A new study indicates that the growth area for life insurance is at older ages and suggests that the life insurance industry will need to have a firm grasp on products sold and how those products are priced.
The study, “Tillinghast Older Age Mortality Study (TOAMS 2),” was released last month by Tillinghast, a Stamford, Conn.-based actuarial unit of Towers Perrin. The study includes data from 29 life insurance companies from 2003 to 2005.
The study findings concur with research by MIB Group, Braintree, Mass., which reports that 2007 life insurance sales were up 4.3% over 2006 for ages 60 and older, while sales among the 45-99 age group are declining, according to Mike Taht.
Taht says that from 2000 through 2005, there has been a $6.6 billion increase in exposures in the TOAMS studies at issue ages 75 and above. In fact, he adds, for some companies the issue ages over 70 represent 30% of all universal life premiums sold.
Among the study’s findings are:
–Actual experience was better than the valuation basic table, a measure of what is expected to happen. For instance, mortality experience of companies surveyed was 74% of the 2001 VBT for the most recent Tillinghast study compared with 78% of VBT for the first TOAMS.
–Using the Society of Actuary 1975-1980 mortality tables, male experience was 51% of the SOA 75-80 and female experience, 71% of the SOA 75-80.
–Preferred nonsmoker mortality was 58% of 2001 VBT by face amount; and 60% of VBT by policy count.
–And, for level term 10-year business, mortality experience through years 11-15 was 215% of mortality in policy years 6-10.
Tillinghast says the study observed mortality deterioration starting in year 10, evidence of possible anti-selection.
In an interview with National Underwriter, Taht says that data on experience after the 10-year level term period has not been previously available but is important because it makes it possible to compare date to the pricing assumptions a company has made.
Older age mortality experience is getting “richer,” according to Taht. In terms of older issue ages, insurers need to look at what is available and triangulate data using direct experience of companies, experience of policy types and experience of the general population, he says. This method is no different than the method that was used to determine experience for preferred risks such as smoker/nonsmoker rates, until sufficient data became available, he continues.
The data in TOAMS 2 can be used to as a comparison against a company’s term, universal life, whole life and variable life products, according to Taht.
While some companies do use VBT as the basis for making assumptions about their products and do not make adjustments, companies should still look at all data available and not just become less conservative because mortality data proved better than VBT, says Elinor Friedman, a Tillinghast principal.
The study also notes the growth of the life settlement industry and the need for data so that insurers can properly price products. In order for companies to address investor-initiated life insurance and stranger-owned life insurance, according to Taht, “they must understand how policies would behave under that kind of program” and how policyholder behavior might differ if policies are kept in force.
“It heightens the need for confidence and a strong point of view about what expected mortality is at older ages,” he says.