Protective Value Life Study

Richard L. Bergstrom, FSA, MAAA, Consulting Actuary, Milliman & Robertson, Inc. and Stephen A. Freitas, Senior Developer, MIB, Solutions, Inc.

A protective value study of the MIB Inquiry Service was performed by examining applications for life insurance from one representative company over a period of one month. Protective value exists whenever the estimated mortality savings of using the MIB Inquiry Service exceeds the cost of the service. 'Savings' is a function of excess impaired mortality, amount applied for, impairment prevalence, test sensitivity, and exclusivity factor of the MIB information.

The year-to-year savings was calculated in today's dollars by discounting future excess mortality at 8%, and taking into account reasonable anticipated lapse rates of the policies over time. Conservative assumptions were made in calculating the present value of savings. This was done to reduce any potential "favorable" bias in the savings element. Overall, for all cases examined, the present value of savings was $0.18 per thousand, which yielded a savings-to-cost ratio of $46:1 for the portfolio reviewed.