Lump Sum Benefits - The Experience in New Zealand
Gen Re has conducted various experience investigations of the New Zealand Life, Disability and Critical Illness markets. Our latest survey of fully-underwritten individual Life and Trauma (Critical Illness) cover offers the first-ever insights to Total and Permanent Disability (TPD) experience in this market. The study builds on the knowledge gained by our New Zealand Mortality Investigation (2008-2010) and New Zealand Critical Illness Survey (2004-2008).
The mortality part of the study observed more than 7,000 claims. Cancer and heart attack continue to dominate as causes of death. The observed crude mortality rate of 1.43 per mille compares well to the value of 1.48 per mille in the previous study. There is arguably a slight improvement for males and the age shape is also consistent. But the new study shows higher female mortality rates at younger ages (particularly 40 to 44 age range) but lower at ages above 50.
The study confirms the selection effect with mortality deteriorations persisting for at least 10 years into policy duration. Around 12% of the exposure relates to smokers. A more than double increase risk of mortality in smokers relative to non-smokers was observed. The risk varies by age with younger lives exhibiting lower relative risk. Some evidence that higher value life insurance policies have lower mortality will be investigated to establish reliable relative risk values. Urban areas, which have higher exposure as shown in the map below, exhibit better mortality experience compared to rural areas.
One outlier date was observed - 22 February 2011 - when a severe earthquake in Christchurch occurred and the number of deaths was nearly five times the daily average over the investigation period.
Analysis of over 6,000 Trauma claims reveals that cancer is the largest cause of claim among females. For males, it’s cancer, heart attack and other heart-related illnesses. Larger policies have higher claim rates than smaller ones, and standalone Trauma shows higher rates than accelerated.
The observed age shape for males reflects the base rates, despite the latter being based on Australian experience, but for females the shape differs. There is no evidence of a difference in rates due to duration for all policies after the first year. The main reason for declinature of a Trauma claim is a failure to meet the definition.
For TPD, disorders of the nervous system and accidental causes contribute significantly to claims in contrast to mortality and Trauma. The claims experience in standalone TPD is higher than that for accelerated; the relative risk is of the order of 160%. The A/E ratio on a sum assured basis was approximately 130% of the corresponding ratio on count-weighted basis, suggesting that higher sum TPD benefits have higher claims rates. But an analysis of a much greater number of claims is required to make a more informed judgment here.
We are grateful to the companies that participated in providing data for this valuable investigation. All of them received a detailed report. If you’d like to be contacted to participate in one of our future surveys, please email one of us.