Cognitive testing is being added to older-age underwriting programs to test for cognitive functionality. Here is what is happening.
Typically, when a person loses mental capabilities, the person progresses from normal functioning to what is known as mild cognitive impairment before progressing to dementia. The process varies by individual but typically runs 7-11 years, with the last 1-4 years being dementia.
The prevalence of dementia among the elderly varies by gender. It also varies by research, with studies finding dementia rates range from 2%-12% for people in their 70s to 30%-50% for those in the late 80s and up.
Life insurers are finding it is important to identify those with dementia. A key reason is that life expectancies for those with dementia differ significantly from those of the general insured population.
Table 1 shows the expectancies for male and female nonsmokers at older ages, based on the Society of Actuaries 2008 valuation basic table (VBT). It illustrates that life expectancy for a nonsmoker with newly issued life insurance is about 5 times for males, and about 6 times for females, the expectancy of someone with dementia. At the ages shown, the differences are often uninsurable.
A cognitive testing program can help the insurer detect applicants with dementia, reduce anti-selection, and price the qualifying older-age applicants more competitively.
That's important because dementia cases are often missed with traditional underwriting. Many individuals with mild cognitive impairment are often in denial. Also, doctors frequently don't record information regarding cognitive related visits so this information may not appear on the attending physician's statement. The best way to identify those with dementia is through a cognitive test.
Sometimes just having a test deters those with known problems from ever applying for life insurance. This is known as the sentinel effect.
The protective value of using a cognitive test helps to eliminate or reduce the number of dementia cases issued, improving overall mortality results and allowing the industry to provide a better price for those who qualify. In addition, carriers may receive better reinsurance rates for having a program in place, which also facilitates lower premiums for elderly applicants.
How are cognitive testing programs implemented? To date, there is only limited research on programs for life insurance, but in general, the program should have the following characteristics:
Produce reliable results: The test must at least be able to correctly identify applicants with dementia and possibly also those with mild cognitive impairment.
Be easy to administer: The test should be able to be done by home office personnel or paramedical examiners.
Not be overly intrusive: The test should be reasonably quick so as not to burden the applicant.
Have a reasonable cost: The test should be able to be cost justified. That is, mortality savings should exceed the cost of the test.
Table 2 presents a list of cognitive screening tools that meet these criteria, each with advantages and disadvantages. While there are other viable tests, most are not appropriate for life insurance screening because they take too long to complete, require specially trained personnel (e.g., a physician) to perform them or are otherwise too costly.
Some tests can be administered by company or paramedic personnel while others need to be administered by the firm owning the test. Some need to be administered in person and some can be administered over the phone. These can be important factors in deciding which test to use.
Once a testing program is in place, its results should be monitored on a periodic basis. Questions to consider include:
o Have the number of cases detected been as expected?
o Have the mortality savings been as expected?
o Have deaths due to cognitive impairment been reduced or eliminated?
o Have there been complaints about the program and if so, has appropriate action been taken?
In designing an older-age underwriting program, much discussion often focuses on cognitive testing, as detailed above. However, other key components should include: revisions to traditional medical underwriting, implementing a functional testing program, and implementing or revising an older-age supplemental questionnaire.
As more and more business is being written at the older issue ages and direct writers are retaining a larger portion of the mortality risk, having a strong older-age underwriting program is critical to success in this marketplace.
Al Klein is a consulting actuary with the Chicago office of Milliman, Inc. His e-mail address is Al.Klein@Milliman.com.