A different set of rules: underwriting life insurance for applicants older than 75 requires fresh evaluations and new uses of old tools.

Key Points

* Universal life and variable universal life are the main markets for people older than 75.

* Applying a percentage of an industry table to this market pricing is not completely appropriate.

* Frailty and cognitive issues are important in underwriting the elderly.

* Some diseases tend to manifest differently in older applicants.

As life insurance companies face more and more applicants who are older than what used to be considered the normal life insurance market range, it becomes difficult to use traditional underwriting tools, which do not provide the same level of information for these senior consumers.

Underwriting for younger applicants tends to be an exercise of determining who is healthy vs. who has impairments, said Chris Shanahan, vice president, product solutions and research, for the Individual Life and Health Operation of ING Re. At older ages, the majority of people have some form of impairment, and what becomes increasingly and dramatically important is not the existence of the impairment itself, but the ability of the person to function with the impairment--their hardiness, he said.

"For example, you can look at two attending-physician statements that seem to read the same on paper," Shanahan said. "What you can't tell is that one of the applicants power walked into the doctor's office, while the other had to be assisted by a family member, and it took five minutes to get from the elevator to the receptionist's desk."

While the United States may be 10th or 12th in the world for overall life expectancy, looking at the elderly population in each country as a group, the United States has the largest segment of the senior market, according to Ken Zinn, an underwriter with American International Group Inc.

"In looking at the overall health of this market group, the United States has a healthier senior market for life insurance," Zinn said. "The average person buying life insurance coverage in their 70s and 80s is definitely in the upper economic class, and we know that wealth equals health in this society. Wealthy people live longer as a group, so you're dealing with a class of people who have an advantage in longevity. They can afford and avail themselves of the best medical care, which affects the mortality assessment."

Universal life and variable universal life are the main market for these ages, Shanahan said. This is not a term insurance market for the most part, although there are a few term products in this age range, he said. The term products make up perhaps 1% of the market, with the vast majority being more permanent products such as whole life, universal life, variable universal life and variations on survivorship products, he said.

As more business comes in, it's easy to question whether the business is coming in because the marketplace is growing or because companies actually have started pricing products to age 90 and opened the door to the marketplace, said Michael McFarland, vice president of underwriting for Prudential Financial.

"I suspect it's a mixture of both," McFarland said. "The kind of business we see tends to be estate planning, with some business cases. It's amazing how frisky some of these active individuals will stay, particularly when they've been running their own business for 25 or 30 or 40 years. They don't want to give it up, particularly when it defines who they are. But for the most part, what we're seeing is estate-planning situations."

Some consumers want to know how to get money out of an estate and stay away from the tax liability, McFarland said. People know that they can put money into a life insurance contract, and an underwriting problem can occur when the applicant comes in with a big bag of money, and the agent believes this will make all the underwriting considerations go away, he said. By the time companies pay the acquisitions costs of the policy--the commission, overwrites to the general agent and costs for any underwriting testing or medical records--the money's just not there anymore, and companies can't make enough money to pay for all those costs and still have enough reserves left to pay the claim the underwriters knew would be coming fairly quickly, he said.

How to Underwrite 

For the past several years, insurers--including ING Re--have been looking at potential approaches or considerations for underwriting the elderly, knowing there were relevant risk factors that the industry had not looked at that would add value to the underwriting process, Shanahan said. At the same time, carriers were starting to get enough data to get a handle on the pricing assumptions for this market segment, he said.

Trying to assemble underwriting information for an older market is difficult, McFarland said. Pick a topic on a younger life and there are clinical data available to do a statistical analysis to arrive at a pricing assumption, he said. If the companies try to do the same review for an 85-year-old, the statistical data just don't exist, he said.

"The first problem you run into is that the body of available data is comparatively small," McFarland said. "You can come to some conclusions the same way you would at younger ages, but you're always questioning the reliability of your conclusions, because you're looking at what has been to date a small population."

There are a host of products out there priced through age 85 and 90, and companies are getting the business, McFarland said. It's coming through the door and companies are underwriting it, and they believe they're providing the best underwriting decision they can, based on experience, knowledge and years of working with the products, he said.

But the bottom line is that underwriters still are scratching their heads, because they know the population of cases compared with the rest of any company's total book of business is extremely small, McFarland said. So underwriters look at claims data or placement data or any metric related to the book of business to get information and do analysis of the pricing assumptions, but they're still questioning the reliability of those assumptions, he said.

Frisky or Frail 

The information found by one of Prudential's medical directors suggests seniors fall into two basic categories: frisky and frail, McFarland said. On the one hand, there are the frisky: healthy, robust, active people with no cognitive impairments and the picture of health, he said. Further down the continuum are the frail: an individual that just by life expectancy alone may offer what's needed to price a case, but beneath the surface, the person actually becomes very frail looking, he said. The cognitive ability is lacking, the social ability isn't there anymore, there is some level of depression, there's been some weight loss, there's some arthritis that keeps mobility to a minimum and creates the potential for a fall, and that's the kind of risk to stay away from, he said.

The diminished physical reserve is unique to this market, McFarland said. Things that a younger, healthier individual would be able to endure and shrug off--to get through the disease process and recover--an older individual would not endure, he said. Something as simple as pneumonia can be life threatening to an older individual, he said. Something as simple as an infection that in a younger applicant an antibiotic can take care of becomes life threatening, he said.

"We've never historically had a lot of insured-lives data to price the elderly off of, since it was a newer market," Shanahan said. "What we're seeing is that applying a percentage of an industry table to this market pricing is not completely appropriate. While intuitively that makes sense, we now have data to back it up. As a result, companies who are in the situation of using the percentage approach have three choices: keep the status quo, which means they're underpriced; adjust pricing upward to reflect the new mortality information assumptions, or bring the rest of the picture in your underwriting process in line with your pricing by adjusting underwriting criteria."

