INSURANCE ON SUB-STANDARD LIVES BY ARTHUR HUNTER, F.F.A., F.A.S., Actuary, New York Life Insurance Company; President, Actuarial Certain types of persons who apply to insurance companies are known as sub-standard, under-average, impaired, or invalid lives. These lives do not come up to the standard which is required by the companies to entitle the applicants to policies at the usual rate of premium under their regular forms of insu ance. It would be impossible to lay down an exact definition of a sub-standard risk, because one company with liberal methods of selection might accept an applicant as a standard life while another company with a stringent selection might treat him as a sub-standard risk, or decline to issue a policy. So far as each individual company is concerned, however, it may be said that a sub-standard risk is one on which a company has refused to grant a policy on any terms, has charged an extra premium, has advanced the age, has imposed a lien, or has otherwise adversely modified the usual terms of the contract. The great majority of companies either accept or decline an applicant for insurance, while a few insure a goodly proportion of the sub-standard lives under plans which suit the conditions and conform to the valuation placed on the risk by the medical department. TYPES OF SUB-STANDARD LIVES Sub-standard lives consist generally of the following: 1. Persons who are suffering from a serious disease. 2. Persons who have had a history of a serious disease, or have had certain major operations. 3. Persons with an unfavorable physical condition, including those whose blood pressure or urine is abnormal. 4. Persons who in the past have had attacks of ailments not usually considered serious. 5. Persons who have had an unfavorabie personal history of aiiments not of major importance which may be liable to recur. 6. Persons whose habits as to alcohol have been bad in the past, who occa sionally drink to excess, who have taken a cure for alcoholism, or who drink freely but not to the point of intoxication at the present time. 38 7. Persons with a short-lived family history, with a family history of some hereditary disease, or with a hereditary predisposition to a serious disease. 8. Persons whose build differs so much from the average that past experience warrants the expecting of a higher mortality among them. This covers persons who are overweight and those who are underweight. 9. Persons in hazardous or semi-hazardous occupations. 10. Persons living in unhealthy localities. In the foregoing list would appear persons with such serious impairments that they would not be accepted by insurance companies on any terms. These generally consist of persons actively diseased, such as those now suffering with tuberculosis, cancer, or diabetes; also persons with serious forms of heart trouble. The necessity for plans to meet the needs of sub-standard risks can be realized from the fact that 10 per cent of the applicants for insurance are not considered by the companies as standard lives. HISTORY OF SUB-STANDARD INSURANCE The necessity of providing insurance for sub-standard lives was early recognized, but it is only within very recent years that the necessary plans have been put into effect by strong companies in the United States to meet the needs of such risks. In 1865 the Universal Insurance Company, a New York corporation, was stated by Elizur Wright, the Insurance Commissioner of Massachusetts, to have plans for insuring at advanced rates the lives rejected by other offices. About the same time other companies made the same announcement, but neither they nor the Universal succeeded in making a success of that business; in fact, every company failed which engaged in the insuring of under-average lives in these early days of life insurance. In 1892 the Life Insurance Clearing Company of St. Paul was organized for the insurance of sub-standard lives exclusively, but after a brief existence it was reinsured. Its plans were not attractive. Another company, the Security Trust Company, was organized in Philadelphia in 1896, and obtained considerable "rejected" business from the agents of other companies. It is needless to take up the reasons for its lack of financial success; suffice to say that it also had to be reinsured. The first successful attempt in this country to do under-average business was made by the New York Life Insurance Company in 1896. At the end of twenty years it has over $300,000,000 of such business on its books, and has paid over $40,000,000 in death losses. The Equitable Life Assurance Society also undertakes this form of insurance, and has over seventy millions of this business in force. Another company which does both industrial and ordinary business had about forty millions of insurance in force in its underaverage class, in addition to a considerable amount of business on lives in semi-hazardous occupations which were placed in the intermediate class. Other companies, not so large as these three, have also plans for granting insurance to sub-standard lives. In Great Britain several of the early endeavors to treat impaired lives equitably met with success, so that there are a number of companies which have carried on that business many years, one company for more than ninety years. THE NEED FOR EQUITABLE PLANS The foregoing figures indicate that the need for this kind of insurance is very great. A conservative measure may be obtained by assuming that 5 per cent of all the applications for insurance are declined by companies, and could safely be covered under substandard policies. This would mean that during the year 