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How insurance companies predict when you'll die

John Donne famously wrote "Ask not for whom the bell tolls," but your insurance underwriter is on the case anyway.

By Credit.com Jun 18, 2014 12:38PM
This post comes from Joel Winston at partner site Credit.com. Updated on June 20.

Credit.com on MSN MoneyLife insurance is arguably the most disturbing financial product a law-abiding citizen can buy. After all, life insurance is essentially an investment on your life that pays off only when you die.


Grim Reaper © Anton Ovcharenko/Vetta/Getty ImagesIf someone is buying a car, it would be normal for them to consider various features like vehicle safety and gas mileage. Comparatively speaking, someone shopping for life insurance must confront the fragility of his own existence.


The mental calculus of this purchase is unnerving, "When am I going to die? What might be the cause of my death? And, how much is my life worth?"


On the other side of the negotiating table, the insurance company needs to calculate the probability of your death before it will invest in your life.


However, insurers have smartly recognized that asking customers to help guess their own time and manner of death is an awkward way to sell insurance policies. As a courtesy, life insurance companies will predict your death for you. The professional Las Vegas oddsmakers who take bets for sports games call it “setting the spread.” Life insurance companies call the process “underwriting.”


Estimating your demise

Life insurers require massive amounts of information to profitably “underwrite” potential customers, thereby separating risky people (i.e., sick or likely to become sick) from desirable people (i.e., healthy and likely to remain healthy). To feed this insatiable appetite for intelligence, life insurers have built the most sophisticated software tools and deepest pools of consumer data on the planet.


Actually, life insurers have been pioneers in the field of big data and personal analytics for more than 100 years. The Medical Information Bureau Inc. (also known as MIB Inc. and MIB Group Inc.) was founded in 1902 and is America’s oldest and longest continuously operating credit reporting agency. Accessing 100 million records and growing weekly, the MIB owns and monetizes, "North America's largest database of medical conditions on insurance applicants. [Including] diagnosed medical conditions from attending physicians, lab test results, qualified physical exams, self-admitted medical conditions."


The Federal Trade Commission warns Americans that, in addition to medical conditions, data collected and reported by MIB may include an individual's credit history, driving records, criminal activity, tobacco usage, drinking habits, participation in hazardous sports and “other” data. Under questioning by a Senate Banking Committee in the 1970s, MIB’s former executive director and general counsel Joseph C. Wilberding revealed that the “other” category in MIB files has included information on “sexual deviation” (i.e., homosexuality, effeminate behaviors, bachelorhood, HIV acquisition, and a woman’s questionable “moral character” for giving birth out of wedlock), drug addiction, alcoholism and such hazardous hobbies as auto racing and flying.


Jonathan W. Sager, MIB's executive vice president, would not comment directly on Wilberding's testimony. However, he said: "Let me assure you that MIB does not have codes for 'homosexuality, effeminate behaviors, bachelorhood, HIV acquisition, and a woman's questionable 'moral character' for giving birth out of wedlock.'"


For insurance company underwriters, the MIB database is like Google for people’s pre-existing medical conditions and secret personal afflictions. Upon the written authorization of a customer to allow MIB searches, the underwriter can efficiently access personal and medical information to make an informed calculation of their odds of death within a given period.


To begin searching, the underwriter will open a desktop browser and login to MIB’s Web-based suite of data tools. Within the MIB’s portal, the underwriter can: locate anyone’s MIB file; evaluate the MIB medical reports; request more details from other insurance companies; program alerts to automatically track the applicants’ possible undisclosed conditions for two years into the future; and sleuth out frequent-shoppers acquiring too much life insurance.


Although MIB’s medical database is North America’s largest, it’s not the only source that insurers use. A similar specialty consumer reporting agency, MedPoint by OptumInsight (a unit of UnitedHealth Group, America’s second-largest health insurer), holds prescription drug records on more than 200 million Americans. To collect billions of drug files daily, OptumInsight hosts its own servers directly in the data centers of pharmacy benefit management companies.


Underwriters have instant online access to these prescription history reports, which search back seven years and include: the drugs and dosages prescribed; dates filled and refilled; the therapeutic class; and the name and address of the prescribing doctor. MedPoint by OptumInsight also uses predictive modeling to provide insurers a “pharmacy risk score,” or a number that represents an “expected risk” for a group of people. As a warning to underwriters, higher scores signal higher potential costs.


Where you stand in this

Consumers are constantly treading water in a dangerous ocean of their own medical and personal data. The Consumer Financial Protection Bureau estimates there are roughly 400 nationwide specialty consumer reporting agencies, give or take a few hundred million data files. According to CFPB Director Richard Cordray, “nationwide specialty consumer reporting agencies can have great influence over a consumer’s tenancy, insurance premiums, [checking accounts], or even employment.”


Before attempting to out-negotiate an underwriter about the value of your own life, you can potentially save thousands of dollars with a little paperwork. A proactive consumer will: (1) contact each relevant specialty reporting agency to request free annual file disclosures (just like your credit reports, you’re entitled to specialty consumer reports annually  for free, too); (2) verify all information delivered in those file disclosures; (3) read any insurance applications, scrutinizing for the “privacy” or “medical underwriting” notices; and (4) read any follow-up correspondence from the insurance company, taking specific note of any “adverse action” notices.


