JOURNAL OF INSURANCE MEDICINE Copyright E 2008 Journal of Insurance Medicine J Insur Med 2008;40:229–233

INTERNATIONAL

Health, Economic and Insurance Effects of in South Robert Pokorski, MD

This article reviews the effects of cigarette smoking in Address: Lifecare Institute from a health, economic, and insurance perspective. It concludes Samsung Life Insurance Company with a prediction about the future of smoker / nonsmoker pricing 150, Taepyeongro 2-Ga, Jung-Gu, for individual life insurance. , Korea 100-716; [email protected]. Correspondent: Robert Pokorski, MD; Executive Vice President. Key words: Cigarette smoking, smoking risks, smoking economics, smoker/nonsmoker insurance pricing, Korea, smoking rate. Received: July 2, 2008 Accepted: November 3, 2008

CANCER The impact of smoking is especially severe for lung . In 1979, there were 522 lung The health consequences of smoking are cancer deaths in Korea, accounting for 0.2% apparent from Korean national mortality of all deaths. By 2003, lung cancer deaths statistics. In 1985, there were 24,388 deaths increased 24-fold to 12,725, representing related to smoking. This number increased to 5.2% of all deaths.1 46,208 deaths in 2003, and the end is not yet 1 The average smoker has 4.2-fold higher in sight. Most of these smoking-related risk of lung cancer. However, the risk varies deaths were caused by cancer. with the number of pack-years (number of Cigarette smoking increases the risk of packs smoked per day multiplied by num- of the lung, larynx, bile duct, ber of years of smoking), as shown in esophagus, liver, stomach, pancreas, blad- Table 1.4 der, and also leukemia.2 Overall, 35% of all cancer deaths in Korea are related to smok- ing (28% due to lung cancer and 7% due to other cancers), making it the most common A March 2008 study examined the rela- cause of cancer in the country.3 tionship between smoking and cardiovas-

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Table 1. Relative Risk of Male Lung Cancer, by Pack- Table 3. Percentage of Cardiovascular Disease Caused Years of Smoking by Smoking in Korean Men*

Pack-years Relative risk Percent 0 1.0 Subarachnoid hemorrhage 35 1–10 1.8 Myocardial infarction 37 11–15 2.0 Ischemic stroke 26 16–20 3.2 Aortic aneurysm 22 21–34 3.2 All cardiovascular disease 20 35+ 8.6 * Population proportional attributable risk. cular disease (CVD).5 The cohort consisted The study concluded that smoking was of 648,346 Korean male public servants responsible for about 20% of all CVD in aged 30 to 64 years at their initial assess- Korean men (Table 3). ment in 1992. Table 2, based on 10 years’ follow-up and ECONOMICS thousands of cardiovascular events, shows Smoking is a significant economic burden that smoking is a major risk factor for CVD. to Korea. In 2008, 1.9 million (4% of N The column labeled ‘‘Overall smoking the population) had a smoking-related dis- risk’’ indicates that smoking was associat- ease, resulting in Korean National Health ed with a two-fold increase in the risk of Insurance (KNHI) expenditures of $517 myocardial infarction, a 1.9-fold increase million. The most expensive diseases (in in the risk of subarachnoid hemorrhage, decreasing order) were lung cancer, stroke, and elevated risks of ischemic stroke and chronic lung disease, coronary heart disease, aortic aneurysm. Smoking did not affect and stomach cancer. the risk of intracerebral hemorrhage (the The impact of smoking is much higher if most common type of stroke in Korea). indirect costs are also included, such as N Risk increased with the number of ciga- absence from work and premature death. rettes per day. Smoking even one to nine The total economic burden of smoking in per day doubled the risk of 1998 was estimated at $3.2 to $4.6 billion, or myocardial infarction. 0.8% to 1.2% of the N Risk was increased even in men with low (GDP), respectively.6 cholesterol levels and a normal body mass The worst is yet to come. Smoking in the index (BMI). United States and United Kingdom in-

Table 2. Relative Risk of Cardiovascular Disease in Smokers Compared to ‘‘Never Smoked’’*

Current smoker (cigarettes per day) Never smoked Past smoker 1–9 10–19 20+ Overall smoking risk Myocardial infarction 1.0 1.3 2.0 2.3 2.9 2.0 Subarachnoid hemorrhage 1.0 1.0 1.7 1.8 2.2 1.9 Ischemic stroke 1.0 1.0 1.4 1.6 1.7 1.6 Aortic aneurysm 1.0 1.3 1.8 1.9 1.4 1.5 Intracerebral hemorrhage 1.0 0.9 1.1 1.1 1.0 1.0

* Relative risk adjusted for age, blood pressure, body mass index, total cholesterol, hyperglycemia, alcohol consumption, exercise, and area of residence.

