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Protection Report No. 7 (page 3)

You’re the one for me fatty

BMI is a measure of a person’s build. Obesity is defined by the World Health Organisation (WHO) as a Body Mass Index (BMI) greater than 30. BMI is calculated by dividing a person’s weight in kilograms by the square of their height in metres.

As covered by Swiss Re, the rising prevalence of obesity is at odds with the overall decline in mortality rates seen in most developed nations over the past few decades.

Like the health effects on smoking, obesity usually stems from a choice about lifestyle. The fact that so many public spaces are now ‘tobacco-free’ zones is the result of education, persuasion and tough action.

Over the last 30 years or so, the prevalence of obesity has increased two to threefold in most developed countries. It affects nearly one in every three people in the United States, where it is expected to overtake smoking as the leading cause of preventable death. The epidemic is no longer confined to developed countries. In the developing world the prevalence is around 5% and this is expected to increase in the future.

In adults, the prevalence of obesity is more acute in women than in men, and it is becoming more common in children and adolescents. If this trend is left unchecked, it will have negative consequences for adult health and mortality in the future. The problem is also more widespread amongst the lower socio-economic groups in the developed world.

Radio 4’s ‘You & Yours’ programme recently led with a section on BMI in the life insurance industry. The issue has also made several television appearances as well as being covered by many of the UK’s national newspapers.

In the programme, LifeSearch said that we’d noticed a significant change in the last year or so with one or two offices applying automatic loadings at 28-29 (BMI) when we would usually start expecting a loading at 33-34.

Automatic loadings typically start at 50% of the premium, so £20pm would become £30pm. This is before any other related issues such as high blood pressure, cholesterol, diabetes or family history are considered. If there are further problems in any of these issues then the loadings can be far higher. Insulin diabetics with a high BMI could pay 4-5 times the usual premium for life insurance or could even be declined in extreme circumstances. They would not typically be able to obtain critical illness cover at all.

The BMI calculation is: Weight in Kilograms divided by Height in Metres squared. Hence Weight (Kg) / Height (M²).

Example BMI Tables
Height & Weight BMI
5ft 6 & 13st 29.4
5ft 10 & 14st 28.1
5ft 10 & 18st 36.2
6ft & 16st 30.4
6ft & 18s 34.2

 

The Bigger Picture

We think the situation with BMI is just part of a bigger picture. Life offices are finding more and more ways to cut premiums, but we fear the number of people that will actually receive these lower premiums is decreasing by the week.

We are told that most life insurance applications are switched or cancelled after 7 years. This isn’t too surprising as this is also the average length of a mortgage in the UK before it is either paid off, switched or people move home.

So think about the profits...

Charge low premiums to young healthy people who are very unlikely to pass away during the term, in the knowledge that most of the policies will be cancelled/switched/re-written (with new underwriting) in 7-8 years time. We do not have the figures, but it doesn’t take a genius to understand the business plan! LifeSearch is concerned that more and more consumers don’t fit the ‘insurance company box’. Many (we believe far too many) think protection is just about price. Hence they apply to the very cheapest, but unless they are young and perfectly healthy (and their families are healthy, their job isn’t risky, and they don’t do any potentially dangerous hobbies) they will be knocked back with a loading/exclusion/decline and may be put off buying full stop. Nobody likes to be told they are abnormal when it comes to their health/lifestyle. And all the time they could have been offered a better deal by one of the insurers who seemed a little more expensive to start with.

Norwich Union for example, have recently added Irritable Bowel Syndrome (IBS) to their standard stress and depression exclusion. IBS is becoming more and more common, so should advisers be pointing this out to any clients with the most minor past issues of stress, depression or a family bereavement for example? Would customers know to look for these differences without independent advice? They certainly are unlikely to know about (or be told about) the advantages of FIB, trusts, single life cover etc unless they take advice.

Everybody’s talkin’ What the industry has to say...

‘Many companies now include within the application forms additional questions in order to try and underwrite without the need for a GPR. This information would historically have been obtained by sending the customer a subsequent Medical Questionnaire, so although the customer would have had to take additional time to complete the Questionnaire, the time spent by the IFA on the initial application form would have been shorter. So overall there is not a direct step change in underwriting to correspond to re-prices downwards but there is a general trend anyway in underwriting to greater accuracy and lower cost.’ Paula Weddell, Distribution Development Manager, Friends Provident

‘Application forms have been growing over the last few years - from maybe 6 pages in the late 1990s to up to 31 pages now. When we were building up to the launch of Bright Grey we wanted a longer application form that would gather more medical information and therefore reduce the need for further evidence like GPRs or PMAs. As it has turned out most of the industry has adopted this method of a longer application form. The problem is that this has almost created the perception that the industry now has carte blanche to continue to extend the questions even further - almost to the point where individual claims are being scrutinised and questions being suggested to avoid future similar claims. The industry is in danger of taking the long application form philosophy too far - and overly complicating the application process. There is a feeling of risk aversion in the industry at the moment and perhaps this is a symptom of that but we should be asking ourselves whether we have gone far enough. A combination of online filtering and tele-interviewing could make the process appear shorter - but we must not create an environment where someone decides it is not worth the effort of filling in 30 odd pages to secure £10 worth of life cover.’ Roger Edwards, Products Director, Bright Grey

‘RGA agree that waist size is a better measure than BMI. Logically somebody who carries a high level of fat around their waist is a higher risk than somebody with a high level of muscle on the upper body. The England rugby team would all be rated, based on BMI, but are clearly a better risk than somebody who is same weight but has a large waist size. This intuitive approach is also borne out by numerous medical studies. Some companies already do ask for waist size, or alternatively collar size for men or dress size for women.’ Jason Hurley, Head of Sales and Marketing, RGA UK

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