New research published by RGA Re is revealing that the reinsurer, MIB Group and TAI, a reinsurance software and consulting services firm, have collaborated to create an unprecedented database of policy-level data, giving the industry insight into the impact of anti-selection on the life insurance industry and potential ways to prevent it.
Life insurance industry hit hardest
“Fraud, misrepresentation and anti-selection pose a significant financial burden to the insurance industry, leading to annual losses in the hundreds of billions of dollars across all sectors; the life insurance industry is hardest hit,” they write, adding that anti-selection hinders insurance innovation, increases the prices that consumers pay and reduces insurer profits.
“RGA partnered with MIB to analyze anonymized data from a contributory industry database, known as the MIB Data Vault,” they write. “TAI, the market leader in reinsurance software and consulting services, teamed up with MIB,” they add, “to create an unprecedented in-force and terminated policy dataset to serve the U.S. and Canadian insurance industry.”
TAI reportedly administers 75 per cent of reinsured in-force business in the United States while MIB screens nearly 100 per cent of pending applications in both countries. “Combining in-force and pending coverage data provides a more comprehensive picture of total coverage exposure.”
Churning and stacking
The report from RGA, Impact of Anti-Selective Behavior on the Life Insurance Industry, in particular looks at two types of anti-selective behaviour: churning and stacking. “Novel means and techniques to commit insurance fraud continue to emerge,” they add.
“Churning and stacking are of greater concern for insurers writing policies with small to mid-level face amounts than for those focused on policies for high-net-worth individuals. In addition, as long-established agents retire, and a younger generation takes over, insurers are concerned this may increase churning if the new generation is less familiar with or has lower regard for established norms for ethical business practices.”
Accelerated underwriting
Anti-selection, they add, has increased over the last 10 years and is increasingly difficult to identify, thanks to accelerated underwriting and some distribution models. They say policies with face amounts over $2-million produced disproportionately higher levels of churning flags, with the $3-million to $5-million band having the highest levels. “Studying the dataset for stacking flags by face amount, we found that policies with less than $500,000 in face value posed the largest risk of stacking concerns, which may be related to industry underwriting practices.” (Accelerated underwriting and certain distribution models making the lower face amounts to obtain without close scrutiny.)