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7 Table 4. Prediction of the Number of Patients and ing and pricing. At that time, 53% of Medical Expenditures Paid by KNHI for Diseases American men and 32% of women were Attributed to Smoking, 1999 to 20151 smokers. Other insurers followed, and by the 1980s most individual life insurance policies Number of KNHI medical expenditure in the United States were issued at smoker/ Year patients (US$)* nonsmoker rates. 1999 961,814 324,866,074 Four forces were responsible for the 2000 1,054,639 325,458,347 change from aggregate to smoker / non- 2001 1,189,126 353,109,968 2002 1,327,995 374,215,776 smoker pricing. 2003 1,347,161 413,659,637 First, the market changed when the ma- 2004 1,489,000 426,165,000 jority (more than 50%) of insurance buyers 2005 1,593,000 448,799,000 became nonsmokers. Once this occurred, it 2006 1,698,000 471,434,000 was no longer possible to sell individual life 2007 1,802,000 494,069,000 2008 1,907,000 516,703,000 insurance at aggregate rates. Nonsmokers 2009 2,011,000 539,338,000 wouldn’t pay aggregate rates that subsidized 2010 2,116,000 561,972,000 the smokers, and an ‘‘aggregate’’ pool 2011 2,220,000 584,607,000 without nonsmokers became a smoker pool 2012 2,324,000 607,241,000 with smoker mortality rates. 2013 2,429,000 629,875,000 Second, some insurers recognized non- 2014 2,533,000 652,510,000 2015 2,638,000 675,144,000 smokers as a new market segment, devel- oped smoker/nonsmoker products, and be- * The cost paid by the patient for medical services gan to aggressively target nonsmokers. All that are not covered by KNHI accounted for about 20% insurers had to follow. of the total medical expenditure in South Korea. To calculate the total medical expenditure including the ‘‘Most companies were inclined to quickly cost for medical services that are not covered by KNHI, follow the lead of the major insurers that the total KNHI medical expenditure must be multiplied introduced non-smoker policies. Companies by 1.25. that kept aggregate rates found that their premiums were not competitive on non- smokers and were too competitive on smok- creased after World War I and the harmful ers, especially on term plans where differences effects have already peaked. In contrast, in mortality assumptions are most obvious.’’8 smoking didn’t increase in Asia until after World War II, a 40-year lag compared to the Third, insurers learned that it was not West.1 This means that the unfavorable possible to limit smoker / nonsmoker rates consequences of smoking in Korea will to only a few products. Smokers would continue for decades. This projection is ‘‘select against you by applying for [one of reflected in Table 4. your other products] that was still based on aggregate rates.’’8 Fourth, urine nicotine testing (to confirm HISTORY OF SMOKER/NONSMOKER nonsmoking status) was inexpensive and INSURANCE PRICING IN US well-accepted by consumers. Historically, individual life insurance in the United States was sold at aggregate rates RATIO OF SMOKER TO NONSMOKER that blended smoker and nonsmoker mor- MORTALITY IN US tality. In 1964, a few months after publication of the US Surgeon General’s report ‘‘Smok- Table 5 shows the ratio of smoker to ing and Health,’’ State Mutual became the nonsmoker mortality rates in the 2008 first major North American insurer to reflect United States Valuation Basic Table.9 Smok- smoking habits in life insurance underwrit- er mortality is more than 2-fold higher than

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Table 5. Ratio of Smoker to Nonsmoker Mortality Rates*{

Age Male Female 20 2.20 2.13 30 2.33 2.19 40 2.40 2.35 50 2.14 2.17 60 1.60 1.60 70 1.26 1.26 80 1.00 1.00

