As the nation ages, so will the client base of many advisers. Fergus Bescoby assesses longevity and its impact on underwriting.
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 UK, life expectancy at birth increased by almost a decade in the first 50 years of the NHS (established in 1948). Some 40% of people in 1948 died before reaching pensionable age, but by 1996 this figure had reduced to just 7%. However, 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.
When assessing an older life, certain risk factors are less important than that in a younger life. If ill, it is likely older people 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.
risk assessment methods Evidence suggests 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 recognised 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 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.
