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Underwriting and Claims

Bad Santa?

Bad Santa long

santa-case-two-column

More than 3,000,000 underwriting decisions are made each year by RGA’s human underwriters and RGA’s proprietary underwriting rules engine, AURA.


Despite this vast array of case studies to draw upon, a new life insurance application just came in that is particularly confounding. An insurable need can certainly be justified – if ever there was a “key person” risk this is it – but given the applicant’s extremely advanced age and less-than-stellar risk profile, the path to an accurate assessment is murky at best. Fortunately, we can tap into the insights found in RGA’s recent research publications and webcasts to provide some guidance.

Age 

Elephant in the room

Let’s start with elephant in the room: Mr. Kringle is old…really, really old.


In fact, the applicant isn’t even sure exactly how old he is, but we did find a historical referencethat dates him to at least 1823. Regardless, the applicant has already survived well beyond even the most generous actuarial tables, so we’ll need to explore the unique factors impacting older-age mortality: cognitive function, physical function, and social engagement.   

Based on available evidence Santa still seems mentally as bright as Rudolph’s nose. He is able to maintain a meticulous inventory of the naughty and nice (and even check it twice) and has the cognitive capacity to oversee the operational logistics of a ginormous global toy manufacturing and delivery enterprise. Alarmingly, he was once confined to Bellevue hospital for mental illness; however, a subsequent court hearing involving evidence presented by the U.S. Post Office found him to be of sound mind2. Physically, despite his weight, he seems quite spry. He squeezes down chimneys and lugs heavy bundles of toys without any evidence of falls or gait disturbances. Finally, his marital status, time with elvish coworkers, volunteerism, pet reindeer ownership and overall jolliness are all favorable indicators of social engagement. All in all, Santa seems to be working and playing with the vigor of someone several centuries his junior. 

1.“A Visit from St. Nicholas.” Retrieved from Wikipedia  2.“Miracle on 34th Street.” Retrieved from IMDB.


Build

Santa’s fondness for sweets is well documented.

Santa Waist

At an average of 2.73 cookies per household (adjusting for crumbs left on the plate), Santa consumes approximately 50 billion calories each December 24 in the U.S. alone.

Not surprisingly, Clement Moore describes St. Nicholas as “chubby and plump,” and every image of Santa seems to confirm his suboptimal waist-to-hip ratio. Although this extra layer of subcutaneous insulation is undoubtedly useful during frigid North Pole nights, his heavy weight will weigh heavily on our analysis of the big guy’s insurability. 

A myriad of risks are associated with obesity, including heart disease and diabetes, so Santa should consider increased physical activity, caloric restriction or even surgical interventions. Without a meaningful commitment to lifestyle changes, however, the right jolly old elf may be eternally destined to shake like a bowlful of jelly.


Electronic Databases

We queried a variety of electronic databases with proven protective value. Unfortunately, we didn’t learn much.


Because individuals with severe motor vehicle violations have nearly 70% higher-than-average all-cause mortality, we were initially encouraged when Santa’s motor vehicle report came back clean. Upon closer reflection, though, what sort of police officer would issue a citation to Santa Claus? The prescription history query service was also unable to locate any information about Mr. Kringle in its network of pharmacy data sources.

The “no hit” cohort generally has 15% higher-than-average mortality, but we suspect that Santa might just fill his prescriptions outside the U.S. The MIB query found no prior insurance application activity. This lack of information actually gives us a modicum of comfort since individuals with extended application activity are more than twice as likely to lapse their policies in the first two durations. Consumer credit attributes are also strongly correlated with mortality and persistency risk – and Santa does have a somewhat sketchy source of income – but as with the other databases, the credit check came back empty. In summary, none of the data providers were able to find any record of Kris Kringle. If I didn’t know better, I might question whether he really exists.


Behavioral and Occupational Risks 

Santa sleighAlthough we weren’t able to ascertain a lot about the applicant’s risk history from the databases, we can infer something from his behaviors

 

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We know that Santa was once a pipe smoker, but thankfully he has kicked that habit.3 Additionally, although he is an experienced aviator, we know that engine-less aircraft such as the one he flies have the highest accident and mortality rates. His risk will also vary dramatically when traveling from country to country as he may be exposed to poor sanitation, violent crime, environmental hazards or infectious diseases. While at home he is exposed to literally arctic cold temperatures, which may lead to elevated respiratory and cardiovascular disease among the elderly, but the risk is mitigated by the facts that he has always lived in a cold climate and may not actually be human. The millions of individuals who experience a traumatic brain injury each year have elevated mortality and morbidity risk, so we do have some concerns about Mr. Kringle’s exposure to occupational hazards such as awkward chimney falls and toy-alanches. Finally, we must recognize that Santa might get distracted while navigating from house to house. Since 80% of all crashes are caused by driver inattention, let’s just hope that Santa doesn’t text and sleigh.

