The skinny on obesity and pricing

By Stéphane Desjardins | October 19 2004 07:50PM

They haven’t readjusted their premiums in response to the growing problem of obesity yet, but actuaries are monitoring this threat to life expectancy.

It’s the latest public health crisis. After AIDS and tobacco company mega-trials, the health experts are now tackling a ballooning problem they are labelling an epidemic: obesity.

Obesity, characterized by a large surplus of weight compared with a person’s healthy weight, is not dangerous in itself. Yet it may cause a wide range of complications and pathologies that in turn can seriously eat away at life expectancy.

“It is time for the population at large to wake up to the impact of obesity,” said Ronald Klein, global head of pricing at Swiss Re’s Life and Health business group in a report Swiss Re published in April.

The reinsurer, which held a conference on this subject on October 19 in Toronto, is one of many organizations around the world to sound the alarm. “For life insurers…addressing the problem means keeping ratings and pricing up to date and in line with emerging experience,” Mr. Klein continued.

“Many people in the insurance industry have already linked obesity and various illnesses, which is reflected in the mortality rate,” said Robert Mallette, senior vice-president development at RGA Life Reinsurance Canada. “This will inevitably affect pricing. For example, it may translate into a surplus premium charged to obese or very obese insured. We will have to divide the risk up by family history. Particularly when it comes to preferred rates policies.”

Obesity and life expectancy

Others see obesity as just another factor in the balance. “It is difficult to predict if obesity will have a direct impact on life insurance pricing,” said François Lemieux, actuarial vice-president at SCOR Vie. “Many components come into play in pricing such products.”

Mr. Lemieux pointed out that rate movements are controlled by the most important basic factors. “For example, life expectancy is constantly improving year after year. This is steadily compressing prices. Obesity is just one of many factors,” he noted.

Mr. Lemieux admitted that the obesity factor weighs on pricing. He does not think that obesity will drive rates, but rather that it could drag their fall. “Some believe that this phenomenon will offset the gains seen in life expectancy.”

The actuary explained that obesity runs counter to the current trends in life expectancy. “Better eating habits, more physical activity, more effective drugs and medical advances have extended life expectancy and lowered mortality rates. But obesity is undermining these gains. That’s our main concern.”

Vague predictions

Swiss Re also acknowledged that it is not easy to establish a direct link between obesity and life expectancy. “Even if obesity is associated with rising mortality, it is less clear that it is a direct cause of mortality,” the reinsurer reported.

When obesity is combined with other symptoms, however, the link becomes clearer, the reinsurer noted in its report. Swiss Re estimated that obesity can aggravate the risks of mortality for people with symptoms of cardiovascular or metabolic disease.

Conditions that obesity worsens include high blood pressure, in-creased cholesterol and triglyceride levels, impaired glucose tolerance, premature arteriosclerosis and an abnormally large heart, the reinsurer revealed.

Swiss Re cited a scientific study of the American population that found that a 10% increase in a person’s weight corresponds approximately to a 30% increase in the risk of heart disease. In addition, each one point increase in the body mass index (BMI) (about 3 kg) boosts the risk of heart failure by five per cent on average for men and seven per cent for women.

Swiss Re also confirmed that non-smoking women or men aged 40 can expect to shave about six to eight years off their life span if they are obese.

“The reinsurance community is beginning to take a serious look at the question of obesity. Insurers have gotten the hint, and are also taking an interest,” said Neil Skelding, president and CEO of RBC Life Insurance. “I do not believe, though, that obesity will affect pricing. In fact, the phenomenon that has more of an impact on rates is the declining number of smokers.”

Nonetheless, Mr. Skelding considers that if obesity grows as projected, it will have an impact on mortality… which will probably be reflected in pricing. “But for now this is a trend in the health care world that we are just keeping an eye on. And it will take a lot of time before it will grow to the point that it requires insurance adjustments.”

“Obesity is being manifested more slowly than other phenomena such as AIDS or the drop in the number of smokers,” he continued. “That is why it is better to wait rather than rushing into rate adjustments.”

Mr. Skelding confirmed that several factors external to health questions influence pricing of life insurance, including the administrative effectiveness of a company, commission structure and interest rates. Over the years, insurers have enhanced their efficiency, which is also reflected in rates.

No changes expected

Manulife Financial is just as cautious. “We have not noticed any change in mortality or rates,” said Tom Nunn, director of media relations and communications. “We are watching obesity very closely because it is a very hot topic these days. But it is just one of many factors affecting life expectancy.”

The Canadian Life and Health Insurance Association (CLHIA) emphasized that obesity has always been a factor in risk pricing. The organization believes that the current large-scale increase in obesity is a phenomenon that is unsettling the industry. It would not comment further.

What is obesity?

Being pudgy is not a death sentence. There is a sizeable difference between being overweight and obesity.

Being overweight means that a person is carrying surplus weight compared with their healthy weight.

Obesity, in contrast, is a threshold beyond which excess weight poses risks to health over the medium to long term. There is even a morbid obesity threshold, beyond which your life is truly threatened.

How do you determine if your weight meets the health requirements? Start by calculating your body mass index (BMI): divide your weight in kilograms by your size in square metres (kg/m2). A BMI between 18 and 25 indicates a healthy weight, between 25 and 30 is overweight and between 30 and 40 is obese. Morbid obesity is over 40. There are many BMI calculators online. Here is one:

Waist size is another indicator: the amount of fat in the abdomen signals the risk of heart disease.