A few years ago I wrote a blog about obesity, the conventional wisdom being that obesity is bad for you… in fact it’s likely to kill you. That’s what all the studies show. And because the statistics show that you’re likely to die earlier than an ‘average’ person in the population, you’ll be charged more for life insurance. All perfectly logical.

But now I’m confused.

A recent Canadian study (reported here) concluded that people who are overweight live longer than people who are classified as “normal” weight. Not only that, but people who are classified as ‘significantly’ overweight also live longer.

The study of nearly 12,000 people, led by Statistics Canada’s Heather Orpana, was devised to estimate the relationship between body mass index and mortality in Canadian adults.

Results…

• Being overweight was associated with a 25-per-cent lower risk of dying
• Being obese was associated with a 12-per-cent lower risk of dying.
• The risk of dying for a morbidly obese person was statistically the same as the risk for people of “normal” weight.
• Underweight men are at greater risk than any other weight group.

Was this a once-off study with flawed results? It appears not.

In 2005, research undertaken by the US Center for Disease Control and Prevention published a study with similar findings. (At the time prominent health experts were outraged.)

So, if this research is indeed true, what does this mean for life insurance?

The simple answer is that overweight people would get cheaper life insurance premiums.

Imagine that.

An insurance joker once professed, “Insurance employees don’t need titles on their business cards; white shirts actuarial, blue shirts marketing, black shirts underwriting”. Underwriters are viewed as the morgue of an insurance company, “the policy prevention department” as my business partner once put it. Assessing individual mortality is part science and part luck. But the advances made in genome sequence are going tip the scales greatly towards the world of science.

The X Prize Foundation is offering US$10M to the first team to sequence the genomes of 100 centenarians.  In layman’s terms “find the genetic code for those that live beyond 100 years”.  The competition starts Jan 2013, and the sequencing has to take place in 30 days.  The competition aim is two-fold. First, find a way in which genomes can be sequenced accurately in a relative short period of time, second, determine what genetic pool is consistent with longevity. No easy task apparently (read the article in the economist for more info).

Back to the black shirt underwriters. The ability to sequence genomes quickly will make the cost of getting a report on an individual’s DNA make-up much more affordable. A hair sample will give an underwriter an accurate description of the likelihood of all or any serious alignments that may linger, and a much better view of longevity. No more blood or urine tests; simply send a hair sample and with-in minutes the underwriter will have a health assessment waiting on their PC with the aid of some ingenious piece of software. The push to economise genome sequencing is going to revolutionise the underwriting world, and my pick is it is going to happen a lot quicker than underwriters are prepared for.  Resistance to change will fall by the wayside when their masters learn of the cost savings to be made, and the improved outcomes these new techniques will deliver, particularly when underwriting for critical Illness and disability products.

The tag-line of the future?……  Life insurance premiums as unique as your DNA

Insightful question received from a reader…

Q

I would love to buy life insurance but I have one concern. If insurers cover you until you are 100 years old, there’s a 100% chance the insurance company will have to pay you the amount you are covered for.

I have put together a spreadsheet with a $30/month payment and interest at 8% pa. I could not save even $250,000 in 50 years, whereas if I die, the insurance company would have to pay out $420,000 – the amount I covered myself for.

What am I missing here?  How come the insurance companies don’t go broke?

Thanks, Roxanne.

A

Thanks for this Roxanne.

There are a few things that you haven’t factored into your spreadsheet.

Firstly, a life insurance policy that covers you until you are 100 years old would have a monthly premium that increases each year.  This annual price increase takes into account the fact that your risk of dying increases each year, as you age. In the first year you may be paying $30/month but after say 20 years you would be paying something like $200/month. So you’ll need to factor this annual increase into your spreadsheet numbers.

Secondly, a large proportion of people taking out life insurance cancel their policy long before they die.  Life insurance is like car insurance in some ways… you only need car insurance while you have a car. Once you sell your car, you can stop paying the insurance and cancel your policy.

Most people don’t continue with their policy past age 75. Besides the fact that it gets very expensive, the purpose of life insurance is to financially protect those people that are dependent on you. By the time you are 60 or 70, most people don’t have financial dependants – their children generally have their own income. So they no longer need the insurance and they stop paying.

That’s insurance for you… collecting premiums from the many, only to end up paying the few.

Great business:-)

It would be remiss of me not to write an article about the Rugby World Cup, and life insurance. How could I let such an opportune moment slide by without giving the lighter side of the important role sport events plays in our industry?

