Protective Value Life Study - Results

For the entire 877 case database, the combined value of the Savings taking into account the actual MIB Activity level is $0.18 per $1000 applied for. This yields a Protective Value Threshold of about $13,000: ((2099/877)/0.18)= $13,000, which is [(cost/total number of applications)/savings per thousand]. The Savings/Cost ratio is the savings in dollars divided by the total cost ($97,286/$2,099= 46.34), or $46:1. The details for these calculations are presented on Table 1.

Table 2 summarizes the savings by gender. For females the PV Savings is $0.10/thousand. For the males, the PV Savings is $0.22/thousand.

Table 3 separates male data by amount and age group. For the $100,001 to $499,999 group, the PV Savings for the age 45 and younger cohort is $0.18/thousand, while for the age 46 and older group it is $1.42/thousand. For the higher underwritten amount ($500K+), the PV Savings for the younger group is $0.19, while for the older group it is $0.42. What is interesting about this is that the savings for the age 45 and younger group is basically the same irrespective of size. Where the real savings occur is in the older population males. The difference in savings for the older cohort in the lower amount group is seven times that for the younger group: $1.42 vs. $0.18, while the savings is about double in the higher underwritten amount: $0.42 vs. $0.19. Note that the MIB Activity is twice as high in the older versus younger cohort in both amount groups.

The Present Value Savings is sensitive to extreme or excessive values in any of the variables or components used in the calculation. Therefore, extremes in age, the impairment rating score, underwritten amount of insurance or the exclusivity of the MIB information for an individual can dramatically increase the savings. For example, 9 cases out of the 69 used for savings calculations represent 59% of the total savings value. Six cases have an underwriting outcome of declined, which by definition have a high impairment rating score (500% mortality). In addition, one of these six has an exclusivity of the MIB information of 1.0. The remaining 3 substandard underwriting outcomes with an elevated PV Savings are represented by a 69-year old; a person with a large policy size (in excess of $4 million); and a person with a combination of an elevated age (53) and a large policy (around $1 million). Further, the average exclusivity factor for the policies studied was gauged at about 0.2, or no more than 20%. In markets where the inquiry system might be the ONLY mechanism of alerting an underwriter of potential antiselection, the exclusivity can increase dramatically (note that costs will increase in this case as well).

Overall the Present Value (PV) Savings is $0.18 per thousand. This gives a Savings/Cost ratio of 46:1.

The Protective Value for Cotinine testing, as referenced in the article "Adding it Up" from the Underwriter Alert, September 1996 issue, is $0.23 per thousand for those individuals 35 years old. Since this $0.23 estimate includes a "Sentinel Effect", the $0.18 per thousand number compares favorably since the Sentinel Effect is not taken into account.

Acknowledgments

The authors want to thank New England Financial for the information, which made this study possible. All pertinent information was encoded, so that no trace to any one individual policyholder of New England Financial could be made.

Summary of Base Calculations Separated for Males by Amount and Age for Policies with Underwritten Amount in Excess of $100,000