How to prepare a life expectancy report for an attorney in a tort case

The purpose of this methodology article is to describe a suitable format for a legally acceptable report on the life expectancy of the principal in a tort case that is being advocated or defended by an attorney. Life insurance medical directors and underwriters are clearly skilled and experienced in mortality risk classification for life insurance. However, the judicial system is accustomed to measuring excess mortality only in terms of reduced life expectancy. The analyst preparing the report must convert the excess mortality into a figure for reduced life expectancy and compare this with the life expectancy of persons matched by age, sex and race in the latest Decennial US Life Tables. This process is different from the life insurance underwriting process. A life table projected to age 109 must be constructed as an essential part of the report, and the entire process must be presented clearly and convincingly. There are good reasons why the excess death rate (EDR) should be used as the index of excess mortality in constructing the life table, in preference to the mortality ratio (MR), which is used most of the time in life insurance risk classification. All of these considerations are discussed in this article, which is based on a sample of 40 cases handled by the author, a retired life insurance medical director.     

Adverse Selection in Term Life Insurance Purchasing due to the BRCA1/2 Genetic Test and Elastic Demand

Consumer groups fear that the use of genetic testing information in insurance underwriting might lead to the creation of an underclass of individuals who cannot obtain insurance; thus, these groups want to ban insurance companies from accessing genetic test results. Insurers contend that such a ban might lead to adverse selection that could threaten their financial solvency. To investigate the potential effect of adverse selection in a term life insurance market, a discrete‐time, discrete‐state, Markov chain is used to track the evolution of twelve closed cohorts of women, differentiated by family history of breast and ovarian cancer and age at issue of a 20‐year annually renewable term life insurance policy. The insurance demand behavior of these women is tracked, incorporating elastic demand for insurance. During the 20‐year period, women may get tested for BRCA1/2 mutations. Each year, the insurer calculates the expected premiums and expected future benefit payouts which determine the following year's premium schedule. At the end of each policy year, women can change their life insurance benefit, influenced by their testing status and premium changes. Adverse selection could result from (i) differentiated benefits following test results; (ii) differentiated lapse rates according to test results; and (iii) differentiated reactions to price increases. It is concluded that with realistic estimates of behavioral parameters, adverse selection could be a manageable problem for insurers.     

Adult Polycystic Kidney Disease and Insurance

Abstract

Adult Polycystic Kidney Disease (APKD) is a single-gene autosomal dominant genetic disorder leading to end-stage renal disease (ESRD, meaning kidney failure). It is associated with mutations in either of two genes, APKD1 and APKD2, and although diagnosis is still mostly by ultrasonography rather than DNA-based tests, this may change in the future. Recent studies have shown that the rates of onset of ESRD associated with APKD1 mutations are much greater than those associated with APKD2 mutations, a form of genetic heterogeneity that differs from, for example, familial breast cancer. In this paper we model the the impact of mutations in APKD1 or APKD2 on critical illness insurance, extending the work of Gutiérrez and Macdonald (2003), which was based on studies predating DNA-based tests. We then extend the model to life insurance and show that the financial impact is strongly dependent on the availability of treatment (dialysis and transplant), but that if it is available, extra premiums for life insurance are modest. We show that genetic heterogeneity introduces a novel problem, because carrying an APKD2 mutation is less risky than having a family history of APKD. Thus, in jurisdictions where family history may be used in underwriting but genetic tests may not, it may be illegal to use knowledge that benefits the applicant.     

Relative Hedging of Systematic Mortality Risk

A number of problematic issues have arisen in anticipation of the potential role of molecular tests for genetic predispositions to illness in risk assessment by insurance underwriters. We argue in this paper that the regrettable history and current risks of genetic discrimination warrant a presumption that genetic predisposition status should not be used in any nonmedical contexts, unless compelling evidence can demonstrate that serious harm will result to third-party interests without such use. We argue that insurers should not be able to initiate testing for genetic predisposition. We also argue that there are many reasons to doubt whether patients’ test results will result in such serious adverse selection as to cause substantial harm to insurance markets, except possibly at higher policy amounts in life or disability income insurance. We conclude that the burden of proof must be on insurers to demonstrate necessity of use in specific cases in which test availability shows high probability of imminent, serious harm to insurance markets.     

