Deepak Jobanputra and Pierre Coetzee of Swiss Re investigate the impact of obesity on mortality trends and insurance
With links to cardiovascular disease, hypertension, diabetes and many types of cancer, the effects of obesity on public health are an increasing concern worldwide. Left unchecked, this growing epidemic could be detrimental to UK life expectancy, children's life expectancy, national standards of health and the economy more widely.
Obesity occurs when a person puts on weight to the point that it seriously endangers health and life expectancy. Obesity is defined by the World Health Organisation (WHO) as a Body Mass Index (BMI) of more than 30. This index is somewhat crude, and not without its critics, but remains the most widely used measure in clinical practice. As shown in the graph (below), the risk of death increases in line with BMI (the risk is measured relative to normal BMI, shown as 1.0 on the Y-axis).
Over the last couple of decades, the prevalence of obesity among the UK general population has increased dramatically. In complete contrast, while the prevalence of obesity has been increasing, over a similar time period there has been a gradual overall improvement in mortality through medical advances and a decline in cigarette smoking, which have brought reductions in deaths caused by heart disease.
Obesity causes significant complications especially in the younger generation. Perhaps the most serious complication is Type 2 (non-insulin dependent) diabetes. The incidence of this disease is reported to be on the increase among children and adolescents where, in the past, this would have been unheard of.
Studies have also shown that the likelihood of overweight children continuing to be obese in adult life increases with the age of the child. There is also evidence of a link between increased adult mortality from heart disease and prior childhood obesity.
Impact
The correlation between mortality, health and socio-economic levels is well known: less affluent communities can suffer from poorer health and higher mortality. Studies in the UK have found that the prevalence of obesity can be linked to socio-economic circumstances.
Some may question, therefore, why growing prevalence of obesity may have such an impact on the life insurance industry, given that the insured population is generally comprised of the more affluent sections of the population, and that insurers have the benefit of medical underwriting to screen risks. Against this background, it is reasonable to assume that the insured population will, typically, have a lower prevalence of obesity.
In addressing this question, it is important to understand the difference between the prevalence of obesity and the increased relative risks that arise as a consequence of a severe weight problem. The following groups represent the majority of insured lives:
n Young to middle-aged populations (typically aged 30 to 44)
n Individuals with no previous history of disease
n Non-smokers
n Males
Clinical evidence indicates that the increase in relative mortality risks associated with obesity is more pronounced among these population groups. This suggests that insured lives are subject to higher relative risks of mortality associated with obesity as compared with the general population. Assuming that obesity trends continue, this could have an impact on the risk profile of the life insurance industry.
In the UK, life insurance is competitively priced and even a small increase in risk (in this case resulting from a small increase above the 'ideal' BMI) may have a significant impact on the overall profitability of a portfolio of risks. A further competitive factor is the degree to which premium rates are guaranteed. Where rate guarantees are in place, there is a risk that the loadings may be inadequate. If no guarantees are given, the risk to the insurer depends on its ability to review rates if necessary.
In relation to new business, worsening obesity is less likely to be a problem if the extra risks can be rated accurately. This, of course, implies that fewer cases could be accepted on standard terms. There is, however, competitive pressure within the life insurance industry to apply lower ratings for overweight and obese applicants, despite the medical evidence to the contrary, or to change the point at which applicants are considered to be substandard. Therefore, it is important for direct offices and reinsurers to work together more closely in justifying rating structures for build, thereby helping to preserve fair pricing for consumers overall.
A further cause for concern for the life insurance industry in the medium-to-long term is the threat of increasing childhood obesity. If this is not addressed, a 'cohort effect' may emerge from current changes in childhood obesity patterns, such that a higher prevalence of obesity in the future adult population may be the result of an increased number of obese children today.
Unless the pricing of mortality risks embraces the possibility of these trends continuing in the future, the industry will be exposed to two key hazards. First and foremost is that the increasing prevalence of obesity will intensify the risk associated with inadequate underwriting ratings. Secondly, pricing bases for these risks may become obsolete relatively frequently. It is therefore essential to ensure that prices can be adjusted sufficiently quickly to take account of the potential increasing claims cost.
Facing the future
Assuming the prevalence of obesity continues to increase, in the short-to medium-term this presents challenges for underwriters and actuaries, particularly given the increasingly competitive environment.
For underwriters, given that obesity and its effects could become more prevalent in future, it is perhaps worth considering whether the prospective risk of the applicant becoming obese could be underwritten at the application stage, compared with the current practice of assessing BMI at the time of application. Insurers should also consider the data they are obtaining. For example, using factors like waist circumference, family history and the blood glucose level of the applicant (as well as other as criteria), in conjunction with BMI, may prove better than BMI alone in identifying and assessing obesity. There are, however, practical implications of collecting such data, especially in a market where distributors and customers express a concern over the time involved in the process of applying for life insurance.
From an actuarial standpoint, the impact of increasing obesity highlights the importance of understanding trends in obesity, and particularly childhood obesity. Actuaries may need to review the way mortality improvements are factored into base pricing and, while this would represent a radical product redefinition, to rethink the risks associated with premium guarantees.
Unless dealt with effectively, in the longer-term obesity could reduce, or reverse, the overall positive mortality trends being experienced in the insurance market. In the context of broader society, the trends and effects of obesity highlight the need for a variety of measures to be put in place to stem the growth of the problem.
Like the health effects of smoking, obesity usually stems from a choice about lifestyle. The fact that so many public spaces are now, or will soon become, 'smoke-free' zones is the result of education, persuasion and in many cases tough action. The obesity epidemic is already high up on the Government's agenda, as can be witnessed by recent government initiatives such as prescribing exercise and encouraging people to eat more fruit and vegetables. Tackling the impact of obesity is neither the sole preserve of Government, the medical profession, food manufacturers, the insurance industry nor consumers. The challenge calls for a combined and determined effort from all parties, who must be alert to this emerging risk and play a role in confronting it.
Deepak Jobanputra is mortality revenue manager and Pierre Coetzee is life and health products actuary at Swiss Re
