29th August 2012

PruProtect: Longevity and its impact on Underwriting

We are constantly being reminded how our population is living longer and how this is likely to impact on future retirement ages and pensions. Regular press articles bemoan the fact that pension pots are shrinking and the likelihood of us having to work longer is becoming more of a fact than a possibility.

 

It has been predicted that by 2050, the number of older persons in the world will exceed the number of young for the first time in history and that the fastest growing age group will be the over 80s. Even more amazing is that one third of all new born’s will now live to 100!

 

This change in longevity is beginning to spill over into the insurance industry and we are finding ourselves having to underwrite increasingly older lives.

 

What is causing us to live longer now than previous generations?

 

The ageing population of the UK mirrors that in many other European countries.  It is partly a consequence of the age structure of the population alive today, in particular the ageing of the large number of people born during the 1960s baby boom.

 

It also stems from increased longevity – a man born in the UK in 1981 had a cohort life expectancy at birth of 84 years.  For a boy born today, the figure is 89 years, and by 2030 it is projected to be 91.  The trend for women is similar.  A girl born in 1981 was expected to live for 89 years and one born today might expect to live to 92.  Cohort projections suggest a girl born in 2030 might live to 95.  Healthy life expectancy has not, however, increased as fast, resulting in proportionally greater demands on families and public services such as the NHS.

 

Improved healthcare

 

This increase in longevity can be attributed to a number of factors including improvements in health, diet and preventative health care along with vaccinations and antibiotics which greatly reduced deaths in childhood. Health and safety in manual workplaces has contributed to a reduction in both accidental deaths and work related illnesses and a reduction in the number of smokers also obviously helped.

 

Along with the points mentioned above, there has also been a general decrease in the number of children being born per family. Over the last 40 years women have been having fewer children. However, in the last decade birth rates have risen slightly. Women in the UK are currently having 1.9 children, the highest figure since 1973, but far lower than 2.93 in 1964.

As a result of this – many major industrial countries, including the UK, are facing an ageing population.

 

It is likely that life expectancy of the most developed countries will continue to slowly advance and then reach a peak in the range of the mid-80s. According to UN statistics for the period 2005 - 2010, Japan (82.6 years) has the world's highest life expectancy followed by Hong Kong (82.2 years) and Iceland (81.8 years). The world average is 67.2 years and the UK average is 79.4 years.

 

Here in the U.K, Life expectancy at birth increased by almost a decade in the first 50 years of the NHS (established in 1948). 40% of people in 1948 died before reaching pensionable age, but by 1996 this figure had reduced to just 7%.

 

 

Life expectancy changes as you get older.

 

By the time a child reaches their first birthday, their chances of living longer increase and by the time they reach late adulthood, the chances of survival to a very old age are good. For example, although the life expectancy from birth for all people in the UK is 79.4 years, those who live to age 65 will have an average of almost 18 additional years left to live, making their life expectancy almost 83 years.

 

Underwriting considerations

 

When assessing an older life, certain risk factors are less important than that in a younger life. It is likely that they already have the disease and are managing it, or they are resistant to the affects of the risk factors and will never get it. Survivors are living with their illness rather than dying from it.

 

It can be argued that by the time an individual has reached old age, family history, accidents, lifestyle and habits have all played their role in determining that person’s mortality.

The key is to assess the information appropriately given the age of the applicant.

 

Evidence suggests that the more conventional underwriting methods used for risk assessment in younger lives lose their effectiveness with older ages. These include:

• Cholesterol
• Family history
• Body mass
• Smoking history
• Avocations

Cholesterol should be examined from a different viewpoint. As a person ages, cholesterol tends to increase slightly, and this is recognized through revising the acceptable levels upwards within the age bands.

In older lives however, although the cholesterol/hdl ratio remains important, the ldl seems to have more significance. Another interesting finding is that a low cholesterol in an older person is seen as a greater risk factor than someone with a higher level. This is due to the link with cancer

Family history is usually used to identify markers for higher mortality. The underwriter looks for evidence such as heart disease or cancer history. For an older applicant, any of these family-related markers will have likely emerged by the time of application, so its effectiveness as a risk measurement tool becomes largely irrelevant. Family history does however remain a useful factor when examining longevity instead of mortality. An applicant whose parents lived to old ages could well do the same and this is obviously a good sign for the underwriter.

Body mass index should also be looked at in a different light. Traditionally, for younger lives underwriters view values slightly under the average more favorably than above-average levels. For older lives, however, a below-average result may be a sign of an underlying medical condition which in turn could signal deteriorating mortality. Underwriters should therefore view slightly above-average BMI’s more favorably than a below-average value.

Smoking history becomes more complex at older ages and the fact that someone may be an ex-smoker at application stage does not mean it can be ignored. A 65 year old for example who stopped smoking 5 years ago may already have a 40 year history of smoking a packet of cigarettes a day! While lung tissue has been shown to be able to repair itself after quitting the habit, the damage done over a lifetime will not be repaired over the clients remaining life expectancy.

 

Avocations in an underwriter’s eye are normally a sign of greater mortality risk but when considering an older life, these can often be a good indicator of the applicant’s stamina and mental faculties. Underwriters should consider activities such as scuba diving or piloting aircraft as a sign of more robust cardiovascular health and (in the case of piloting aircraft) high mental acuity. In fact, an active lifestyle in general should be viewed as a positive indicator

So what impact does this have on underwriting?

There is no doubt that we will be seeing more older lives entering our underwriting pools and the underwriter needs to be conscious of the different approach required in assessing these risks.

It can be expected that when a person reaches older age there will be a reasonable amount of medical history. This will include several minor conditions which may well be disregarded, but will also include some more serious conditions which need to be factored into the overall underwriting decision. The difficulty is deciding which of these conditions are part of the normal ageing process (and are priced for in the premium rate) and could be deemed normal in an elderly client, and which of those conditions warrant an additional loading. Certainly, most elderly clients will have an element of vascular disease, high blood pressure and or type 2 Diabetes…..which may be regarded as ‘normal’ for their age!

The type of cover available is generally restricted to life cover only, with a few limited forms of critical/serious illness and disability cover available by certain providers. Non medical limits are very small for the older lives and in most cases a medical exam and or a GPR will be requested.

 

To read more articles written by our underwriting experts visit pruprotect.co.uk/disease

 

By Fergus Bescoby (Underwriting Development Manager at PruProtect)

 

 

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