Federal Regulation of Use of Genetic Information by Insurers

This paper analyzes policy developments at the national level during 1997, including proposed federal legislation and the response of the insurance industry. With broad bipartisan support, it appears that some form of federal regulation is likely within the next two sessions of Congress. The debate appears to be centering on two issues: the definition of genetic information and whether regulation will extend to a blanket prohibition on testing. The insurance industry is suggesting that restrictions based on an “unfair discrimination” standard would permit coverage and cost distinctions based on actuarially sound data, while the health care industry is opposed to any discrimination based on genetic information. A utilitarian ethical perspective would likely support restrictions on testing for life insurance but not health insurance.     

Anorexia nervosa: a 63-year population-based survival study

As eating disorders attract increasing publicity, more affected individuals will seek medical attention. Many will have needs for life insurance. Due to selection bias, most of the literature on anorexia nervosa (AN) presents an unfavorable prognosis. Therefore, the impairment is considered an adverse life insurance risk. This review is from an unselected, community population. The demographics of the study population and its expected mortality are similar to a population purchasing life insurance products. Comparative experience over 63 years of follow-up reveals mortality ratios and excess death rates similar to those expected for the population. High-risk comorbid diagnoses of depression and alcoholism are discussed.     

Genetik und Versicherung aus ökonomischer Sicht

For some years direct gene tests have been available for many diseases and nearly every week new gene mutations are found and linked with diseases. By improving the diagnostic possibilities consequences for certain insurance branches will arise. Health and life insurance in particular will perhaps face radical chances, especially concerning the acceptance of contracts. If there is a contract between a policy holder and an insurance company, it is more important whether the cost-effectiveness of genetic screening is given. Exemplary this is calculated for a population-based screening for hemochromatosis. Furthermore it is relevant, whether the population will use available gene tests. The results of a pilot study will be presented. They show that there is a market for such products and that consequences for insurance companies are likely.     

Household Life Insurance Demand

Abstract

What types of households own life insurance? Who owns term life and who owns whole life insurance? These are questions of great interest to insurers that operate in a highly competitive market. To answer these questions, we jointly examine household demand of two types of insurance, term and whole life, using data from the Survey of Consumer Finances, a probability sample of the U.S. population. We model both the frequency and the severity of demand for insurance, building on the work of Lin and Grace by using explanatory variables that they developed. For the frequency portion, the household decisions about whether to own term and whole life insurance are modeled simultaneously with a bivariate probit regression model. Given ownership of life insurance by a household, the amounts of insurance are analyzed using generalized linear models with a normal copula. The copula permits the bivariate modeling of insurance amounts for households who own both term and whole life insurance, about 20% of our sample. These models allow analysts to predict who owns life insurance and how much they own, an important input to the marketing process.

Moreover, our findings suggest that household demand for term and whole life insurance is jointly determined. After controlling for explanatory variables, there exists a negative relationship for a household’s decision to own both whole and term life insurance (the frequency part) and a positive relationship for the amount of insurance purchased (the severity part). This indicates that the greater the probability of holding one type, the smaller the probability of holding the other type of life insurance. However, higher demand for both types of insurance exists when a household decides to own both. This mixed effect extends prior work that established a negative relationship, suggesting that term life insurance and whole life insurance are substitutes for one another. In contrast, our findings reveal that the ownership decision involves substitution, but, for households owning both types of insurance, amounts are positively related. Therefore, term and whole life insurance are substitutes in the frequency yet complements in the severity.     

