The demand for data: today's underwriters strive to gather and apply more information than ever about disease when considering life insurance applications. (Life/Health: Underwriting Insight).

Insurers these clays intensely compete for life insurance business. To survive, they must win as many cases as possible, but at a price that is both profitable and equitable while using a selection process that is clear, fair and understandable.

The key to achieving these goals is evidence-based underwriting, an approach that will form the foundation for risk selection. But what does "evidence-based" mean?

In recent years, the phrase has become more prominent in clinical medical literature. It refers to having documentation, or "proof," that a given treatment or procedure is effective before it is adopted as a standard of care. This trend has been mostly driven by the increasing need for therapy that is effective and cost-justified. This same phrase has made it into the lexicon of risk selection, where it refers to the need for objective data to support decisions on mortality risk.

Evidence-based underwriting has become important in recent years for three major reasons, which are outlined below.

First, achieving balance between the need to maximize sales and the need to maintain profitability requires a thorough understanding of the mortality risk on each applicant and as much objective "evidence" as possible. Assessing and charging appropriately for risk is the key, and this strategy demands that cases be underwritten on an individual basis. Rather than applying broad, one-size-fits-all guidelines, underwriters have shifted emphasis to tailoring risk assessment to the factors present in a particular case.

Second, evidence-based actions strengthen the integrity of the risk-selection process itself. Underwriters increasingly seek actuarial data or clinical evidence to use in determining their actions. The fact that an action is recommended in an underwriting manual may not provide a satisfactory answer simply because it's there. Data supporting the suggested action is now in demand. The expectation is that the risk-selection process rests on a foundation constructed from a body of "evidence." While underwriting always will be a blend of science and art, using stronger "evidence" moves underwriting decisions further into the realm of science.

Finally, taking action based on objective "evidence" is the right thing to do for the consumer. The issue is one of fairness. Medical science has advanced at an astonishing rate, and it is only right that those advances be considered as much as possible when selecting risks. The cornerstone of the insurance business is equitable distribution of its products for the protection of its clients. Reasonable, evidence-based actions help to ensure a consistent and fair outcome.

Evidence comes from a variety of sources, and its collection demands a serious commitment from involved insurers. The demand for time and resources is significant. Creativity is also critical in the application of this raw knowledge to the competitive, real-world business environment. Limitations dictated by these requirements and the dynamics of the current insurance marketplace have placed much of the work in generating evidence-based underwriting guidelines upon reinsurers. The drive for knowledge will continue to influence the direct writer's need to develop, interpret and apply supportive data and, similarly, influence its choice of a reinsurance partner capable of meeting these needs.

How is this evidence derived? The sources for information on mortality risk are numerous. One is insured-lives data. Clinical articles provide another source. Analysis also can be performed on large population or cohort databases. Finally, when traditional survival data does not exist or is not present to any great extent, modeling of the mortality risk can be performed.

Using any of the above techniques, underwriters can uncover evidence on the mortality risk of a given condition and the factors that modify that risk. When this information is formatted properly, a tremendous amount of disease-specific and applicant-specific knowledge can be concentrated in the hands of the underwriter. The benefit is that risk appraisal can be tailored to the individual applicant, matching the pricing of the product as near as possible to the risk posed by that person. The result is an action that is fair, profitable and defensible--a win for all concerned.

Clifton P. Titcomb, MD., a Best's Review columnist, is vice president and chief medical director with the ING Re Individual Life and Health Operation, Denver. He can be reached at [e-mail].