Long-term mortality trends: Challenges for life insurers

By John Bowers

A steady decline in mortality rates since the 19th century has brought about a long-term rise in life expectancy for both men and women, but progress is uneven and, as recent history tells us, uncertain.

The forecasts that underpin the life segment’s mortality and longevity lines of business combine both historic trends analysis with a forward-looking view of advances in medicine and technological innovation. Those trends are in addition well to other societal factors and changes that may precipitate “waves” of improvement in life expectancy.

After years of mortality improvements, a slowing of life expectancy gains resulting from the COVID-19 pandemic has triggered uncertainty for life insurers and annuity providers.

The impact of the pandemic on life insurers’ balance sheets has been varied so far. For example, an AM Best analysis shows that U.S. life insurance companies’ paid death benefits increased dramatically following the pandemic, with the average amount of claims in 2020-2021 up 37.9% compared with the previous eight years. As anticipated, COVID-19 was the main reason for the jump in claims. The report, “Mortality Risk Worsening Due to COVID-19,” stated that numbers were also impacted by the unavailability of medical care due to widespread lockdowns. A concurrent resurgence of substance abuse, as well other societal issues, also contributed to the increase in death claims at the time.

But while the number of deaths increased (to the degree that average U.S. life expectancy dropped by almost two years), new business strain from record-setting premium growth in 2019 to 2021 (also driven by the pandemic) had a greater impact on life insurers’ earnings, according to Best.

Deaths among younger age groups also was a driver of the higher number of paid death benefits, the report showed, whereas older populations (which accounted for a greater number of deaths initially in the pandemic) typically do not have higher face amount term life policies.

“Even a smaller number of deaths at younger ages with less premium in reserves could potentially have a larger impact on earnings. Additionally, mortality in the group life segment began to rise in the third quarter of 2021, as the incidence of COVID-19 deaths moved into the working-age population,” AM Best noted.

Mortality rates in the UK post-pandemic

More recently, mortality data in the United Kingdom shows other developments in life expectancy post-pandemic. The Institute and Faculty of Actuaries’ Continuous Mortality Investigation updated its mortality monitor in July to take account of the UK’s Office for National Statistics deaths data, increasing its estimate of excess mortality as a result.

The second quarter of 2023 saw continuing excess mortality for the fifth quarter in a row, albeit at a lower level than the previous year. However, despite falling COVID-19 deaths, mortality in 2023 was “very likely to be higher than 2022”, the institute said, adding that, while mortality in 2022 was also higher than pre-pandemic levels, it was less volatile and may be indicative of future mortality to some extent.

As a result, the institute placed 25% weight on data for 2022 when calibrating its Mortality Projections Model, CMI_2022, while still placing no weight on data for 2020 and 2021. The model produces cohort life expectancies at age 65 that are about seven months lower for males and about sixth months lower for females, than in the previous version, CMI_2021.

The chair of the CMI Mortality Projections Committee, Cobus Daneel, said it was unusual to see three consecutive years where mortality rates are so much higher than the recent trend. “Even during prior pandemics such as the Asian Flu (1957-58) and the Hong Kong Flu (1968-69). We have to go back to World War II to find a period as unusual as 2020-2022 relative to the preceding five-year average,” he added.

Academics take notice

Life expectancy changes following the pandemic are the subject of an increasing number of academic studies and medical papers. As Jonas Schöley, José Manuel Aburto, Ilya Kashnitsky, Maxi S. Kniffka, Luyin Zhang, Hannaliis Jaadla, Jennifer B. Dowd and Ridhi Kashyap wrote in their October 2022 paper, “Life Expectancy Changes Since COVID-19,” the pandemic triggered an “unprecedented rise in mortality that translated into life expectancy losses around the world, with only a few exceptions.”

The authors estimated life expectancy changes in 29 countries since 2020 (including most of Europe, the U.S. and Chile), attributed them to mortality changes by age group and compared them with historic life expectancy shocks.

“Our results show divergence in mortality impacts of the pandemic in 2021. While countries in Western Europe experienced bouncebacks from life expectancy losses of 2020, Eastern Europe and the United States witnessed sustained and substantial life expectancy deficits,” they said.

And in March 2023, the JAMA Health Forum published a study that suggested people who have had COVID-19 might be at higher risk of cardiovascular and pulmonary complications for one year.

Meanwhile, the increasingly studied, but still relatively misunderstood factor of long COVID-19 continues to place insurers in a difficult position. What is known is that long COVID-19 can include a wide range of ongoing health conditions that may last years, and there is still no one single test available to diagnose it.

After years of improvements in life expectancy, the impact of COVID-19 on the trajectory, and thus on insurers’ forecasts continues to present challenges.

In tackling the issue, AM Best’s report reported an increase in the use of stress-testing scenarios that assume mortality spikes every five years, reflecting the potential increase in frequency of such events. The reported noted that “proactive mortality risk management, which requires revising mortality assumptions to make timely decisions in reserves and forecasting, can help insurers better position themselves against the next unforeseen shock event.”

John Bowers is actuarial product director, RNA Analytics. Contact him at [email protected].