Let’s start with the car keys, that silver and brass jingle in your pocket (or so you thought), essential to getting back home in time to watch the replay. Statistics show, that your keys are the most likely item to be lost at a major sporting event. After a major sporting event, a stadium will receive on average 70 calls for lost keys. It may well be the levels of intoxication that predicate these lost keys. A study conducted by the University of Minnesota determined that one in every 12 fans leaves a major sporting event intoxicated.

It turns out that all types of motorists — not just pizza delivery drivers — are at risk on the roads after a major sports event. A study published by the New England Journal of Medicine tracked driving deaths on 27 consecutive Super Bowl Sundays discovered a 41% jump in the number of fatalities in the hours after the game than in the same time period on all other Sundays.

The study also reported that the number of crashes in the state of the losing team rose 68% after the game, compared with an increase of just 6% in the winner’s state.

So let’s keep the road fatalities down to an absolute minimum. …. Go The All Blacks!

…and click here to see what you’d pay for life insurance…

MillionDollarWoman is a new Australian website launched to promote insurance products designed specifically for stay-at-home mums. Its product provides cover of either $500 or $750 a week if you’re temporarily sick or injured. It means stay-at-home mums can now buy insurance cover for short term illness and injury that stops them doing everyday household tasks. You can claim a payment if you get sick or are injured and can’t do any two or more regular household chores (like cooking and cleaning) for more than 14 consecutive days. The cost for a 41 year old mum wanting $500.00 cover is $50.57 pm. These prices quoted are in Australian dollars, but even if we convert to NZ dollars, it seems to be pretty good value.

Traditionally, a parent, an in-law or good friend would find the time to come over and do the cooking, cleaning and other household chores required while mum recovered. Today the best a stay-at-home mum can expect is a Facebook post “hope you get betta soon luv”. The only way to seamlessly stay on top of the household chores and concentrate on recovery is to use your insurance pay-out to employ help. Hired help will go a long way to help mum recover and keep the household fed and happy.

These types of insurance products are becoming more and more available in western societies. Mature insurance markets like USA and UK are working hard at developing living insurance products which seek to provide temporary cover in the event of illness or injury. While the insurance focus has traditionally been on providing cover in the event of the bread winner’s death or injury, it’s good to see some insurers thinking outside “the box”.

Something old, something new.

Early last year we noticed a research article that said “people treated unfairly at work and who suffer in silence have twice the risk of a heart attack, or dying of heart disease”.

Conversely, if you get really mad at the office once in a while, shout at your boss, yell at your colleagues and generally blow a gasket… you’ll have a far better chance of living longer (and losing your job, obviously)!

Read about this research here in one of our earlier blogs.

Now there’s more!

New research (reported here) from Tel Aviv University, Israel indicates that having supportive work colleagues helps you live longer!

Dr Arie Shirom and her team studied the medical records of more than 800 workers who had been tracked for 20 years, from 1988 to 2008. The research found that a good relationship with co-workers had an impact on mortality risk, and was most pronounced between the ages of 38 and 43. (Too bad this doesn’t affect me any longer).

The researchers found that they could strongly predict the risk of dying (from any cause) from how well a person was socially integrated and connected in the workplace. They also found that mortality was not determined by how supportive their boss was, but rather by how supportive their work colleagues were.

So, why is this interesting to us in the life insurance business??

Because, when you take out life insurance, the insurance company is in effect ‘taking a bet’ on how long you’ll live.

If you die earlier than expected, it’s bad for business. That’s why we’re a much happier bunch when our policyholders live a long, long time. That’s how life insurance companies make a tidy profit.  (And living longer isn’t too bad for policyholders either).

So, will this new research change the way life insurers offer life insurance?

Maybe life insurance companies should ask you on their application forms how supportive your colleagues are at work?  If your answer is that your colleagues are grumpy and unsupportive, you’ll be charged higher premiums on your life insurance… and your life will be shorter, obviously!

…this blog post re-run due to popular demand…

Ok, it’s travel insurance not life insurance.

But when insurance companies pull out the old ‘weasel clauses’ to get off paying what should be a legitimate claim, it gives all insurance companies (including life insurance) a bad name.

I’m doing a lot of travelling around the world lately and on a recent flight from South Aftrica to London, someone in “luggage handling” prised open my bag, went through my belongings and stole my camera.