* 2008 United States Valuation Basic Table. { These are ratios of mortality rates, not total premiums. Figure 1. Smoking rates (%) for Korean men (top), women (bottom), and the total population (middle). nonsmoker mortality for young and mid- 2005 to 2007, the rate of decline in male dle-aged adults. Beginning at age 60, the smoking in Korea has been much more excess mortality in smokers gradually de- rapid compared to the United States in the creases. 1960s and 1970s. Figure 1 shows smoking rates for Korean SMOKING RATE IN KOREA males and females for 2005 to 2007, confirming the continuing decline in the percentage of The smoking rate among South Korean male smokers.12 As of December 2007, 42% of males decreased from a high of 79% in 1980 10,11 men and about 5% of women are smokers. to the current level of 42%. Table 6 Figure 2 displays age-specific smoking compares historical smoking rates in the rates for Korean males for 2005 to 2007.12 U.S. and Korea. The 2005 male smoking rate The percentage of smokers declined at all in Korea (52%) is identical to the 1965 rate ages, and except for age 30, all percentages in the United States, the year after State are well below 50%. Mutual introduced the smoker / nonsmok- er pricing that changed how individual life insurance was sold in the United States. For WHAT’S AHEAD FOR KOREA FOR SMOKER / NONSMOKER PRICING?

Table 6. Percentage of Males Who Were Current On April 26, 2007, at the International Life Smokers, by Year Insurance Symposium held in Seoul, Korea, Robert A. Kerzner, president and chief Year United States South Korea executive officer of LIMRA International, 1965 52 – made the following observations: 1970 45 – 1975 44 – 1. Innovations in insurance that took 300 1980 38 79 years in the UK happened in the U.S. in 1985 33 – less than 150 years. I think in Asia it will 1990 29 75 take only 10–15 years. 1995 26 – 2. Change will occur in the insurance busi- 2000 25 68 ness much more quickly in the next 10 2005 24 52 2006 24 44 years than in the last 10. 2007 24 42 3. More companies from Europe and the United States are entering your market.

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Figure 2. Smoking rates (%) for Korean men, by age.

This will probably accelerate when your 3. Lee H, Yoon SJ, Ahn HS. Measuring the burden of market experiences these changes. major cancers due to smoking in Korea. Cancer Sci. 2006;97:530–534. 4. Bae JM, Lee MS, Shin MH, et al. Cigarette CONCLUSION smoking and risk of lung cancer in Korean men: Given the rapid and continuing decline in The Seoul Male Cancer Cohort Study. J Korean Med Sci. 2007;22:508–512. the percentage of male smokers, the increas- 5. Lawlor DA, Song YM, Sung JH, et al. The ing public awareness that death rates are association of smoking and cardiovascular disease much lower in nonsmokers, and the innova- in a population with low cholesterol levels. Stroke. tions that are occurring in the life insurance 2008;39:769–777. business, it is likely that South Korea will 6. Kang HY, Kim HJ, Park TK, et al. Economic follow the trend of other developed insur- burden of smoking in Korea. Control. ance markets. Aggregate rates will be re- 2003;12:37–43. 7. Pokorski RJ. Excess mortality in Asia associated placed by smoker / nonsmoker pricing for with cigarette smoking. NA Actuarial J. 2000;4: most types of individual life insurance. 101–114. 8. Record of Society of Actuaries. 1981, Vol. 7, No. 3. REFERENCES 9. Available at: http://www.soa.org/research/ individual-life/2008-vbt-report-tables.aspx. 1. Lee SY, Jee SH, Yun JE, et al. Medical expenditure 10. S. Korean male smoking rate down 25 pct in 15 of national health insurance attributable to smok- years: Survey. AsiaPulse News. 15 December 2005. ing among the Korean population. J Prev Med 11. Male smoking rate drops below 50%. Korea.net. Public Health. 2007;40:227–232. 29 March 2006. 2. Jee SH, Samet JM, Ohrr H, et al. Smoking and 12. Surveys performed by Gallup Korea at the request cancer risk in Korean men and women. Cancer of the Korean Association of Smoking & Health. Causes and Control. 2004;15:341–348. www.kash.or.kr.

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