The UK actuarial profession needs to do more to understand mental health, say Chris Knight and Lisa Balboa from the IFoA’s Mental Health Working Party
Why was the Mental Health Working Party set up?
Society’s understanding of mental health is improving, but the insurance industry is lagging behind. Social media isn’t short of negative views concerning the way our industry treats people with mental health conditions, and a roundtable event held by the IFoA in 2020 highlighted that there are potentially big gaps in the actuarial profession’s understanding and practices around mental health. As a profession, we provide very little education to our members on this subject. The IFoA’s Mental Health Working Party was set up in order to tackle these shortcomings.
Is it important for actuaries to understand mental health?
Yes! Actuaries design and price products that impact many people’s lives. To do this well, we need to understand them and their journeys. For example, for many individual products, our underwriting processes – down to the way we ask questions – can seem to penalise people who disclose even mild or long-distant instances of mental health conditions. This is counterproductive, as we should be encouraging, not penalising, openness. As active participants in the design of underwriting and claims processes, actuaries have a key role to play here.
Through the work of the Mental Health Working Party, we hope to help actuaries:
- Better understand how a wide range of mental health conditions could impact customers’ experience and interactions with our products and services
- Start to build the ‘data infrastructure’ needed to bring mental health into mainstream actuarial work
- Embed a better understanding of mental health into our work through working party reports, conference presentations and an increased amount of mental health content in educational and continuing professional development material.
Isn’t this a specialist issue for life and income protection actuaries?
No. Obvious associations with mental health and insurance might be self-harm, suicide or individual protection claims, but mental health has much wider actuarial implications.
For example, in group income protection, work-related stress is a key driver of claims. Insurers have adopted strategies to proactively manage claims, including through the provision of cognitive behavioural therapy (CBT). Even for a product such as travel insurance, people with mental health conditions can find it hard to get coverage due to the potential costs of seeking support overseas.
What data does the industry use to understand the risks associated with mental health?
We’ve been surprised to find that there’s very little industry data available. The latest public CMI data on income protection claims, including mental health claims, is more than a decade out of date. Actuaries often rely on published medical research and population studies to supplement internal company data, but these medical studies are not conducted specifically with insurance in mind.
We’ve also found it challenging to find recent population studies that quantify how developments in treating and managing mental health conditions are likely to improve morbidity and mortality for insured customers. In addition, the Association of British Insurers (ABI) has recently issued the Mental Health and Insurance Standards (bit.ly/ABI_MentalHealth), which include the requirement for companies to “Ensure that their underwriting approach around mental health conditions is reviewed regularly using up-to-date and/or relevant statistically credible evidence”. As a working party, we are seeking to find ways to improve data availability to support statistically credible, evidence-based decision making.
What data would help?
To allow actuaries to assess the prevalence and severity of mental health conditions among the insured population, mental health information should ideally be incorporated into both exposure and claims data collected at industry level.
Part of the current problem is that we tend to bucket mental health conditions into much broader categories than we would for physical health. Looking at industry-level claims outcomes by more granular categories, and differentiating by severity, would improve the best estimate view of actuarial risk and help benchmark the level of underwriting adjustments required. In this way, the industry can increase acceptance rates for applicants disclosing mental health conditions. Actuaries in senior management positions should bear in mind their responsibilities under the Equalities Act to anticipate the needs of customers, and the Financial Conduct Authority’s expectations surrounding the fair treatment of vulnerable customers. A consensus on the forward-looking view is highly relevant to our industry.
In the meantime, centralising simple data on the number of applicants disclosing mental health conditions, and the proportions of these accepted on standard terms, can already start to break down common misconceptions that those with well-managed mild-to-moderate mental health conditions are unable to obtain cover. It might also encourage insurers that do impose lifetime loading for such conditions to review their approach.
When it comes to protection covers with mental health exclusions, or mental health conditions that commonly cause applicants to be declined cover, there will be no industry claims data available. For this, looking to population data and seeking expert medical opinions will be key to understanding the associated survival curves for morbidity and mortality events.
How could we use more granular data in pricing and underwriting?
Industry and population data should be used to review current underwriting philosophies, and help insurers become more transparent with customers in the underwriting process (for example, to support communication around the increased actuarial risk that is driving the underwriting decisions). In particular, data to improve our understanding of the interaction between mental and physical health would be valuable. Partnering with researchers and medical experts to stay close to the impacts of latest treatment and management approaches on risk would also help keep our pricing processes up to date.
Data could support the design of products and processes that encourage customers to disclose and proactively manage their mental health. This should be viewed as a positive by the industry at the application stage and throughout the lifetime of the insurance policy.
We should, however, remember that data can’t capture everything. For example, an individual’s support network, resilience and personal circumstances can shape risk. The flexibility to capture biopsychosocial context in the underwriting decision remains important. In this regard, underwriters continue to have a key role to play as the interface between data and the customer.
Can we learn from other countries?
We expect so, and we’d love to hear from readers of The Actuary for ideas! The life and health insurance industry in Australia has been looking at mental health issues closely in recent years (bit.ly/AI_MentalHealth), and in France there is an approach akin to a ‘statute of limitations’, whereby some prior mental health conditions do not need to be disclosed for underwriting purposes. This could be a reasonable approach for well-managed conditions.
Where next in your vision for the UK profession and industry?
- Recognition: this is an important issue, and we would like to pave the way for increased actuarial rigour in relation to mental health.
- Data orientation: we’d like to see more data being collected and made available, to allow stronger actuarial science to be applied and to align with the ABI’s stance in its code of conduct.
- Collaboration: we would like to see more creative ways of aligning the interests of the insurer and the insured. How can we encourage people to disclose their mental health, rather than hide it from us? Beyond CBT for group income protection customers, what can we do to incentivise customers to look after their own mental health? We have high hopes for some win-win opportunities here.
Chris Knight is group chief risk officer at Legal & General and chair of the IFoA Mental Health Working Party
Lisa Balboa is a business development actuary at Hannover Re and deputy chair of the IFoA Mental Health Working Party
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