Life 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.
If 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 Medical Information Bureau (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 (FTC) 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.
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 mortality (e.g., the odds of death).
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 exploit. 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 (CFPB) 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).
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