Life expectancy in the United States continues to grow. In fact, a person who turned 65 in the U.S. in 2002 is expected to live 5 to 7 years longer than someone who turned 65 at the turn of the 20th century (see Table 1).
Longer life spans have resulted in a growing elderly population, a growth that has fueled an increase in life insurance coverage at the older ages, according to industry sales reports. Although sales in 2004 for those age 60 or higher were only slightly ahead of 2003 levels, sales growth for ages 60 or higher outpaced sales at ages below 60 where sales declined in 2004.
The secondary market for life insurance, focused on life insurance sold at older issue ages, also has grown tremendously in the last few years. This has been fueled in part by a difference in mortality expectations between primary and secondary markets.
Given the overall growth in life insurance sales at older ages, companies need a better handle on the level of mortality they can expect at the older ages to improve underwriting practice. Fortunately, extensive and detailed new data on older age mortality is available to meet this need. Such data offers insurers a better understanding of diseases and the causes of older age mortality, which helps them with underwriting assessments.
Cancer and cardiovascular disease are the leading causes of death in the elderly. Providing a deeper examination of how these two diseases and others affect various older age groups by gender allows a more thorough understanding for insurers, according to the Tillinghast Older Age Mortality Study.
By policy count, cardiovascular disease was the leading cause of death for males and females, followed by cancer, the study found. However, cancer was the leading cause of death in the 50-69 age range. By face amount, this order was reversed, with cancer the leading cause of death for males and females, followed by cardiovascular disease.
Given these results, the industry can expect to see continued tight underwriting of cancer and cardiovascular disease risk. For instance, there may be increased tightening of family history requirements for preferred risk programs (e.g., focusing on incidence of cancer and/or cardiovascular disease as compared to only deaths due to cancer and/or cardiovascular disease).
In the study, cardiovascular, respiratory and mental disorders, as causes of death, showed increasing prevalence by age, while cancer and accidents/violence showed a decreasing trend by age. (See Table 2.) Other causes of death were fairly consistent by age.
For males (by face amount), cardiovascular and accidental/violent deaths were particularly high in the first several durations. For females, cancer deaths were particularly high in the early durations. This data tends to imply anti-selection on the part of the insured.
Companies should be aware of this trend and consider revamping their screening processes, where necessary, especially if they see similar results in their own data. Lowering incidence through effective screening can lead to lower prices in the long run.
Agents and brokers also can help with pre-screening applicants for these items.
Actuaries and underwriters always have recognized the benefits of underwriting in life insurance. The recent study confirms that underwriters are doing a relatively good job of underwriting at the older ages. In aggregate, for face amounts over $1 million (relatively more underwriting), mortality was two-thirds of mortality at face amounts under $10,000 (relatively less underwriting).
Proper underwriting at the older ages is the key to success. Good long-term experience can lead to lower prices. Also, with the continued improvements in longevity–and with it, the need for protection longer in life–exciting times lie ahead for the older age insurance industry. For example, we would expect companies to begin to feel more comfortable writing business to increasingly older ages. We would also expect to see more product innovation in the older age marketplace.
Allen Klein of Chicago, Steve Pummer of St. Louis, and Michael Taht of Atlanta are consultants with Towers Perrin. They can be reached, respectively, at [email protected], [email protected] and [email protected]
Expect to see companies feeling more comfortable writing business to increasingly older ages and also more product innovation in the older age marketplace