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Marijuana use of growing concern to life insurers

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As adoption of medical and recreational marijuana skyrockets nationwide, life insurers remain divided about how to rate policy applicants, in part because of the uncertain state of the science underpinning medical testing and the lack of research that might link marijuana use to increased deaths.

This was a running theme of a panel discussion at NAILBA34, the National Association of Independent Life Brokerage Agencies, which held its 2015 annual meeting in Orlando, Nov. 19-21. The breakout workshop, “Risk Appraisal Forum’s 2016 Underwriting Forecast,” brought together three executives with expertise in underwriting: Jordan Carreira of Lincoln Financial Group, Bruce Hendricks of Mutual of Omaha, and Bill Moore of Munich Re US (Life).

The panel discussion explored a range of issues, from the reliability of exams that test for heart function to the evolution of the reinsurance market. But the hot topic of the one-hour panel was marijuana — and the challenges the industry faces as use among the public increases.

“I have the perception that the lay public views marijuana as a panacea,” said Mutual of Omaha’s Hendricks. “I think we should view it rather as a Pandora’s Box.”

The reason: potentially severe medical problems that may result from increasing use of the once-illegal drug. Hendricks noted that four states now approve of recreational use of marijuana; and 23 states permit medicinal marijuana.

About 10 percent of the nation’s population uses marijuana regularly. And between 8 and 10 million Americans use the drug more than 300 times per year, or almost daily, according to Hendricks.

Upshot: an uptick in medical-related problems — and hospital visits.

“Between 2 and 3 percent of ER [emergency room] visits are due directly to marijuana use,” said Hendricks. “And about 12 percent of motor vehicle accidents are related to use. What’s happening is a real concern for us. And with another six states set to legalize marijuana for recreational use in 2016, that concern is likely to increase.”

For life insurers, there are thus also heightened underwriting risks. Hendricks said that Mutual of Omaha has been screening for marijuana use on policy applicants for over the past decade. The company’s “hit rate” for THC (the percentage of applicants who test positive for marijuana based on the presence in an applicant’s blood of Tetrahydrocannabinol, the chemical responsible for most of the drug’s psychological effects) long stood at about 3 percent.

In 2015, positive tests spiked by about 60 percent. That, said Hendricks, is due not only wider use of marijuana, but also higher concentrations of THC in the products they consume, most notably edibles, such as THC cookies. High levels of THC — in Colorado, a blood concentration of 7.2 ng/ml is deemed marijuana intoxication — can result in a host of psychological effects.

“For casual or occasional users of marijuana, there’s probably at worst a 9 percent chance they’ll become addicted,” said Hendricks. “That rises to about 17 percent among daily users. As the concentration of THC goes up, so does the potential to become addicted. That’s really concerning.”

Particularly vulnerable to the negative health effects, he added, are adolescents. Because their brains are still developing, marijuana use can result in lower than normal IQ levels. Cannabis consumption can also result in psychiatric problems, such as depression or psychosis.

While observing an increase in medical effects associated with marijuana use, life insurers remain divided about how to classify policy applicants who test positive for the drug and/or admit to being users on follow-up medical questionnaires. That’s because little if any research exists connecting marijuana use to higher mortality rates.

“There is no credible study I know of in the last 70 to 80 years that show [such a correlation],” said Lincoln Financial’s Carreira.

Hendricks agreed, adding that reports documenting deaths among marijuana users also often show the presence of other drugs, such cocaine, heroin or alcohol. Compounding the challenge for life insurance underwriters, he added, is the current state of science underpinning medical testing.

All that such tests can do is show the presence of THC in blood. Underwriters cannot reliably use the test to classify policy applicants as, say, occasional or regular users because they metabolize THC at different rates.

“We really don’t have the science yet to actively quantify THC in a person’s system, so classifying users is nearly impossible,” said Hendricks. “All that we can do is document exposure.”

How life insurers handle marijuana cases also has implications for the reinsurance market. Munich Re’s Moore said that the “retention” market — life insurance policies that have been kept on the books of primary/direct carriers, as opposed to being ceded to reinsurers — has remained “stable” in recent years. Also stable has been “automatic binding capacity:” the ability of primary insurers’ underwriters to approve policy applications on their own authority, and in face amounts totaling $50 million or more.