The CFPB has put everyone on notice that, as the chief privacy officer of your own life, checking “specialty consumer reports” is officially your responsibility. That means it’s a priority to request your specialty credit reports, in addition to your three major credit reports (which you can do for free at AnnualCreditReport.com) and your credit scores (there are many free sources that allow you to do this, including Credit.com).


This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.


More from Credit.com


28Comments
Jun 18, 2014 2:49PM
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Insurance Companies are nothing more than a bunch of crooks anyway, in most cases through lobbying they even have made it a law that you must have insurance...now the sky is the limit.
Jun 18, 2014 3:09PM
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Ok, so why are they above HIPAA laws!!!  This is not legal!!!!
Jun 18, 2014 4:23PM
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I have ZERO sympathy for insurers... Auto, health, home or otherwise. They will take your money with a smile but when you file a claim, everything changes.

 

Insurers have massive risk calculating programs for every kind of insurance. They feed it with massive amounts of data (yours and mine) to calculate the likelihood of having to pay claims.

Think Progressive insurance and their "snapshot" driving monitor... AKA "the snitch".

 

Remember, insurers NEVER do anything that isn't in THEIR best financial interests...

 

Jun 19, 2014 9:05AM
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Insurance medical or death; it's better to have it and not need it, than need it and not have it. 
Jun 18, 2014 3:19PM
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Why doesn't Obama and his army just get their information from these guys?  Or do they already....
Jun 18, 2014 4:54PM
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They can take their life insurance and shove it where the sun don't shine.  I never had it and I never will.  Let me see...the insurance company benefits from it while I'm alive and someone else (maybe) benefits from it after I die!  What's in it for me?  Peace of mind?  Hardly likely.  I'll show you piece!  I hardly smoke...but when I do...I prefer Acapulco Gold with my Dos Equis!  Stay high my friends and don't forget to share your joint with the ladies!
Jun 18, 2014 4:53PM
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Just read about the hike in gas taxes...........now this? See, these mfkers have expert mathematicians, working formulas to TAKE every last cent from hard working white american's..........​...I would be surprised if a single moon cricket has a job anyway.
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I have death insurance for my child not life insurance!
Jun 19, 2014 9:12AM
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So according to insurers,  bachelors are lumped into a pile as sexual deviants?
Really?
Jun 19, 2014 6:52PM
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Life insurance gets a bad rap, maybe understandably, but the thing is that I know people who have died with it, and without it, and let me tell you the families of people who die with it are much happier and better off.  So from that perspective its not a bad idea after all.

If you hate the idea just get term at least.  My policy from LifeAnt is $20 bucks a month, for some people its more like $10. To protect my family I would be a fool not to have it.  

Just stay away from anything variable or universal life.  Whole life is kind of a scam too.  Having some protection in place when your kids are young and your spouse relies on you for income and the policy to survive if you weren't there, I think that's reasonable.
Jun 19, 2014 9:38AM
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"Donne actually wrote: "...and therefore never send to know for whom the bells tolls; it tolls for thee."


Look...If you're going to quote someone, go to the original source and don't get them from a movie. You only make yourself look stupid.

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Just read about the hike in gas taxes...........now this? See, these mfkers have expert mathematicians, working formulas to TAKE every last cent from hard working american's.............I would be surprised if you all are able to save money in 2015.....
Jun 25, 2014 12:24PM
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They, the insurance company, are pretty sick group of greedy vampire money sucking lawyers. The money people spend on insurance support them, and pay out damages when need be.


Now, if humans were smart enough to create a fund that everyone who ( WANTED ) to be covered if an accident took a limb, or life could be had for so much less If profit was removed.


Our government is suppose to protect their people from harm, be it abroad or domestic. So why does government allow insurance companies to take, (STEAL) money from the people in the name of doing business. It is a form of gambling and odds are set for the house to always win all the time. Gambling on the life of the people is wrong in so many ways.


Now if I was to be so bold, why not allow every person to join a gambling pool on their 18th birthday. On that day they pay into the pool $365.25, and the same amount at each birthday. They choose an age that they feel they will live to. Let's just say 68 years. If they die before that 68th year their family gets only what is paid in up to that date of death, all the interest earned is lost. But if the person lives to age 78 they get compounded daily interest for 60 years, all paid to who ever they name. It would create a desire to stay healthy, younger family members would be making sure older pool members stays alive as long as possible to receive the reward.


If this sounds odd, it's just life insurance without large profits being removed by greedy folks in the insurance industry.

Jun 25, 2014 9:04AM
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It's simple. If you need life insurance to help your loved ones and dependents because you fear death you will not get insurance. If you don't have any reason to fear death because you are fit healthy and safe, you will get insurance and it will be a waste of money.

Duh

Jun 25, 2014 12:17PM
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I bet I will live to age 78 years. I don't need to take any type of exam, no data collected on me for pay out. If I choose to end my life at some point, then so be it. If I have a family who cares for me and helps me live a long life, all the better. I contend that life insurance is a scam, a con job type of Ponzy for taking money from people. If we want to gamble on our lives and how long we live. Then we should be willing to be rewarded at maximum value without some greedy so and so yanking juicy profits out of it for themselves. 

Jul 2, 2014 8:20AM
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They ain't in it to pay for your funeral.
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