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By Doug Ingle, FALU, FLMI

A fundamental underwriting principal is to treat like risks in a similar manner. This fairness doctrine is a key to successfully pricing individual life insurance.

The Society of Actuaries publishes separate mortality tables by tobacco and nontobacco status. Underwriters are charged with placing like risks into their appropriate tables. Unfortunately, not all who apply for life insurance are completely honest about their use of tobacco products.

CRL has data on over 6.1 million applicants spanning years 2012 to 2020 who supplied fluids and answered some brief questions on the lab slip regarding their use of tobacco.

When viewed through the lens of the total insurance applicant pool, 2.1% (130,000) misrepresented their use of tobacco products. But what if we thought about this in terms of the tobacco population?

Consider the makeup of the tobacco class as comprised of two groups. Those that admit to tobacco use, and those that are in the class having been caught misrepresenting their tobacco use. In 2012, 14.8% of applicants stated they did not use tobacco of any kind while submitting a positive urine cotinine test.

Although that’s a disturbingly large subset of the tobacco pool, things are getting worse with time. For each ensuing year, the tobacco misrepresentation has been incrementally rising. In 2020, 24.4% of the tobacco class is comprised of individuals denying use. That means 1 in 4 members of the tobacco class are there because they were caught.

About the Author

Douglas Ingle, FALU, FLMI is a consulting underwriter to CRL with over 46 years of underwriting experience. He held roles as Vice President Research and Chief Underwriter at several insurance companies. His roles included mortality research, creation of underwriting guidelines, preferred risk and cost benefit mortality research. He has published Cost Benefit Study construction, and Preferred risk underwriting chapters for ALU. He serves as a preceptor for AAIM’s Basic Mortality Methodology Course and was inducted into the Underwriter’s Hall of Fame in 2018.

Tags: Cigarettes, Insurance, Mortality, Nicotine, Risk