How Insurance Companies Predict When You’ll Die

Updated June 19, 2014 with a comment from MIB.

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.

Jonathan W. Sager, MIB’s Executive Vice President 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 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).

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

More on Credit Reports and Credit Scores:

Image: Brand X Pictures

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team