Impaired Lives Insurability: Dawn of a new era

Impaired Lives Insurability: Dawn of a new era

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In the last decade or two we have witnessed a bifurcation in the market for longevity risks as specialist insurers have started to distinguish between impaired lives and others. The distinction has given rise to impaired lives’ annuity terms that are more favourable than those available to standard lives. This distinction has always existed in the mortality risk market, albeit with impaired lives’ terms being inferior.

My thesis is that the time has now come for the life insurance industry to recognise impaired lives as a distinct market for mortality risks, in much the same way that it has embraced the impaired lives longevity market. The prevailing view in the life insurance industry seems to be one of a single market for mortality risk, with impaired lives essentially handled on an ‘exceptions basis’- a minority of undesirable individual customers in an otherwise monolithic market. It is likely that the establishment of a dedicated market for impaired lives’ mortality risks would result in improvements in the terms offered to certain segments of this population. The conditions that provided the basis for ‘pariah’ treatment of these lives in the past have changed for the better. Advances in medical science and technology have resulted in many impaired lives that were traditionally considered uninsurable becoming insurable.

This change in the insurability of a large swathe of this population presents new opportunities for applications in the form of novel insurance products. In this paper I will use cancer as an example of an impairment that has undergone such a sea change. I will demonstrate how the march of medicine has rendered many of these cases insurable. I will also propose a product solution to an age-old problem that cancer patients face, a solution that hinges on insurability. This problem is the dilemma created by the prospect of committing substantial sums of money to cancer treatment with no guarantee of success.

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