TOAMS 2 Provides Much-Needed Information about Older-Age Mortality |
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Written by U.S. Insurance News
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Monday, 18 February 2008 |
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The snapshot of life insurance purchasers has changed dramatically.
Those who are buying life insurance policies aren't as young as they used to be. This upward trend has prompted insurers to seek more information about the aging population.
The recently released second Tillinghast Older Age Mortality Study (TOAMS 2), released today from Towers Perrin, a Tillinghast insurance consulting practice, provides that information. It addresses the need for experience data based on older ages and provides key insights for insurers. The study includes data from 29 life insurance companies from 2003 to 2005.
Mike Taht, a principal at Towers Perrin, explained that after his company released the original TOAMS study in 2005, they found an "overwhelming" market need for further study about older-age mortality.
Taht noted that recent research from the MIB Group, Inc., shows that 2007 life insurance sales were up 4.3 percent over 2006 for ages 60 and older, while sales among the 45-59 age group declined. (The MIB Life Index is the life insurance industry's most up-to-date measure of application activity across North America.)
"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," Taht said. "In fact, for some companies, sales at issue ages over 70 represent 30 percent 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. Results of the study also provide guidance on common issues 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.
"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," Taht said.
Key findings of the study include:
- Overall mortality in TOAMS 2 was 74 percent of 2001 Valuation Basic Mortality Table (VBT), compared with 78 percent of 2001 VBT for TOAMS. Mortality for males was 73 percent of 2001 VBT for males and 77 percent of 2001 VBT for females.
- 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 (Society of Actuaries) 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 percent of 2001 VBT by face amount and 60 percent of 2001 VBT by policy count.
- 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.
- 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 United States, and Bernstein Research projects that the potential life settlement market could surpass $160 billion.
"The life settlements industry is growing substantially, in part due to differences in mortality expectations between primary and secondary markets," Taht said. "TOAMS 2 addresses some of those differences so that insurance companies can make informed decisions."
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