Although U.S. population mortality has shown significant improvement over the past three decades, the overall rates of future mortality improvement could decline in the coming years, according to a new report about longevity trends published by global professional services company Towers Watson (NYSE, NASDAQ: TW). The report examined the leading factors that drive mortality improvement by using a newly constructed cause-of-death model to assess future levels of mortality improvement.
“Understanding longevity trends in the U.S. life insurance and annuity market is critical for insurers,” said John Fenton, director, Americas Life practice, Towers Watson. “Recent history shows longevity improvements have been high, but the relevant risk management issue for life insurers is whether they will endure. Life insurers can benefit if they start to examine the trends that will drive future mortality improvement, including those in individual and overall causes of death. This will affect their products and risk limits over time.”
The cause-of-death model developed by Towers Watson uses a blended age- and cohort-based approach, and projects that mortality improvement will moderate in the coming years, primarily because some of the diseases with the largest rates of improvement — heart disease, stroke and cancer — will represent a smaller portion of total deaths in the future. In turn, these will be replaced by causes of death where mortality is not improving (or actually deteriorating), such as Alzheimer’s and accidents. The result is that future mortality improvement levels may drop to 50% of their near-term levels in approximately 30 years.
The report concluded that socioeconomic factors play a greater role with longevity than most have realized. Individuals at the upper end of the socioeconomic spectrum can be expected to have mortality improvement rates in excess of 1% higher than those at the lower end, which can have a significant impact on some insured populations. Various factors underpin the improved mortality associated with higher socioeconomic levels, such as increased access to medical care, greater awareness of personal health issues and lower job-related risks.
“The socioeconomic variable can be applied to help insurers make provisions for the impact of the socioeconomic level of the insured block of business. This will vary depending on the nature of the market in which the business is sold. It may be appropriate to consider making adjustments that fall into several categories. Affluent, middle market and blue collar may be natural fits,” said Fenton.
The report addressed several factors that will impact mortality in the future, including obesity, universal health care, medical technology, drug efficacy in the long term and new diseases. Smoking prevalence, which has declined over the past 30 to 40 years and led to mortality improvements, will have less of an impact in the future, as smoking has leveled out. Obesity will continue to have an adverse impact on overall life expectancy, since it has led to an increase in diabetes, which is a drag on longevity improvements.
“Early assessment will help life insurers better understand the risks that may exist within specific product portfolios and may be undetected. A sophisticated, expert analysis of the impact of longevity trends will make enterprise risk management and long-term planning more manageable and precise,” said Fenton.
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