October 11, 2012

Motor Vehicle Records and All-Cause Mortality

Mark S. Dion FALU FLMIVice President Underwriting Rules Development and EducationUS Facultative UnderwritingRGA

Historically low cost and readily accessible Routine requirements vs. order for cause after a disclosure Scored by points

Not identical to states point system Points adjusted by severity of the infraction and time since conviction Often only one violation is assigned points if multiple infractions for a given day Usually concerned about recent activity, often last 3 years only Sum up the number of points, enter the table, assign the flat extra

Flat extras assigned to cover additional risk Age & Gender differences

Motor Vehicle ReportsCurrent underwriting practices - a quick review

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DUI & DWI Reckless driving Moving violations Accidents Suspensions Medical history Other external cause death risk “Scoff laws”

What underwriters watch for

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Major, minor, accidents, and suspensions

Newer focus Poor equipment maintenance, lapse risks, risky behavior? Inattentive driving, texting, phone calls Seat belt use and risk taking behavior

Interaction with other courts, some exclusivity Often the only insight to interactions with law enforcement And various court systems License is suspended, no apparent violations, why suspended?

Taxes Child support Criminal activity Other?

All cause mortality, not simply accident profile DUI triggers a different type of underwriting investigation If they aren’t paying their taxes or child support, what risks do they represent?

Beyond traditional use

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Looking beyond the rating table

We don’t necessarily know what individuals were stopped for Pleads State variations in severity and application of tickets, sanctions, fines

and suspensions Variations in retention of records Some insights to other court actions through Administrative

Withdrawals and Suspensions “The agent says the suspension was for failure to pay child support…”

If a person is stopped and ticketed for multiple violations are they different than someone who only gets one ticket?

And the biggest challenge… where is our empirical evidence? So now we move on to the RGA-LexisNexis MVR Mortality Study

Some Challenges with the Art of Underwriting MVRs

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Structured information and codes don’t tell the whole story

RGA LexisNexis Mortality Study

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RGA Re approached LexisNexis about doing a joint study• Saw need for a large-scale MVR Life Protective Value Study• LexisNexis is one of the largest providers of MVR records to the

insurance industry

LexisNexis provided the data Random sample of 7.4 million MVR requests made from 2006-2010 Nearly all automobile insurance applicants Approximately 73,000 deaths were identified using the SSMDF

Data included: MVR request date Basic demographic data of the applicant (gender, birth month/year) Motor vehicle infractions and dates of infractions LexisNexis proprietary Standard Violation Codes (SVCs) Month/year of death for deceased individuals

Background Information

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Goal of Study: Quantify the additional mortality risk of applicants with adverse driving history and assess the protective value of Motor Vehicle Records (MVR’s) in life underwriting

RGA assigned a severity to each violation. “Major” violations include: Alcohol or substance related infractions Excessive Speeding (> 30 mph above speed limit) Suspended, withdrawn, revoked, surrendered or cancelled drivers license Failure to provide proof of financial responsibility Failure to appear in court Reckless or negligent driving

Mortality Study Study Period 2007-2010 Expected mortality based on most recent U.S. Population Life Table Results are relative mortality differentials based on study A/E’s Includes all-cause mortality

Background Information (con’t.)

Significant mortality differences found for those with “major” motor vehicle violations relative to aggregate levels (true across ages and gender)

Mortality increases as the number of violations (regardless of the type of violation) increase

Mortality increases as the number of “major” violations increase Prevalence of “major” violations varies significantly by age Overall, the extra mortality risk present is probably better

represented by a mortality multiple (i.e., table rating) rather than a flat extra mortality load.

MVRs likely provide positive protective value across a wide spectrum of ages at relatively low face amounts.

Significant Findings of the Study

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Age and Amount Requirements for MVR’s

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Age 15 Age 25 Age 35 Age 45 Age 55 Age 65 Age 75 Age 85$25,000 5% 33% 24% 11% 9% 18% 34% 38%$50,000 4% 37% 29% 12% 10% 20% 38% 43%$100,000 7% 64% 53% 32% 28% 36% 54% 62%$250,000 10% 74% 64% 45% 38% 49% 66% 74%$500,000 11% 81% 75% 60% 57% 66% 78% 79%

$1,000,000 18% 92% 87% 68% 62% 74% 88% 88%$2,000,000 22% 98% 96% 92% 91% 94% 94% 98%$5,000,000 23% 100% 98% 96% 96% 96% 98% 100%$10,000,000 24% 100% 100% 98% 98% 96% 98% 100%

>$10,000,000 24% 100% 100% 98% 98% 96% 98% 100%

0%-15% 15%-30% 30%-45% 45%-60% 60%-75% 75%-99% 100%Legend:

