Longevity of U.S. Population Increases Need for Mortality Information at Older Ages
Stamford, CT, February 11, 2008 � The demographics of consumers who buy life insurance have shifted considerably, with purchases at older ages now surpassing overall demand for life insurance in the U.S. This shift has prompted insurers to seek more information about the aging population. Thus, in the second Tillinghast Older Age Mortality Study (TOAMS 2), released today, the Tillinghast insurance consulting practice of Towers Perrin addresses the need for experience data based on older ages and provides new insights for insurers. The study includes data from 29 life insurance companies from 2003 to 2005.
“After we released TOAMS in 2005, which was the industry’s most comprehensive study to date, we found an overwhelming market need for further study about older-age mortality,” said Mike Taht, Principal at Towers Perrin. “Recent research by the MIB Group, Inc. reported that 2007 life insurance sales were up 4.3% over 2006 for ages 60 and older, while sales among the 45 to 59 age group declined.” The MIB Life Index is the life insurance industry�s timeliest measure of application activity across the U.S. and Canada.
According to Mr. Taht: “From 2000 to 2005, there has been a $6.6 billion increase in exposures in the TOAMS studies at issue ages 75 and above, which reflects an overwhelming increase in sales activity at the very high issue ages. In fact, for some companies, sales at issue ages over 70 represent 30% of all universal life premiums sold � a statistic unheard of five years ago.”
TOAMS 2 includes data and analysis that give insurers the tools they need to appropriately address trends in life expectancy, changes in underwriting and adjustments in product offering, pricing and expansion. The study’s findings can also provide guidance on common challenges facing the insurance industry, such as determining mortality levels, gender assumptions, mortality at higher face amounts, preferred risk discounts, cause of death indicators and product-type variation.
Said Mr. Taht: “We now know there are significant implications for insurance companies that misestimate mortality at older ages, and our research is helping insurers by better informing the decision-making process so costly mistakes can be avoided.”
Key findings of the study include:
- Overall mortality in TOAMS 2 was 74% of 2001 Valuation Basic Mortality Table (VBT), as compared to 78% of 2001 VBT for TOAMS. Mortality for males was 73% of 2001 VBT for males and 77% of 2001 VBT for females. There was also some variance in experience by duration. Expressed as a percent of the SOA 1975-80 mortality tables, male experience was 51% of the SOA 75-80 and female experience was 71% of the SOA 75-80, and there was considerably more variance in experience by issue age and policy duration as compared to experience measured against 2001 VBT.
- Life insurance companies have traditionally used a percentage of either the SOA 75-80 or 2001 VBT in pricing. The results of TOAMS 2 highlight the need for pricing actuaries to be more refined in their determination of pricing mortality. This is especially important for companies providing products at the older issue ages. For those companies using the SOA 75-80 as a base for pricing at older issue ages, there is considerable risk of inaccurate pricing unless significant variations to the table are made.
- Preferred nonsmoker mortality continues to be very favorable. In aggregate, preferred nonsmoker mortality was 58% of 2001 VBT by face amount and 60% of 2001 VBT by policy count.
- In TOAMS 2, mortality results after the level-term period for 10-year term business was available. Mortality in policy years 11 through 15 was 215% of mortality in policy years 6 through 10. Also of note, on a policy duration basis, mortality deterioration was observed beginning in policy year 10, evidence that anti-selective lapses may begin prior to the end of the level-term period.
- Heart disease and cancer continue to be the two leading causes of death in the insurance industry, consistent with the general population. In early policy year durations, cancer is the primary cause of death, while in later policy durations, heart disease dominates. Early duration mortality experience could be enhanced by new techniques in identifying poor cancer risks.
Second Home for Life Policies
Life settlements � the secondary market for life insurance policies � totaled $12 billion in 2006 as estimated by the Life Insurance Settlement Association. According to the American Council of Life Insurers, more than $10 trillion of individual life insurance is in force in the U.S., and Bernstein Research projects that the potential life settlement market could top $160 billion.
“The life settlements industry is growing substantially, in part due to differences in mortality expectations between primary and secondary markets,” said Mr. Taht. “TOAMS 2 addresses some of those differences so that insurance companies can make informed decisions.”
About the Tillinghast Older Age Mortality Study
TOAMS 2 is a new study of older-age mortality in the U.S. that follows TOAMS, the first and most comprehensive study of its kind. TOAMS 2 includes $4.1 trillion face amount of exposure over a three-year study period. There were more than 600,000 deaths and $19 billion of death claims included in the study. TOAMS 2 provides detailed results focusing on gender, smoking status, level of underwriting, risk class, type of reinsurance and cause of death.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, reinsurance intermediary services and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information about Towers Perrin is available at www.towersperrin.com.