Ruin probabilities and optimal capital allocation for heterogeneous life annuity portfolios

A large part of the actuarial literature is devoted to the derivation of ruin probabilities in various non-life insurance risk models. On the contrary, very few papers deal with ruin probabilities for life insurance portfolios. The difficulties arise from the dependence and non-stationarity of the annual payments made by the insurance company. This paper shows that the ruin probability in case of life annuity portfolios can be computed from algorithms derived by De Pril (1989) and Dhaene & Vandebroek (1995). Approximations for ruin probabilities are discussed. The present article complements the works of Frostig et al. (2003) who considered whole life, endowment, and temporary assurances, and of Denuit & Frostig (2008) who considered homogeneous life annuities portfolios. Here, heterogeneous portfolios (with respect to age and/or face amounts) are studied. Particular attention is paid to the capital allocation problem. The total amount of reserve is shared among the risk classes in order to minimize the ruin probability. It is then fair to charge a higher margin to the risk classes requiring more capital.     

人寿保险行业市场结构及影响因素研究

准入退出壁垒、市场集中度、规模经济和范围经济以及产品差异化等是影响人寿保险业市场结构的主要因素。中国保险市场准入、退出的行政性政策壁垒较高,市场集中度较高,属于寡占 III 型市场结构;寿险业保费规模、保险密度、保险深度、保险资产总额占 GDP 的比重、保险资产总额占整个金融资产的比重较低;寿险产品同质化现象较严重。鉴此,应降低市场进入壁垒,建立市场退出机制,达到优化市场结构,提高资源配置效率目的。     

Dynamic Portfolio Choice with Stochastic Wage and Life Insurance

We study optimal insurance, consumption, and portfolio choice in a framework where a family purchases life insurance to protect the loss of the wage earner's human capital. Explicit solutions are obtained by employing constant absolute risk aversion utility functions. We show that the optimal life insurance purchase is not a monotonic function of the correlation between the wage and the financial market. Meanwhile, the life insurance decision is explicitly affected by the family's risk preferences in general. The model also predicts that a family uses life insurance and investment portfolio choice to hedge stochastic wage risk.     

中国寿险市场存在逆向选择吗?——来自CHARLS数据的经验证据

我国寿险市场是否存在逆向选择问题,在理论和实证两个方面缺乏细致的讨论。本文利用CHARLS数据和正相关理论检验了我国定期寿险和终身寿险市场中的逆向选择问题。我们选取了死亡率这一远期指标和健康状况这一近期指标来衡量消费者的死亡风险,从广延边际和集约边际两个方面利用正相关理论进行了深入的研究。实证结论表明,以死亡率和健康状况衡量的死亡风险与寿险消费负相关或者不相关,即我国寿险市场并不存在逆向选择问题。然后,我们讨论了模型的内生性问题,并根据年龄变量检验了结论的稳健性,实证结果表明我们的结论是稳健的。最后,本文利用双变量Probit模型设计了一个机制,并利用该机制验证了利他动机是我国寿险市场不存在逆向选择的原因之一。     

人寿保险行业市场开放度效率研究

以东、中、西部各省(市)人寿保险公司设立、寿险保费收入和中外资寿险人员安排的劳动力投入等指标数据衡量人寿保险业的市场布局,结果显示:东、中、西部2002-2011年人寿保险公司一级(省级)分公司数量和分布密度逐年增加,各省寿险保费收入和中外资寿险人员劳动力投入的布局比重基本呈现逐年递增的趋势.运用DEA中投入导向CCR模型对我国人寿保险行业市场开放度效率进行分析,结果显示:中资寿险开放度效率相对较高,全国水平次之,外资寿险较低但呈现递增波动趋势.人寿保险业市场开放布局与开放度效率呈阶段式波动递增相关关系.     

Bradycardia in a former professional athlete

A mild bradycardia is noted in the electrocardiogram of a former professional hockey player applying for life insurance. The electrocardiographic differential diagnosis and prognostic implications are discussed.     

