With the introduction of preferred risk underwriting programs in the late 1980s, those late implementing preferred programs found more than their fair shares of the poorer risks. A similar process is happening again as companies redesign their older-age underwriting programs.
According to a recently published survey by Gen Re Life Health, 52% (35) of the 67 participating companies indicated they were using cognitive testing to underwrite their older-age applicants. This was up from 46% (19) of 41 companies surveyed in 2008.
Cognitive testing is being added to older-age underwriting programs to test for cognitive functionality. Typically, when a person loses their mental capabilities, they progress from normal functioning to what is known as Mild Cognitive Impairment before progressing to dementia. The whole process varies person to person, but typically runs 7-11 years, with the last 1-4 years being with dementia.
The prevalence of dementia among the elderly varies by gender and from study to study. Rates of dementia among these studies vary from 2%-12% for those in their 70s to 30%-50% for those in their late 80s and beyond.
To demonstrate why it is important to identify those with dementia, life expectancies for those with dementia can be compared to the general insured population based on the most recent industry table, the SOA 2008 VBT. Life expectancies for male and female nonsmokers at several ages are shown in Table 1.
Nonsmoker Life Expectancies
in Years Based on the SOA 2001 VBT
Table 1 shows that life expectancy for a nonsmoker with newly issued life insurance is about five times for males, and about six times for females, that of someone with dementia. At these ages, the differences are often uninsurable.
The main advantages of implementing a cognitive testing program include:
- having the ability to detect applicants with dementia
- reducing anti-selection
- pricing the qualifying older-age applicants more competitively
Dementia cases are often missed with traditional underwriting. Many individuals with Mild Cognitive Impairment are often in denial. Also, doctors frequently don't record information regarding cognitive related visits so you may not find this information on an APS. The best way to identify those with dementia is through a cognitive test.
Sometimes just having a test deters those with known problems from applying with your company. This is known as the sentinel effect.
The protective value of using a cognitive test helps to eliminate or reduce the number of dementia cases issued, improving your overall mortality results and allowing you to provide a better price for those who qualify. You may also receive better reinsurance rates for having a program in place, again allowing you to lower your premiums for the elderly applicants.
Implementing a cognitive testing program
Limited research on cognitive testing programs for life insurance has been done to date. A cognitive testing program should have the following characteristics:
- Produce reliable results—The test must at least be able to correctly identify applicants with dementia and possibly also those with Mild Cognitive Impairment.
- Be easy to administer—The test should be able to be done by home office personnel or your paramedical examiners.
- Not be overly intrusive—The test should be reasonably quick so as not to be a burden on the applicant.
- Have a reasonable cost—The test should be able to be cost justified. That is, mortality savings should exceed the cost of the test.
Table 2 presents a list of cognitive screening tools that meet these criteria. While there are other viable tests, most are not appropriate for life insurance screening because they take too long to complete, require specially trained personnel (e.g., a physician) to perform them or are otherwise too costly. Each test has its advantages and disadvantages. Unfortunately, explanations of the tests are beyond the scope of this article.
that could be used for Life Insurance
||Most Commonly Used in
|Alzheimer's Quick Test (AQT)
|Clock Drawing Test
|Delayed Word Recall (DWR)
|Enhanced Mental Skills Test (EMST)
|Mini Mental State Exam (MMSE)
|Minnesota Cognitive Acuity Screen (MCAS)
|Short Portable Mental Status Questionnaire (SPMSQ)
Some of the tests can be administered by company or paramedical personnel while others need to be administered by the company that owns the test. Some tests need to be administered in person and some can be administered over the phone. These can be important factors in your decision on which test to use.
Once a cognitive testing program has been put in place, results should be monitored on a periodic basis. Questions to consider include:
- Has the number of cases detected been as expected?
- Have the mortality savings been as expected?
- Have the deaths due to cognitive impairment been reduced or eliminated?
- Have you received any complaints about the program and if so, has appropriate action been taken?
When designing an older-age underwriting program, much discussion is focused on cognitive testing, as it has been in this article. However, revisions to traditional medical underwriting, implementing a functional testing program, and implementing or reviewing an older-age supplemental questionnaire are also key components for a successful older-age underwriting program.
As more and more business is being written at the older issue ages and direct writers are retaining a larger portion of the mortality risk, having a strong older-age underwriting program is critical to success in this marketplace.