Are people living longer? Yes, but some ages are better than others

Old fashioned life insurance

Late last year, as in every year, the Australian Bureau of Statistics announced that life expectancy at birth continues to improve. Based on current mortality rates, a boy born in 2008-2010 can expect to live 79.5 years, while a girl can expect to live 84 years. This is an improvement of nearly 6 years for boys, and 4 years for girls over the last 20 years.

But at the Financial Services Council Life insurance conference recently, there were a number of comments about worsening mortality for life insurers. The experience of a number of companies in both the retail and group market has been of death rates for specific ages going up.

So what is going on?

First, it is interesting to look a bit more closely at the improving mortality rates in the population. It turns out that most of the improvement is at the very young and the very old ages. The infant mortality rate (children dying in their first year of life) dropped from 5.7 per 1000 births to 4.8 per thousand births over 10 years. At the other end of the age distribution, the life expectancy at age 65 has improved by 2 years over the last 10 years, which is most of the improvement in total life expectancy.

Retail Life insurers’ peak coverage is generally from around 45-60. Group life schemes cover a wider range, but their financial exposure has generally peaked around this age also. And mortality hasn’t improved much in those ages at all. For example, for women aged 45-49, mortality rates have been basically constant (at a very low 1.4-1.5 per 1000) over the past 10 years. And for men aged 50-54, mortality rates improved until 2003, but have actually slightly worsened since then, fluctuating between 2.8 and 2.9 deaths per 1,000. Overall, mortality rates have not improved for the population as a whole in this age group since 2005. They’ve fluctuated, but no statistically significant improvement has occurred.

So insurance companies are dealing with population mortality that is not improving much, if at all, in their key age groups. So why is their experience getting worse? It could just be statistical fluctuation. But it could be that insurers have relaxed their underwriting standards, after getting used to regular improvements over long periods.

Insurers, who used to be able to rely on regular mortality improvements to enable regular premium reductions, have to manage their mortality risks more carefully. The role of careful underwriting is more important than ever.