But when the general experience states a carrier should price 40% of some mortality table at a core age, the question companies need to ask is if they extrapolate that 40% factor to the elderly ages, will the same level of discounts hold up, Shanahan said.

"What we're seeing, from the data and from a mortality study that we're wrapping up, is that the same level of discount does not hold up," Shanahan said. "One of the drivers for that--of why don't you get to as much of a discount vs. historical experience at the older ages as you do at the core ages--is that those underwriting advancements, while they have certainly improved mortality at older issue ages just as they have at the core ages--they just haven't improved it as much. The reason for the difference is that those same underwriting tools used across a spectrum of ages were constructed with the core ages of 45-to 65-year-olds in mind. They're not the full story."

Same Finding--Different Meaning

Every tool insurers use at the younger ages is appropriate to be used in the older ages, said Marty Engman, medical director for ING Re. The first thing that must be done with an older individual is to do a good job of traditional underwriting to identify the basic impairments, and the tools work very well for that purpose, he said.

But there is more to the story, Engman said. "We're just beginning to go in the direction to look at the frailty and cognitive issues for the elderly," he said. "More and more companies are moving in that direction. There are some findings that have prognostic importance at older ages, such as build--with a wider range of acceptable weights--and cholesterol values--which have less prognostic value than in the younger ages, but have some relevance."

In some cases, the factors to look for are at lower limits, lower values than in younger individuals, Engman said. For example, if the cholesterol value falls below a certain reading--depending on the study looking at these findings--it may be a sign of an increased mortality risk, he said. Similarly for albumin--if albumin falls below certain clinical values, it suggests there may be an increased mortality risk, he said. Low build is probably more important in the elderly than in younger ages, as the body loses its ability to bounce back from weight loss caused by disease or the results of a fad diet, he said.

Some people are genetically resistant to the effects of some conditions, so that normal mortality statistics are less predictive as these applicants reach older ages, Engman said. For example, if people have diabetes for a long period of time and haven't had complications, there can be a number of reasons for that level of good health, he said. They may have paid exquisite attention to diabetes control and therefore avoided the complications, or it may be that they are genetically disposed to be fairly resistant to the ravages of the disease process, he said.

Having said that, it's important to know that a diabetes diagnosis has been around for a long time, and underwriters don't always know that when underwriting a case, Engman said.

One of the easy traps to fall into is overdebiting, Zinn said. Underwriters are used to evaluating moderately aged people. In reviewing older applicants, the old debit listing doesn't work, and many underwriters don't realize that at first, he said. The debits as listed in any underwriting manual are actually more powerful at the older ages and overstate the risk for these applicants, he said.

Looking at the impact on life expectancy of a two-table rating on a 45-year-old compared with an 80-year-old, it's a much higher impact on the younger applicant, and it may well be for a condition that is less important at the older age, Zinn said. This means the underwriter may be doubling the impact of a medical condition, he said. The relative risk of diabetes for a 45-year-old is much higher than for an 80-year-old, and use of the same debit level will be overrating the applicant, he said.

Underwriters expect a 45-year-old not to have a significant disease burden, so when looking at what is standard in a 45-year-old, the limits are lower, Zinn said. But the normal 80-year-old often has all kinds of problems, and that is reflected in the standard risk, because it is reflected in the mortality statistics for people that age, he said.

Some diseases tend to manifest differently in older applicants, Zinn said. Breast cancer that manifests in an older applicant tends to be less aggressive, so the rating must recognize that and not overstate it, he said. Another area underwriters struggle with is how to handle depression in the elderly, he said. Depression is very significant, and the question is how much of it already is counted in the mortality statistics base numbers at that age, he said. Underwriters must question when the depression is truly situational, and therefore temporary, and when the depression is the result of a cerebrovascular process, perhaps the first onset of dementia, he said. Also, depression seems to have an impact on a wide range of disease processes, especially at this age, and certainly makes those harder to control and makes the outcome worse and harder to quantify, he said.

"At the moment, everybody is doing the best they can with what they have and the body of knowledge available," McFarland said. "But I suspect a lot of what we do will evolve over the coming years. The thing that probably has concerned us more than anything else is the volatility of this market segment. You have two things that bring on volatility that you typically don't have with other books of business. One is that they are elderly and they have that diminished reserve. The second is the small population. You can take a lot of volatility if you have a large population of cases."

"The consistent message from many sources as we study this is that this segment of the marketplace doesn't die from the impairments that you underwrite them for," McFarland said. "They tend to die from things that are difficult to screen for in the underwriting process. At the top of the list is cancer. The next layer is violent death, motor vehicle accidents, falls and suicides, and how can you underwrite for that?"

Most companies can break up their business into age groups, McFarland said. There is the book of business for ages up to 75--which is a huge book of business companies have been writing for years with millions of policies on the books, he said. With the 76 to 80 age group, companies have been writing a few years and are pretty comfortable with them, he said. Then there is the age group 81 to 85--most companies haven't written that many, don't have as much on the books and don't know what the experience is going to be, he said.

"Finally, that last group of 86 to 90--I've been writing those for three years, and those concern me," McFarland said.

Learn More

American International Group A.M. Best Company #: 05953 Distribution: Independent broker/dealers and agents, direct marketing, affinity group marketing, wholly owned broker/dealers, securities firms and financial institutions.

ING Re A.M. Best Company #: 06895 Distribution: Direct sales, independent brokers,

Prudential Financial A.M. Best Company #: 06974 Distribution: Agents, domestic and international financial advisers, international life planners.

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