exam to determine the probability of underlying disease and rate on that basis

Conditions include:

• HTN/LVH , CAD

• Cardiomyopathy

• Probably healthy

You end up quickly with:

• 1,000 offers all at 150%

I end up taking a bit longer and ending up with:

• 500 offers at standard

• 250 offers at 150%

• 250 offers at over 150%

• You get all those over 150%

• You lose most under 150%

Lose - Lose

• I give you all those over 150%

• I get most under 150%

Win - Win

AnsweringAnsweringAnsweringAnswering

Life’s Big QuestionsLife’s Big QuestionsLife’s Big QuestionsLife’s Big Questions

1. 200% of what exactly?

2. If it is $10 for 3, why not $5 for 6?

3. Why not use a +50 rating to cover the

tail on a cancer risk?

4. Where do ratings come from?

Answer Answer Answer Answer to to to to

Life’s Big Life’s Big Life’s Big Life’s Big Question #3Question #3Question #3Question #3

Breast Cancer tail =

2 deaths/1,000 extra regardless of age

57 yo women with expect mort of 4 deaths/1,000

2 deaths/4 deaths = 150% of expected

75 yo women with expect mort of 20 deaths/1,000

2 deaths/20 deaths = 110% of expected

• Where do ratings come from?

– “Expert Opinion” is still the basis or many or

multiples of normal range for laboratory studies

– Insured lives studies often using MIB classification

comparing to expected mortality based on VBT

– Applicant studies often from industry labs utilizing

Social Security DMF for deaths

– General or selected population studies from medical

literature

All require understanding research results

-Monday workshop focused more on table ratings

How could case #1 be rated?

56 yo male with a PTCA 2 months ago (no MI),

who quit smoking 1 year ago, back at work.

A. Temp flat and table rating

B. Table rating only (call smoker or non-smoker?)

C. Permanent flat

How could case #2 be rated?

56 yo female with 3 cm. grade 2 breast cancer

including one positive axillary node 6 years ago,

without recurrence, now off hormonal therapy.

A. PP (what risk criteria require it to be pp?)

B. Table rating only

C. Permanent flat only

D. Temp flat and table rating (same for all ages)

E. Temp flat and permanent flat

How could case #3 be rated?

56 (or 78) yo male with clinical T2b Gleason 6

prostate cancer treated with radiotherapy 8

months ago with PSA now reduced to 0.3 ng/mL .

A. PP

B. Temp flat (matching recurrences or deaths?)

C. Table rating

D. Standard offer (what is the consideration?)

How could case #4 be rated?

56 yo female pilot who learned to fly 8 months

ago and typically flies a couple of hours every

other week if the weather is OK. (assume aviation

hx is ratable)

A. Table rating

B. Permanent flat

C. Temporary flat

How could case #5 be rated?

66 yo female smoker with a screening CEA level

at 13 ng/mL (values >10 ng/mL are often

associated with advanced malignancy)

A. Table rating

B. Permanent flat

C. Temporary flat

D. PP

Selected References

• Medical Selection of Life Risks, 5th ed., Brackenridge, 2006

• Medical Risks, 1991 Compend, Singer, Kita and Avery, 1991

• Medical Risks, Vol 1&2, Lew and Gajewski, 1990

• Multiple Medical Impairment Study, CMAS, 1998

• Jour. Insurance Medicine, (AAIM) & OTR (AHOU)

• AAIM Mortality Methodology classes and this AAIM Triennial

course www.aaimedicine.org

• Actuaries at your company (often looking for absolute risk)

• https://www.soa.org/member

http://www.cdc.gov/nchs/products/pubs/pubd/lftbls/life/1966.htm