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Life insurers ‘need to rethink their underwriting’ to cope with increase in non-communicable diseases

The growing prevalence of non-communicable diseases (NCDs), coupled with an increase in the life expectancy of South Africans, means that life insurers need to rethink or innovate their underwriting processes. This is one of the findings in a series of recently published research briefs, each exploring a different aspect of managing NCDs in South Africa.

The research was conducted by Percept Actuaries & Consultants and public health specialist Dr Beth Vale. It was funded by the Actuarial Society of South Africa (ASSA), the Board of Healthcare Funders and RGA Reinsurance Company of South Africa.

According to Percept healthcare actuary Shivani Ranchod, South Africa is facing an unprecedented public health emergency driven by a growing prevalence of NCDs such as diabetes, cardiovascular disease, cancer, asthma and mental health conditions.

Ranchod said the country’s looming public health crisis is likely to be compounded by the large number of South Africans living with HIV, as well as the advent of Covid-19, which impacts most severely on people with NCDs.

She said there is little reliable data or research on the prevalence of NCDs in South Africa because the conditions are not notifiable, and the focus has been on HIV.

“Not having credible insights into the state of the health of your population hinders your ability to plan. Equally, it also prevents life insurers from deriving accurate pricing for risk products. This research is the first step towards building a comprehensive dataset that paints the picture for the entire country.”

According to Brief 12, which examines the impact of NCDs on the insurance industry, a once-off risk assessment when clients apply for life insurance often does not take into account how changes in the current NCD burden could make existing life policies unprofitable.

The brief also suggests ways in which insurance companies can potentially reduce NCD-related claims through partnering with their clients to improve their health.

Impact of NCDs on insurance

RGA data shows that NCDs account for 74% of their terminal illness claims, 51% of all critical illness claims, and 26% of disability claims and death claims.

Cancer is the leading cause of claims for all four categories of insurance and accounts for 71% of terminal illness claims, 32% of all critical illness claims, 12% of death claims and 13% of disability claims.

When considering the impact of NCDs and changing demographics on life cover, it’s not just pure life policies that should be taken into account, but also critical illness, terminal illness and disability cover, the brief said.

For example, if younger people are contracting NCDs, there’s a higher risk they will need to claim disability or critical illness insurance, or their life policies will have to pay out for terminal illness claims.

If the risk posed by the changing distribution of the burden of NCDs isn’t accounted for or managed, it may make existing policies, which are priced on old terms, unprofitable. These considerations also need to filter into the mechanisms and pricing levels for new policies, the brief said.

Particular risk to group cover

The risks of the changes in the shape and distribution of NCDs are particularly important for group life insurance.

If group life insurers don’t take the growing burden of morbidity and mortality caused by NCDs in their younger clients into consideration, the absence of health screening up to a certain cover limit and the elevated risk or comorbidities caused by seemingly innocuous conditions such as hypertension will put some group policies at risk of becoming unprofitable.

Hypertension is a risk factor for other chronic conditions

Although conditions such as diabetes are often accounted for in the pricing of life policies, hypertension is not, unless it presents with other comorbidities. People who would be clinically classified as hypertensive are often not recorded as such on insurers’ books because of the high prevalence of hypertension and the fact that it’s often transient in nature.

The risk of hypertension is essentially perceived to be already factored into the price of life insurance, because at various stages in people’s lives, anyone may experience elevated blood pressure. The risk is therefore applied to the whole population. However, it’s known to be a risk factor for developing other NCDs and is often comorbid with other NCDs.

An analysis of medical scheme data showed that 55% of people with a registered chronic condition included hypertension as one of their comorbidities. This was the second most prevalent comorbid condition after diabetes.

Hypertension has also been found to be the most central disease associated with conditions of metabolic syndrome. Among cardiovascular diseases, hypertension is found to be the most important link between diseases where multimorbidity is present.

Therefore, even when hypertension presents on its own, it should be seen as a potential risk factor for developing other chronic diseases – and it’s important to treat it more actively as a red flag in life insurance.

Growing prevalence of mental health conditions

The prevalence of mental health conditions is increasing. Like other NCDs, mental health conditions often go undiagnosed for years before an acute and often serious health episode result in a late diagnosis. As with other NCDs, it increasingly presents in younger people.

According to the Association for Savings and Investment South Africa’s most recent guidelines on the Management of Impairment Claims on Psychiatric Grounds, as of 2017, psychiatric conditions comprised the leading cause of disability claims submitted to insurers. The leading disorders resulting in these claims include mood disorders, anxiety and post-traumatic stress disorder – with work-related stress named as the main cause in diagnoses.

Long-term impact of Covid-19

The brief said “long Covid” has left many people who’ve “recovered” from the infection chronically ill, and temporarily or even permanently disabled.

As Covid-19 may become endemic, and people with pre-existing chronic conditions such as uncontrolled diabetes or untreated hypertension are at a high risk of severe illness if they contract it, this presents a potentially significant risk in the management of the existing in-force book and may need to be factored into the way new policies are priced.

How insurers can adapt to meet the growing NCD burden

NCDs are no longer solely diseases of old age, with people as young as 25 reporting NCDs such as hypertension and diabetes. Therefore, life insurers have an incentive to encourage their clients to make lifestyle choices that reduce their risk of developing NCDs.

They also have an incentive to model risk more accurately, given that under current methods of assessing risk, more of even their younger client base would either be disqualified or priced out of the market because of having pre-existing NCDs.

Shared-value economics

Many NCDs, such as diabetes and hypertension, are long-term chronic illnesses that can be managed with medication and appropriate lifestyle changes.

Insurers may have a role to play in encouraging and even incentivising lifestyle choices that support healthy living and longevity for their clients. This type of approach is referred to as shared-value economics because it’s a business model that pursues financial success in a way that also benefits society as a whole.

A well-known example is Discovery’s Vitality programme. Studies have shown that Vitality members have better health outcomes compared to non-members who also belong to Discovery Health Medical Scheme.

Use technology to personalise life insurance

Lifestyle programmes such as Vitality also use wearable technology to monitor members’ behaviour and reward them accordingly. Technology can help insurance companies to partner with clients to improve their health, while assisting insurers to assess their clients’ risk profiles more accurately.

According to McKinsey & Company, one of the forthcoming trends in life insurance is personalising the customer experience.

McKinsey said that 60% of insurance consumers are willing to share more data with insurers if it results in reduced premiums. They argue this is evidence of a shift away from the “assess and service” model of life insurance to the “predict, personalise, engage and share value” model, where insurers partner with their clients to improve their health and nudge them towards more healthy behaviour.

The use of technology and alternative sources of data also allows for continuous underwriting.

Currently, underwriting is often conducted with data that’s collected at a single point in time, when a client applies for an insurance policy, and client behaviour isn’t taken into account. However, many of these data points are subject to change over time as a client’s lifestyle changes.

Insurance companies can leverage the additional data points provided through wearable technology to update their clients’ risk profile continuously.

 

You can download the 14 NCD research briefs from ASSA’s website, www.actuarialsociety.org.za. Go to the News & Insights page and then click on the Public Interest section.

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