Life insurance gets impacted by everything life throws our way. From sickness to health, career trends to transportation advances, the way we live, and our quality of life all change how life insurance gets assessed, administered, and purchased. The Underwriting Expert Series explores the issues, trends, and changes that impact life underwriters. Working with industry experts, we discuss the concerns and considerations that life underwriters need to keep in mind in this dynamic and ever-evolving field.
I am excited to kick-off the first installment of the 2019 Underwriting Expert Series by exploring longevity and how life expectancy and advances in health and healthcare have changed how underwriters approach risk.
Changing perspectives on aging
Remember when you were a kid and your grandparents were so OLD? How old were they? In their 60s or maybe, just maybe, they were super old at 70? Now think about a 64-year-old person today. Is he or she old? Your answer is most likely no.
Probably the biggest reason for this change in opinion is the fact that old versus young is relative. What are we comparing the age to? A 64-year-old might be “old” compared to a 4-year-old, but when comparing a 64-year-old to a 34-year-old or a 44-year-old, 64 certainly seems a lot younger.
There is another reason why you no longer consider 60- and 70-year-olds to be old: people are living longer.
30-some years ago, when I was that innocent little 4-year-old with no verbal filter, calling things (or people) as I saw them, someone in their 60s had already reached the average life expectancy and we didn’t see nearly as many people at more advanced ages than that “old” 64-year-old grandparent. Today, however, a 60-something-year-old has, on average, several years of life left to live!
Why is longevity an important topic for life underwriters?
Life expectancy figures can seem big, broad, and abstract, but their direct impact on life underwriters and insurance companies is already starting to show. An aging population that is living longer – but not always healthier – can lead to losses or gains, depending on how risk is assessed. Understanding how and how long life insurance will be in effect can help life underwriters re-imagine their approach to risk. With more people living longer, it is critical to move toward a more comprehensive outlook on risk assessment and coverage.
Has life expectancy really changed that much?
The Lancet, an independent medical journal, published a study on life expectancy at birth, which showed that in 1990, worldwide life expectancy at birth was 65.3 years and in 2013, 71.5: an increase of over 6 years from 1990 to 2013!
Here in Canada, we have an average life expectancy based on 2016 data of 82.3 years. To compare apples to apples, in 1990 Canada had a life expectancy at birth of 77.38 years which rose to 81.77 in 2013. The increase in Canada was lower than that of the worldwide increase but it was still an impressive change in just 4+ years.
Why has worldwide life expectancy improved by a larger amount than Canada’s life expectancy?
In the emerging market economies (developing countries), recent large increases in longevity have occurred in amounts of 10+ years from the 1980s to today. The increases are due to progress in public health and sanitation as well as improved education. A decrease in infant and child deaths has also been a major contributing factor to increased life expectancy at birth.
People are living longer, but that doesn’t mean they are living the extra years in good health.
We normally think of longer life in a positive light, but alongside a healthy person’s increased longevity is an ill person, living unwell for longer. In fact, there has been a larger increase in life expectancy for the unhealthy than there has been for the healthy.
Conditions that used to cause death at younger ages are now being treated by newly developed medications, surgeries, or other forms of treatment. This allows for a longer and hopefully healthier life for those individuals with illnesses.
Fortunately, those of us in Canada are among the top 10 countries with the highest healthy life expectancy at 70.1 years. Japan tops the list, with a healthy life expectancy of 73.4 years.
What impact does this have on life insurance?
The aging population will live longer than ever and will require coverage for that time.
The healthy person living for an extra 6 years is generally a good risk for the insurance company. That person will pay their life insurance premiums for a longer period of time before a claim is paid. It may even be possible that insurance premiums could be reduced and the insurance company would still earn the same amount of profit, benefiting both the insurance company and the customer.
However, looking at the unhealthy aging population, there may be additional benefits paid out such as a waiver of premium rider for disability, which may be ongoing for several years longer than anticipated at the time that insurance policy was applied for. This would cause additional expenses for the insurance company, who would have to continue to administer the policy, without generating any income from premiums during the time the person is claiming under the benefit.
The importance of risk selection
With people living longer, it is more important than ever to ensure that we are insuring clients who are good risks. In order to do this, insurance applications must ask appropriate questions. In the past, applicants were asked limited health questions and premiums were based mostly on age and gender. Now, they are asked a variety of lifestyle questions in addition to expected health questions. It is important to know more than just what medical conditions the applicant may or may not have. Lifestyle, habits, hobbies, and even driving records all play an important role in determining risk.
Looking at the big picture
Life insurance applications commonly ask questions regarding alcohol consumption (quantity and frequency), to establish patterns including regular use versus binge drinking. If we only ask the amount consumed per month or even per week, we might not be getting a clear picture of the risk for that applicant.
For example, let’s consider two applicants who each said they drink 10 to 15 glasses of wine per week. Generally, I would look at that amount and think, “10 to 15 drinks per week? No concerns. Standard risk.” However, if I knew a bit more, I might not come to the same conclusion. If one of those applicants stated that they drink 1 to 2 drinks per day and the other stated that all 10 glasses of wine were in one sitting, would the two be the same risk? No.
Questions regarding alcohol use, recreational drug use, and participation in hazardous sports have been asked in most life insurance applications for a number of years, but some companies have started to go a bit further. Instead of asking questions only to determine which applicants are taking part in risky activities, they are now asking about positive habits too, such as exercise.
Being able to establish the overall picture when assessing the risk of an applicant is important at any age and with any life expectancy, but it’s especially important if the policy is potentially going to be valid for an extra 6 (or more) years. We need to do our best to ensure that our policies are profitable year after year, not making losses!
The increasing longevity of our population adds an element of risk that our claims experience may not fully prepare us for, but we are in the business of risk, and if insurers assess and manage longevity trends properly, there shouldn’t be any big issues.
A proactive approach and continuous learning are key to staying ahead of trends and managing risk effectively. Stay ahead of the curve with insights from industry experts, direct to your inbox. Subscribe to the blog.
Featured Underwriter: Vicki Zandbergen
Vicki has been in the insurance industry for over 15 years. Initially in an administrative role at Sun Life, she set her sights on a position in underwriting and was given the opportunity to participate in the LOGIQ3 Underwriting Training program. After successful completion, she worked as a production underwriter for 9 years, progressing from Junior Underwriter to Senior Large Case Underwriter. After reconnecting with LOGIQ3, she joined the team as a Senior Underwriter in July 2016. Vicki has earned her FALU, FLMI, and ACS designations, and is experienced in Life, Critical Illness, and Reinsurance underwriting. When not underwriting, Vicki is often running, and can be found competing in road races, trail races, marathons, and ultramarathons.
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