1916 applications for about $115,000,000 of insurance had been refused protection during that year. An idea may be obtained of the types of risks which are received by a company transacting sub-standard business from the following table, in which the cases appear according to their importance: Overweight Tuberculosis in family history Albumin, intermittent or constant Heart murmur Underweight at young ages Occasional alcoholic excesses History of cured tuberculosis, blood spitting, consolidation of lungs, etc. History of inflammatory rheumatism History of renal colic, gravel, hepatic colic, gall stones, etc. Fragile, not robust, anaemic History of malarial fever, or chills and fever History of gastritis, or catarrh of stomach Irregular pulse Sugar, intermittent or constant Goitre Rapid pulse History of syphilis In addition to the foregoing, and more numerous than any of these types, are occupations involving hazard, such as electricians handling live wires, saloon keepers, firemen in city departments, locomotive engineers on railroads, employes in gunpowder plants, grinders of glass, underground coal miners, stone cutters, and workers in compressed air. While it is evident that persons coming within the foregoing classes are fully as much in need of insurance as standard lives, plans which would be fair to the policyholders and to the company were developed very slowly. As already pointed out, it was thirty years after the first unsuccessful attempt to insure under-average lives before a large company undertook such business. This was not due to any lack of enterprise on the part of American insurance men, but to the great difficulties in the way, and to the apprehension of failure based upon the history of other companies. The main difficulty was to find reliable mortality bases, which entailed a knowledge of the mortality under the numerous types of underaverage lives. If the companies had been confronted with a few main types, without any complications, such as persons with albuminuria, mitral regurgitant heart murmur, or glycosuria, the difficulties would have been much more readily solved. Frequently, however, there were other defects in addition to the principal impairment. So far as preparing the actuarial plans for meeting the extra hazard, there has been sufficient knowledge on this point for the last forty years, but there has been very little available material until recent years with regard to the relative mortality among the various groups of impaired lives. Most of the available material until a few years ago was based on English statistics, and these were scanty in volume. BASES OF STATISTICS The first successful attempt in this country to obtain satisfactory statistics was made by Dr. Oscar H. Rogers, who investigated the mortality among the declined cases of the New York Life Insurance Company. These investigations were commenced in 1893, the records of the declined cases for the preceding twenty years being completed by means of correspondence with agents, with friends, and with salaried employes of the company. The date of death was obtained and also a record of the last date on which the applicant was known to be living. With regard to the cases which could not be traced, it was assumed that there would be a death rate among them three times as great as among the cases whose records had been obtained. It was recognized, however, that because of the different conditions, there might be a different incidence in mortality among the policyholders to whom sub-standard contracts are issued than among the declined cases. For example, among the declined applicants all those who were refused insurance because of drinking occasionally to excess would be under observation, except those who had moved to an unknown address. On the other hand, the persons to whom sub-standard policies were offered had the right either to accept or to refuse to take them. If the applicant thought the company was too severe with him he would be inclined to refuse, while if he felt that he was obtaining a liberal policy from the company he would surely accept. As a result, there would be a selection against the company by reason of the poorer grade of risks taking the offers of the insurance company. A similar condition may be noted in the case of companies which accepted certain "border-line" risks on their regular plans and found by experience that these risks should have been granted sub-standard policies. Most of these types were considered doubtful by the companies, and, accordingly, a very strict selection was maintained when they were accepted as standard lives; that is to say, only one out of every five might have been granted a policy, and therefore only the best of each type was accepted. When suitable provisions are made for meeting the extra mortality there need not be so strict a selection, and in that event the group of sub-standard lives would not prove to be so high grade outside of the impairment in question as those accepted as standard risks. The statistics giving the relative mortality among the various types of under-average risks are generally taken from the following sources: (a) The unpublished experience of individual companies; (b) The Specialized Mortality Investigation; (c) The Medico-Actuarial Mortality Investigation; (d) The papers appearing in (1) the Transactions of the Actuarial Society of America; (2) the Proceedings of the Association of Life Insurance Medical Directors; (3) the Journal of the Institute of Actuaries; (4) the Transactions of the Faculty of Actuaries, and the published accounts of other scientific bodies. |