“The larger carriers have the capability to issue $200 million policies,” Moore said. “The amount will vary with retention policies of individual carriers, but $200 million is about the maximum amount that any one carrier can offer.”

He added that the handful of companies that dominate the reinsurance market — Gen Re among them — are trying to capture more business of primary life insurers by offering them ancillary services.

Among them: mortality expertise, research, plus rules-based software engines and underwriting services for handling policies with lower face amounts. For brokerage general-agencies and their producers, the last should translate to faster processing times on policy apps.

Reinsurers, he noted, also are increasingly using big data to ferret out instances of insurance fraud, which remains a problem for the industry. The Coalition Against Insurance Fraud conservatively pegs fraud across all product lines at $80 billion annually.

Lincoln Financial’s Carreira said there exists within the BGA community “facultative fear” or fear of facultative insurance (i.e., reinsurance) or an agreement to provide reinsurance that facilitates the primary insurer’s desire to underwrite a life policy application; without reinsurance, the primary insurer may be unable to provide coverage.

Producers, he noted, worry that an offer made to an applicant by the primary insurer will be withdrawn, and a new offer tendered on less favorable terms; or that the reinsurance company will decline the application, deeming it to be an adverse risk.

“We try to address this fear by saying, ‘We [the primary insurer] will always protect our offer to you; you won’t lose the offer,’” said Carreira. “So you really don’t have anything to lose in this respect by going to a reinsurer.”

He added that Lincoln Financial still “practices the art of underwriting:” researching and offering informed opinions on policy applications for the benefit of a reinsurer’s underwriters. In 9 times out of 10, the reinsurer will approve an application when Lincoln believes that it’s in the companies’ mutual interest to do so.

In the minority of cases when applications are changed or declined by a reinsurer, Lincoln can tap some $20 million in reserves dedicated to “underlying retention:” the amount of risk arising from an insurance policy that is retained by Lincoln after reinsuring the balance amount of risk ceded to the reinsurer.

“It’s not often that we get back an offer [made by Lincoln to the policy applicant] that the reinsurer has changed [or declined],” said Carreira. “But when this does happen, we can have a dialogue with the reinsurer’s underwriters. In this respect, we enjoy much better relations with reinsurers now than we did years ago.”

He added that Lincoln can reinsure policies for up to $100 million through two reinsurers the company partners with. Moore noted, however, that primary insurers are retaining more business and ceding less to reinsurers. The key reason being the low interest rate environment.

“When reinsurance becomes a cost, then it’s not as attractive for primary carriers to reinsure,” he said. “The primary insurers are more willing to take on mortality risk in exchange for higher profits. So they’re retaining more business.”

The carriers might be prepared to retain still more business if medical tests used to screen policy applicants yielded more reliable results. This concern is particularly high in respect to the electrocardiogram (EKG or ECG), a test that checks for problems with a heart’s electrical activity.

Mutual of Omaha’s Hendricks said that about 30 to 40 percent of EKGs he sees daily are done incorrectly. That’s either due to the chest placement of “leads” (electrodes) or because an EKG device is not operating at the prescribed voltage level.

Because of the EKG’s unreliability, life insurers are increasingly replacing EKGs with BNPs (brain natriuretic peptide), tests that evaluate heart function by measuring the amount of the BNP hormone in an applicant’s blood. In addition to being more dependable than EKGs, said Hendricks, BNPs are also less costly, though he noted Mutual of Omaha limits the tests to certain applicants.

“We’re not doing BNPs across the board, but selectively on cohorts of people who have a higher incidence potentially of heart disease, sustained hypertension and cardiovascular disease,” he said. “We’re only testing about 7 percent of applicants with BNP, but we found it useful.”

“Going forward, we’re going to use it more,” he added. “But it cannot always be a substitute for a treadmill or EKG test.”

Lincoln Financial’s Carreira agreed, adding EKGs remain useful among policy applicants in their 50s or 60s.  He noted, too, that insurers also are increasingly dispensing with physician exams because of the availability of less costly alternatives.

Check out our full coverage of NAILBA 34 here.

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