Results by MVR Severity

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0%

50%

100%

150%

200%

250%

CleanRecord

MinorViolations

MajorViolations

Rel

ativ

e M

orta

lity

61%26%

13%

Clean Record Minor ViolationsMajor Violations

Results by MVR Severity and Age

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0%

50%

100%

150%

200%

250%

Rel

ativ

e M

orta

lity

Attained Age

MajorViolations

MinorViolations

CleanRecord

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prop

ortio

n

Attained Age

Major

Minor

Clean

Results by MVR Severity and Gender

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0%

50%

100%

150%

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250%

Male Female

Rel

ativ

e M

orta

lity

Gender

MajorViolations

MinorViolations

CleanRecord

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Male Female

Prop

ortio

n

Gender

Major

Minor

Clean

Results by Total Number of Violations

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0%

50%

100%

150%

200%

250%

0 1 2 3 4 5 6 7 8+R

elat

ive

Mor

talit

y

Number of Violations

61%17%

8%

5%3%

2%1%1% 2%

012345678+

Results by Number of Violations and Age

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0%

50%

100%

150%

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250%

Rel

ativ

e M

orta

lity

Attained Age

6+

2-5

0-1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prop

ortio

n

Attained Age

6+

2-5

0-1

Results by Number of Violations and Gender

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0%

50%

100%

150%

200%

250%

Male Female

Rel

ativ

e M

orta

lity

Gender

6+

2-5

0-1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Male Female

Prop

ortio

n

Gender

6+

2-5

0-1

Results by Number of Major Violations

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0%

50%

100%

150%

200%

250%

1 2 3 4 5+

Clean Minor Major Violations

Rel

ativ

e M

orta

lity

Number of Violations

61%26%

6% 3%2%1%1%Clean Record

Minor Violations

1 Major Violation

2 Major Violations

3 Major Violations

4 Major Violations

5+ Major Violations

Phase 2 Preliminary Results

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Accident Violations

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0%

50%

100%

150%

200%

250%

Clean 0 1 2 3 4+R

elat

ive

Mor

talit

y

Number of Accident Violations

61%31%

7%

1%0%0%

Clean

0

1

2

3

4+

Suspensions / Revocations

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0%

50%

100%

150%

200%

250%

300%

350%

Clean 0 1 2 3 4 5+R

elat

ive

Mor

talit

y

Number of Suspensions / Revocations

61%

36%

2% 1% 0%0% 0%

Clean

0

1

2

3

4

5+

Drug / Alcohol Violations

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# ofDrug / Alc Viols 0-29 30-49 50-69 70+ Total

Clean 77.7% 86.5% 96.2% 99.5% 95.4%1+ 200.3% 224.7% 215.5% 138.3% 213.0%

Clean 77.7% 86.5% 96.2% 99.5% 95.4%1+ 202.9% 253.5% 221.7% 132.1% 226.6%

Clean 77.7% 86.5% 96.2% 99.5% 95.4%1+ 211.0% 260.3% 229.6% 131.8% 233.4%

Clean 77.7% 86.5% 96.2% 99.5% 95.4%1+ 236.0% 276.7% 237.5% 123.3% 244.8%

Last Year

Last 3 Years

Relative Mortality

Everything on Record

Last 2 Years

Protective Value Framework

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Basic Assumptions 10-year actuarial present value model 5.5% discount rate, 6% annual lapse rate Mortality = 100% of the 2008 VBT Select & Ultimate table

Mortality Savings = A * B * C * D where A = PV of death benefits expected to be paid for policy B = Relative mortality differential for those with “Major” violations vs. those without C = Prevalence of applicants with adverse or “Major” violations D = Exclusivity of information provided by MVR leading to adverse UW decision

Savings are then compared to the cost of the MVR

Protective Value Framework

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Break Even Face Amount Min face for mort savings to

exceed cost of the MVR Assumes $9 MVR and 25%

exclusivity Savings/Cost Ratio

Ratio of the mortality savings to the cost of the MVR

Assumes $9 MVR, $250,000 policy and 25% exclusivity

Required Exclusivity Min exclusivity required to

offer positive protective value Assumes $9 MVR and

$250,000 policy

Protective Value (con’t)

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25 72,427 3.5 7.2%35 81,563 3.1 8.2%45 39,651 6.3 4.0%55 22,883 10.9 2.3%65 17,929 13.9 1.8%75 17,080 14.6 1.7%85 9,386 26.6 0.9%25 214,631 1.2 21.5%35 137,527 1.8 13.8%45 77,715 3.2 7.8%55 44,382 5.6 4.4%65 45,638 5.5 4.6%75 32,322 7.7 3.2%85 11,438 21.9 1.1%

Mal

eFe

mal

e

IssueAge

RequiredExclusivityat $250,000

Savings/ CostRatio at$250,000

Break-EvenFace

Amount

The Underwriter’s Perspective

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Accidents (though prevalence is actually low) Criminal complaints (prevalence is low) Alcohol & drug related violations Unlicensed driver – includes driving while suspended or revoked Administrative withdrawals License suspended or revoked Reckless or careless driving Speeding in excess of 35 miles an hour over the limit

Major violations

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Descending order of significance for single violations

Our traditional approach of rating MVR by flat-extras is probably not the best method

Debits and credits, the mortality multiple, numeric rating system works well MVRs are not merely indicative of accident profiles, they are useful

in identifying all-cause mortality Consider the DUI, once it appears on an MVR, the case becomes an alcohol use

case On the upside elderly applicants with some degree of significant

MVR history show better than expected mortality Surrogate for cognitive testing anyone?

More than 3 major violations of any type suggests a moderate substandard rating is called for

Early results and some client validation suggests the rating can grade down over time, but not in less than 3 years

The Underwriter’s View

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Some take away points

Time-specific analysis Years since last violation, DUI, etc Number of violations in previous __ years

Violation specific analysis Past Accidents DUI/DWI Speeding Violations Moving Violations Administrative withdrawals

We’re open to discussion!

Next Steps?

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Thank you for your attention.

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