Protective Value Life Study - Approach

During the design phase of this study, the decision was made to develop the protective value information from all the applications where underwriting decisions were made from New England Financial over a period of one calendar month. The choice of one company ruled out any intercompany biases that could have been introduced into the study. The timeframe of one month gave a snapshot of typical insurance activity within the company. It was assumed that the month selected represented New England Financial's insurance business throughout a typical year.

Overall, over 900 applications were examined. The number was sufficiently large so that, by the law of large numbers, the predictability to the entire population was deemed high. In addition, the Central Limit Theorem in statistics dictates that the data will tend toward normality, making the use of traditional statistical techniques an unbiased estimator of true population tendencies.

A total of 179 applications were found to have MIB impairment codes. These cases were examined by an independent underwriter with the intent of estimating the "exclusivity" of the MIB impairment information. For example, if the underwriting investigation was initiated solely from the MIB alert, then exclusivity was rated 'high' (= 1.0). If the MIB impairment codes added no new information to the underwriting process, then exclusivity was deemed negligible (=0.0). Ratings between 0.0 and 1.0 were assigned based on the underwriter's best estimate of the relative amount of information provided by the MIB alert.

It was decided for purposes of this study to remove all joint cases from analysis. Several other policies were excluded from consideration, usually because of incomplete insured information, so that at the end of this process, there were a total of 877 single policy cases examined for Protective Value, with 145 having MIB information.

For the majority of the cases in this study, the degree of impairment was generally based on an underwriting outcome. There were a total of six underwriting outcomes. The first was 'Issued as Applied for', which amounted to 68 of the 145 cases with MIB information. Here the degree of impairment assumed was set to zero. Second, there were 48 cases issued as substandard, which have an impairment score of 25 debits for each table increment so designated. For example, a Table F rating presumes an underlying mortality of 250 percent. If the table designation was missing from the underwriter's impairment comments, then the impairment was considered as Table B, or 50 debits. Twenty-one cases were declined. For these, we assumed mortality equal to 500% of standard.

In this analysis, the test sensitivity (S) was assumed to be 1.0. This means that if the individual applicant in question had previous impairment information within the last seven years on the MIB database, that person would absolutely be found. The MIB search mechanism has historically shown that searching for impairment information on the database for a particular individual by name, date of birth, and place of birth would certainly result in confirmation of such impairment information if it exists.