Recent studies by RGA highlight significant underreporting of BMI in insurance applications, particularly in direct-to-consumer channels. Third-party evidence sources and behavioral science techniques offer promising solutions to improve both disclosure accuracy and risk assessment in underwriting.
In the hit medical drama House, which aired from 2004 to 2012, Dr. Gregory House was known for his razor-sharp intellect and cynical worldview. His catchphrase, "Everybody lies," encapsulated his belief that patients routinely misrepresent or omit crucial information about their conditions.
This philosophy, while extreme in the context of the show, holds a surprising parallel in the insurance industry.
Dr. House's approach to diagnosing complex medical cases often involved looking beyond the patient's self-reported symptoms. He relied on objective tests and sometimes unorthodox methods to uncover the truth. In a similar vein, insurance underwriters face their own diagnostic challenge: accurately assessing risk in a world where applicants may not always provide complete or accurate information. This is particularly evident with Body Mass Index (BMI), frequently a critical factor in underwriting risk for all types of life and health products.
This article delves into recent research conducted by RGA and explores how the insurance industry is addressing its own House dilemma.
RGA recently conducted two comprehensive studies to evaluate the accuracy of self-reported build information in insurance applications, and the results were eye-opening. In one study with typical life insurance applicants, self-reported BMI understated risk by up to 3.2% compared with various third-party evidence (Figure 1).
The other study with direct-to-consumer applicants showed mortality risk differences ranging from 5% to 9% compared to medical claims BMI.
Furthermore, research by ExamOne, a medical testing and diagnostics company, shows that 18.2% of US life insurance applicants fail to declare they are obese or morbidly obese.
This discrepancy isn't just a matter of vanity pounds; rather, it has significant implications for the insurance industry, as increases in BMI below 25 and beyond 29.9 correlate to elevated relative risk (Figure 2).
Underestimating BMI can lead to miscalculated risk and mispriced policies, potentially affecting the financial stability of insurance companies and premium fairness for all policyholders.
How can insurers secure a more accurate picture of applicants' health? The RGA studies suggest that third-party evidence sources hold a key. Attending physician statements (APS) and electronic health records (EHR) emerged as the closest alternatives to traditional paramedical exams, with BMI availability rates of 93% and 75%-79% respectively.
These sources not only provide more accurate data but also offer a more comprehensive view of an applicant's health. They can capture BMI changes over time and provide context that self-reported data often lacks.
The RGA studies revealed four key insights into the nature of BMI underreporting and how third-party evidence can counter them:
While third-party evidence is crucial, it is not the whole story. Enter behavioral science. Its goal is to help make sense of humans. It strives to address the differences between what people say they do and what they actually do.
RGA's behavioral science team has conducted randomized control trials involving more than 30,000 individuals from 10 markets to explore how the principles of behavioral science can improve disclosure rates in insurance applications. The team's research suggests three key principles for increasing the accuracy of applicant disclosures in general:
Applying these principles to BMI, two effective strategies emerge:
By providing a sliding scale with a high but realistic end point, customers perceive higher weights to be more socially acceptable, reducing the stigma and prompting more accurate disclosure. This is called anchoring, and research shows it makes it easier to be truthful.
But what about making it easier to be accurate and harder to lie? RGA’s research found solutions there, as well.
This empathetically framed question is immediately followed by a second question that goes beyond truth and speaks directly to accuracy:
When asked this way, 31% of respondents disclosed that they likely weigh more than the answer they had just given, and 16% indicated they likely weigh less. For those who acknowledged weighing more, the average estimate increased the BMI value by 1.2. Thus, this method makes it harder to lie and easier to be accurate.
While Dr. House's assertion that "everybody lies" may be an overstatement, it is clear that self-reported health information in insurance applications often falls short of the whole truth. However, with the right combination of third-party evidence and behavioral science techniques, insurers can uncover a more accurate picture of applicants' health.
More accurate and personalized risk assessments can lead to fairer premiums and ensure that policies truly reflect an individual's risk profile.
As the industry moves forward, the challenge for insurers will be to balance the need for accurate information with respect for applicants' privacy and the desire for a smooth, user-friendly application process. Doing so can help create a more transparent, fair, and efficient insurance market that truly serves the needs of both insurers and policyholders.
Want to learn more about improving disclosure accuracy in insurance applications? Contact us today.