中国寿险市场存在逆向选择吗?——来自CHARLS数据的经验证据

我国寿险市场是否存在逆向选择问题,在理论和实证两个方面缺乏细致的讨论。本文利用CHARLS数据和正相关理论检验了我国定期寿险和终身寿险市场中的逆向选择问题。我们选取了死亡率这一远期指标和健康状况这一近期指标来衡量消费者的死亡风险,从广延边际和集约边际两个方面利用正相关理论进行了深入的研究。实证结论表明,以死亡率和健康状况衡量的死亡风险与寿险消费负相关或者不相关,即我国寿险市场并不存在逆向选择问题。然后,我们讨论了模型的内生性问题,并根据年龄变量检验了结论的稳健性,实证结果表明我们的结论是稳健的。最后,本文利用双变量Probit模型设计了一个机制,并利用该机制验证了利他动机是我国寿险市场不存在逆向选择的原因之一。     

The Price Elasticity of Demand for Whole Life Insurance

In this study a real price index is created for whole life insurance sold in the United States from 1953 to 1979. New purchases of whole life insurance are shown to be negatively related to changes in this cost index, contrary to what has been widely accepted in the insurance literature, but consistent with economic theory. The existence of strong price elasticity of demand for whole life insurance does not ensure, however, that the insurance industry manifests a high degree of price competition.     

The Genetics of Breast and Ovarian Cancer III: A new model of family history with insurance applications

Insurers’ access to genetic test results is often restricted and the only genetic information that might be collected during underwriting in some countries is family history. Previous studies have included family history in a simple way but only for diseases which have no cause other than gene mutations, because then the event ‘affected parent’ contributes all possible information short of a genetic test result. We construct a model of breast cancer (BC) and ovarian cancer (OC) — common diseases with rare genetic variants — in which the development of a family history is represented explicitly as a transition between states, hence as part of the applicant's own life history. This allows the impact of a moratorium to be modelled. We then apply this family history model to life insurance in a semi-Markov framework and to critical illness (CI) insurance in a Markov framework to: (a) estimate premium ratings depending on genotype or family history; and (b) model the potential cost of adverse selection.     

Exotic unit-linked life insurance contracts

This article integrates aspects of traditional insurance with advances in financial economics, yielding proper valuation and premium assessments of insurance benefits linked to various financial assets. Several new types of unit-linked life insurance contracts are discussed, with substantial potential for real-life applications. Compared to usual unit-linked products, these contracts offer added flexibility and/or altered exposure to financial risk for the insured and/or the insurer. The single premiums of these policies are calculated as expectations under a risk-adjusted probability measure (equivalent martingale measure), satisfying no-arbitrage conditions in financial markets.     

A Cross-Section Analysis of the Determinants of Life Insurance Consumption in Mainland China, Hong Kong, and Taiwan

This study examines some of the key factors affecting life insurance consumption in mainland China, Hong Kong, and Taiwan. It also attempts to gain an understanding of the different characteristics of the market in life insurance in each territory. Income and life insurance consumption are found to be strongly correlated, which is consistent with previous studies. Education is a significant factor. Price is found to be insignificant, largely conflicting with previous studies. Levels of social security are not significantly related. The one-child policy in mainland China has a negative effect on life insurance consumption. Differences in the level of economic development reveal a variation in life insurance consumption. Generally, the more advanced the economy, the greater the life insurance consumption. However, mainland China, which is a low-income country, shows the greatest potential.     

A Gentle Introduction to Risk Aversion and Utility Theory

While the topics of risk aversion and utility theory have been discussed extensively in the academic literature on risk and insurance, this literature does not include a pedagogical discussion that is widely accessible for classroom use. This article provides a practical introduction to risk aversion that is designed for readers with little prerequisite course work in economics or statistics. We describe a simple model of insurance demand that can be applied to the property, liability, life, and health insurance markets. We also demonstrate how risk aversion affects a variety of real-life insurance decisions made under conditions of uncertainty, including how much the market will bear to pay for insurance administrative expenses and how demand varies for different types of auto insurance coverage. Exercises and practice problems are provided so that readers can test their mastery of the concepts presented in the article. An instructional note on using this article to teach risk aversion in the classroom is also provided.