Ok. No problem. Isn’t this the reason that I took out travel insurance with Travelsure??

But alas… my claim was rejected because I did not report the theft to the police in London within 24 hours as stated in the policy – I was referred to the small print on page 13 and also somewhere on page 17.

How stupid I was not to open my bag and check what was missing right there on the floor next to the luggage carousel. And never mind that I didn’t notice the camera was stolen… because the thieves left the camera bag… which I opened only 72 hours later.

You see, with Travelsure, ‘reasonable circumstances’ that mitigated against my notifying the authorities within 24 hours are irrelevant.

It seems that Travelsure couldn’t wait to dig out the weasel clauses and do away with my claim! Seriously efficient they are… my claim was rejected in 5 minutes.

“That’s insurance for you” – people will say. ‘No latitude’… ‘no discretion’… ‘no allowance for the circumstances of each case’… ‘quick to take your money’… but full of excuses when you have a claim…

So how about this tagline then?…

Travelsure…. taking the sure out of travel…

When I saw the statistic that 632,920 New Zealanders were injured in their homes last year I thought there must be some mistake… maybe an extra zero. But nope, the number is correct.

With a total population of only 4.4mil people in New Zealand, this means around 1 in 7 people are injured at home each year. That’s like 5 to 10 people in every street in New Zealand ended up in a doctor’s waiting room or a hospital because of a home accident.

However, if we drill a little deeper into these numbers we notice that 621 people died in home accidents last year…  more than the total number of people killed in road accidents and workplace accidents combined!!

So what does this mean for life insurance?

Well… typically, if you engage in dangerous pastimes such as abseiling, rock climbing, sky diving or hunting, or if you are employed in a dangerous occupation such as working on an oil rig, you’ll be charged a higher price for your life insurance.

It sounds like we should be adding one more dangerous occupation/pastime to the list… staying at home!

Almost 3 years ago, Pinnacle Life launched a policy called ‘Funeral Cover’, an insurance policy that pays up to $20,000 to cover the cost of a funeral.

Whilst the product is designed essentially for people over 50 (some insurers call it ’50 Plus Insurance’) it’s available online to anyone aged 30 to 69.

What continues to surprise us is the proportion of people in their 30’s and 40’s that have purchased Funeral Cover - clearly the product’s hitting the mark with a younger audience than we had initially envisaged.

How does Funeral Cover work?

The entire application process takes around 5 minutes.

Unlike most life insurance products, the premiums for Funeral Cover remain the same every year, without increasing. And once you turn 85, you totally stop paying – and your cover continues free of charge until you, ahem, expire.

Best of all, being a ‘guaranteed issue’ product, Funeral Cover is offered with no health questions asked, and the policy will be emailed to you immediately online.

And the extra bonus?

Your family will say great things about you at your funeral… see this ad on YouTube and you’ll see what I mean!

I read an article in the Economist recently about lonely people being more likely to get ill.  Lonely people, it seems, are at greater risk than the gregarious of developing illnesses associated with chronic inflammation, such as heart disease and certain cancers. According to a paper published last year in the Public Library of Science, Medicine, the effect on mortality of loneliness is comparable with that of smoking and drinking. It examined, and combined the results of, 148 previous studies that followed some 300,000 individuals for an average period of 7.5 years each, and controlled for factors such as age and pre-existing illness. It concluded that, over such a period, a gregarious person has a 50% better chance of surviving than a lonely one. Ref: http://www.economist.com/node/18226813?story_id=18226813

Ed and I recently returned from the USA, where we learned that Life Insurers place a much larger emphasis on moral underwriting. A life insurance application will always have a motor vehicle and felony report attached to help determining risk. Insurers and re-insurers will determine mortality rates based on channel delivery experience. For instance, if you apply for life insurance through an employer scheme, you’re far more likely to get offered better rates than if you apply say by phone to a call centre. History of employment has long been deemed a better indicator of mortality than a health report.

Which brings me back to my original thought, imagine the day we asked applicants for access to their FaceBook or LinkedIn profile? A FaceBook user today is loner if he has only 400 friends. Social network users today are life insurance buyers tomorrow. A FaceBook diary is an accurate chronicle of one’s life. FaceBook and LinkedIn could be used as better mortality indicators than a medical test. So should we ask for your Facebook link rather than your medical record? Tomorrows underwriting is a social network link away. How soon cometh the day?