Healthspan: Risk and opportunity in chronic illness for life insurers

February 24, 2022 / 4 min read

Consumer interest in life insurance spiked during the pandemic, but U.S. insurers may not want to wait for customers to knock on the door, virtually or in person. Growth could depend in part on understanding and cutting through the barriers that separate consumers from the coverage they need.

Those barriers often relate to potential customers’ concerns over their chronic illnesses, biometrics, and lifestyle. More than half of American adults have at least one chronic illness, and more than a quarter have two or more.¹ The first article in this series noted how advances in acute care tend to mask the prevalence and blunt the impact of chronic conditions on overall lifespans. Still, such diseases can shorten healthspan—the time that people are able to live independently and productively—in proportion to lifespan. And chronic illness often cuts lifespan short of its full potential.

risk-and-opportunity-for-life-insurers

The smart watch market alone is forecasted to grow nearly 10 percent a year from 2022 through 2027.

Given connections between chronic disease and insurability, opportunities for life insurers and potential customers to build mutually satisfying relationships can slip away in stages. Consumers, insurers, or both may feel they have little control over a waterfall of decision points:

First to go are the people who never apply. There can be a variety of reasons, including the belief that they don’t need coverage, but many are likely not to apply because they have chronic illness. They expect insurers to reject them or price them out of the market. More than 50 percent of Americans think life insurance costs more than it does—some by a factor of three.²
Next are those who apply and see their fears confirmed: Chronic illness causes them to be denied coverage or quoted a higher premium than they’re able or willing to pay.
Finally, existing customers may pay high rates to insurers that give little attention to their individual journeys with chronic disease. Policyholders who proactively manage their condition might qualify for lower rates, which could aid retention, upselling, or cross-selling—if only insurers could identify those cases in their portfolios.

About 40 percent of American adults believe they need to buy life insurance or increase their coverage, which amounts to 102 million people uninsured or underinsured.

A persistent gap

Assumptions made on both sides around chronic disease contribute to the vast life insurance gap in the United States. About 40 percent of American adults believe they need to buy life insurance or increase their coverage, which amounts to 102 million people uninsured or underinsured.³ These shortfalls may threaten their financial resiliency, while insurers miss countless opportunities to grow and help meet a pressing need.

For many people living with chronic disease, their perceptions regarding life insurance may be close to the truth. The application process can indeed feel intrusive and stigmatizing, and the results of underwriting scrutiny can feel punitive. This is especially so for people who follow their treatment regimen and make lifestyle changes that help delay disease progression. Seeing these hurdles before them, many may put off buying or increasing their insurance.

Conventional thinking might suggest that from a business perspective, life insurers are better off leaving chronically ill customers to writers that cater to this segment. Simplified issue coverage substitutes lengthy health questionnaires for medical exams, while guaranteed issue compensates for minimal underwriting by charging significantly higher rates.

But given the size of the chronic disease cohort among American adults, can any life insurer afford to treat these potential customers as homogeneous groups based on the average risk of associated various chronic conditions? Or is it wiser to dig in and master the nuances of risk determined by differences in lifestyle and medical compliance among chronically ill people?

Looking deeper into the current portfolio

Turning inward to the existing portfolio, there’s still more for a life insurer to consider. One customer may have come aboard already living with chronic disease, placed in a rating bucket with her apparent peers. But she’s quit smoking and managed her condition by getting regular checkups, taking her prescribed medications, eating well, exercising, and moderating her alcohol consumption. Could she qualify for a lower rate? There may be an opportunity to build goodwill that at least heads off a policy surrender or cancellation, and in time could create a cross-selling or upselling opportunity. Multiplied across a portfolio over time, such a strategy could result in increased premiums and stronger returns.

On the other hand, a man underwritten 30 years ago as a healthy 30-year-old may have become a 60-year-old with poorly managed diabetes and hypertension. The disease could be left to run its course—assuming the insurer even knows about it—or intervention might help to extend the customer’s healthspan, lengthen his lifespan, collect more premium, and ultimately delay the claim payout.

Beyond the individual implications, how many more like him are in the portfolio? What does that mean for overall portfolio risk? Acquiring this data could help guide an array of decisions, from reserving to selling or reinsuring blocks of business.

Chronic Diseases in America, National Center for Chronic Disease Prevention and Health Promotion (NCCDPHP), < https://www.cdc.gov/chronicdisease/tools/infographics.htm >, accessed on January 14, 2021.
Top Misconceptions About Life Insurance, LIMRA, 2021, < https://www.limra.com/siteassets/research/research-abstracts/2021/2021-insurance-barometer-study/2021_barometer-infographic.pdf >, accessed on January 14, 2022.
Puneet Kakar, “Financial inclusion and the underserved life insurance market, part two,” Deloitte Insights, September 15, 2021, < https://www2.deloitte.com/us/en/insights/industry/financial-services/life-insurance-coverage-gap.html >, accessed on January 14, 2022.
Rachel Reiff Ellis, Minorities and Chronic Disease: Obstacles to Care, WebMD, October 7, 2020, < https://www.webmd.com/diabetes/features/minority-chronic-condition-burden >, accessed on February 14, 2022.
Georgia Rose, Discriminatory Practices Leave Black Americans With Less Life Insurance, NerdWallet, February 8, 2021, < https://www.nerdwallet.com/article/insurance/african-american-life-insurance >, accessed on February 14, 2022.
Mordor Intelligence, North America Smart Watch Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027), < https://www.mordorintelligence.com/industry-reports/north-america-smart-watch-market >, accessed on January 14, 2022.