When I first visited the human genetics and biostatistics lab at the University of California at Los Angeles (UCLA) in 2015, life insurance was not on the mind of the researchers. While the genomic revolution that began decades earlier raised the spectre of insurance underwriting based on our genetic code, no one seemed to be paying much attention to the more recent epigenetic revolution and its implications in predicting mortality and lifespan.

That autumn day, I had an appointment to meet Dr Steven Horvath,¹ the unassuming German immigrant who, as a UCLA professor, had developed the technology that came to be known as “Horvath’s Clock”, a predictor of human mortality that promised to be far more accurate than anything coming before. Dr Horvath is a recognized expert on ageing who has focused his research on finding the root causes of ageing encoded in the DNA molecule. In 2013, he reported he had found that human cells have an internal “biological age” and “biological clock” at the DNA molecular level that is indicative of the ageing process. His work was hailed as groundbreaking and featured in the scientific journal Nature.² It was research that caught the eye of my brother Steve – he has a PhD in chemistry and he flagged it for me. That’s what led me to California, armed with the idea that this research could help the business I had co-founded in Minneapolis.

It was fitting that we would be the ones to make the connection between his research about lifespan and life insurance: at GWG Life,³ our entire business is based on estimating the lifespan of the people whose life insurance policies we buy. We are a secondary market life insurance company; we purchase policies from seniors who no longer want, need, or can afford them, and we pay them a lot more than the originating insurers will. We hold the policies and continue making premium payments until the policy-holder’s death when we receive the policy benefit – sometimes policy-holders sell only a portion of the benefit while others sell the entire policy’s benefits to GWG Life and other companies in this secondary market.

It’s a small part of the US$20 trillion life insurance industry, but it uses the same principles of risk assessment and pricing the biggest insurance carriers have always used. Our part of the business is based on the fact that large life insurance carriers offer only small cash values to policy-holders when they most need them. On the other side of this transaction, consumers benefit from our business, and you can understand why when you see that we have paid out almost US$400 million directly to policy owners, compared to the US$26.1 million in surrender values offered by insurance carriers for the very same policies.

By 2015, when I went to California, we had become convinced that the process of determining the risk in a life insurance policy was in desperate need of reinvention. Historically, the life insurance, long-term care insurance, and annuity industries have used “medical evidenced-based underwriting” to assess, select, and price risk in order to operate their businesses profitably. Medical evidenced-based underwriting is exactly what it sounds like – an underwriter can draw blood and review an individual’s medical data and family history to create a view of the insured’s health profile in order to appropriately select and price the risk. Ironically, while the biggest single determinant of a policy’s price is whether an applicant is a smoker, the test to determine whether someone smokes is highly inaccurate and insurance carriers are left to rely on self-reporting from applicants.

So, I was at UCLA that day to find out if Dr Horvath’s research was precise enough to apply to our business and give us a better way to determine how long policy-holders are likely to live. I intuitively knew that if it turned out to be true, that Dr Horvath could more accurately predict individual all-cause mortality, the implications would go far beyond the life insurance secondary market business.

The meeting started slowly. When I asked him if he had ever heard of the life insurance business, he surprised me by saying, “No, I haven’t.” I then asked him if he had been to Las Vegas, to which he said “Yes, I have.” The Las Vegas analogy provided us some common ground to discuss the calculated risk the life insurance business takes on its policies. Think of it like this, I told him, “we are looking for a way to access the ‘down card’ of life expectancy in a real-life game of Black Jack.” Knowing how close the dealer is to 21 – in effect, the policy-holder’s life expectancy – would be a game-changer for us, to continue the gambling analogy, something he instantly understood. After an hour of sharing information, he pledged to contact us when his research reached the point of being able to provide the kind of predictive intelligence we needed and I went back to Minneapolis, convinced we were on to something.

Meanwhile, I began pouring over the science to understand what Horvath was exploring. The study of chemical modifications to the DNA molecule that reveal ageing, among other things, is known as epigenetics.⁴ Epigenetics is the study of how the DNA molecule’s instructions are translated into the production of proteins that make us who we are. In other words, while scientists unravelled the sequence of our DNA molecular code in 2003 following a 13-year, publicly funded project that cost US$2.7 billion,⁵ in many ways only now are they beginning to understand how that code translates into our individual makeup. Dr Horvath’s epigenetic research has focused on methylation sites on our DNA in order to study the genetic and epigenetic determinants of ageing and mortality. ​​In layman’s terms, methylation is the change to genes that can be caused by environmental factors ranging from smoking to air pollution.

It is important to add here that the epigenetic research does not look at DNA, factors that are unchanged from birth and are unaffected by lifestyle and environment. Instead, epigenetics focuses on the methylation levels of the biomarkers that offer clues to whether someone is ageing more rapidly or more slowly than average, producing their “biological age”.

It’s pretty complex science that, in 2015, was still on the frontier of the epigenetic revolution. In the fall of 2016, I got the call I was waiting for: Dr Horvath had made a breakthrough and he wanted us to have it.

The breakthrough was exactly what we were looking for. After a statistical analysis of over 13,000 individual DNA samples that included over 3,000 mortalities, Horvath had found a specific set of DNA methylation-based biomarkers that were predictive of individual risk of all-cause mortality (all-cause mortality is a statistical assessment of deaths for any reason that researchers use as part of their analysis of life expectancy).

The implications of Horvath’s discovery⁶ were simple and profound: for the first time, individual lifespans could be estimated with significantly greater precision across large groups of people. And if we could apply the methodology to our business, we could, in fact, make better decisions on which life insurance policies we should purchase. We quickly optioned the technology from UCLA and, in announcing it to the world, I published a white paper about what we were doing that I named “My Secret Master Plan” in homage to the entrepreneur I greatly admire, Elon Musk.

So what does it mean for our company, GWG Life, and the life insurance industry? Since optioning the technology in November 2016, we began working to find out how quickly we could integrate it into our business and apply it to new products and services. We began to gather genetic information from policy-holders by requiring cheek swabs from anyone who submits a policy to us, a very simple method to gather the material we need for analysis. In January, we hired Dr Brian Chen who was Dr Horvath’s first author on his most important work and who had been working at the National Institute on Aging. Dr Chen began analysing the cheek swab samples and conducting research of our own on the implications of this technology. From the start, we believed there was value alone in simplifying the process: replacing blood samples with cheek swabs policy-holders can gather themselves saves time and money. Our analysis had also shown that we only needed to increase the accuracy of lifespan prediction by a small amount to improve the current system, but we believe much greater improvements are on the horizon. The data Dr Chen is analysing holds the promise of a deep understanding of how individuals age.

We are now more convinced than ever that this biomarker technology is at the intersection of the two cresting trends of InsurTech and the epigenetics revolution and provides the means of more inexpensive and precise life insurance products for consumers. There is immense promise in applying it to create more precise and improved life insurance products in mature markets, and in new markets where traditional medical evidence-based underwriting has been impractical or impossible. We believe that gathering genomic information will create an easier and more precise method of underwriting insurance that will, in time, become the industry standard.

We believe our corporate lineage is fitting as it was the very existence of the life insurance secondary market that drove Elizur Wright, the “father” of the modern life insurance era, to reinvent the industry by establishing regulations that require insurance carriers to provide surrender values to consumers and maintain statutory capital. And it’s the secondary market that will, once again, drive another reinvention of the industry, and this time the reinvention will come from technology and market forces.