3. Miller, Julie. “Santa Claus Forced to Quit Smoking During His Most Stressful Season.” Retrieved from Vanity Fair 

Adverse Selection 

Lemon

Up until now, we have been presented with a very confusing array of risk parameters, but even if we could come to terms with it all, one nagging question remains: Why now?


After all these years why does Kris Kringle suddenly feel compelled to apply for life insurance? Does he know something we don’t? Santa seems honest enough, so outright fraud is unlikely, but a thorough review of the expert presentations delivered during the recent RGA Fraud Conferences seems sensible to make sure we aren’t missing something. Even if malicious fraud can be ruled out, we still must consider the possibility of anti-selection, which occurs any time an applicant’s demand for insurance is correlated with his risk.

Given the gaps in the information available, the underwriter is at a distinct disadvantage. Examples such as simplified issue insurance and post-level term experience demonstrate how information asymmetry and anti-selection adversely impact mortality experience. We are flying a bit blind here, but I suppose that if anyone deserves the benefit of the doubt it is Santa Claus.


Other Considerations 

So how do we put this puzzle together? Up until now, I have struggled to make sense of it all, so maybe it is time to think outside the box.


RGA is an innovative company, (it says so right there in our tagline) so we should be able to find a creative way forward. Our advanced analytics team has had a lot of success deploying predictive models for clients around the world that improve the customer experience and analyze risk in a granular, multivariate manner. Unfortunately, even though large volumes of data are available to RGA’s data scientists – a Google search of “Santa” returns more than 3 billion hits – the quality, relevance, and veracity are unclear, making it impractical to build a useful model. But perhaps there is a new target market, product opportunity or disruptive underwriting innovation that we are missing out on. We learned at the RGA Innovation Series about many companies that lacked the courage to think disruptively and missed out on enormous business opportunities while new upstart competitors became market leaders. Could solutions that serve the niche “magical elf” market be an entrée into something even larger and more exciting? Perhaps we can help Santa modify his lifestyle behaviors through an incentivized wellness program? Maybe Santa will benefit longer term from wearable technologies and other medical advances? With all of the exciting change on the horizon, we have reason for cautious optimism.


Final Recommendation

As an elderly, obese, former smoker who flies experimental aircraft in dangerous places, do Santa’s risk factors dash away, dash away, dash away all hopes of affordable life insurance?


As entertaining as it has been to flip  through the catalog of recent RGA research publications and presentations, we haven’t found much definitive guidance on how to handle this curious case. But let’s pause, take a step back and remember whom we are talking about. Santa Claus existed long before any of us and will likely survive for many generations to come. His super-human longevity does not originate from acai berries, telomeres or Pilates. He lives on because wide-eyed little boys and girls have an unwavering belief in holiday magic.

And despite RGA’s broad portfolio of research interests, we honestly haven’t spent a lot of time investigating the insurance implications of magic. So even though the applicant may not qualify under the industry’s traditional notion of “preferred”, I think a unique exception can be made here to offer Mr. Kringle as much coverage as he thinks he needs. It’s probably a good thing I’m not an underwriter.

Thanks for reading. I hope you have a wonderful season filled with family, friends, joy – and a little magic.

The Author

  • Timothy L. Rozar
    FSA, CERA, MAAA
    Senior Vice President, Chief of Staff to the CEO
    Reinsurance Group of
    America, Incorporated

Summary

The holiday season provides an excellent opportunity to reprise a peculiar life insurance application that first arrived on our desks in 2015. How do you provide an accurate risk assessment of an elderly, obese, former smoker who flies experimental aircraft in dangerous places?  RGA's Tim Rozar provides some guidance. 


  • AURA
  • behavioral driver
  • fraud
  • mortality
  • mortality assumptions
  • Rozar
  • Tim Rozar
  • Underwriting
  • underwriting rules