CH20 - Mortality and morbidity Flashcards
Principal factors contributing to variations in mortality and morbidity (2) + (6)
Mortality and morbidity rates vary by age and sex but also vary due to heterogeneity in a population:
- between geographical areas, e.g. countries, regions of a country, urban and rural areas
- by social class, e.g. manual and non-manual workers
- over time, e.g. mortality rates usually decrease over time
None of these categories provide a direct casual explanation of the observed differences. Rather they are proxies for the real factors that cause the observed differences.
Factors affecting heterogeneity or mortality/morbidity rates include:
1. occupation
2. nutrition
3. housing
4. climate / geography
5. education
6. genetics
Selection definition and 5 main forms of selection
Selection is the process by which lives in a population are divided into separate homogeneous groups.
There are five main forms of selection:
- Temporary initial selection
- Class selection
- Time selection
- Adverse selection
- Spurious selection
Temporary initial selection
The level of risk diminishes or increases since the occurrence of a selection process (or a discriminating event)
Each group is defined by a specific event (the select event) happening to all the members of the group at a particular age, e.g. buying a life insurance policy or retiring on ill-health grounds.
Class selection
A select group is taken from a population consisting of a mixture of different types (‘classes’) of individual with different characteristics.
The population can be divided into classes, for example gender with classes of male and female or occupation with classes of manual and non-manual employment. The stochastic models (life tables) are different for each class. There are no common features to the models, they are different for all ages.
Time selection
A select group is taken from a population of individuals from different calendar years
Within a population mortality and morbidity normally varies with calendar time, essentially due to medical advances. This effect is usually observed at all ages. The usual pattern is for mortality rates to become lighter (improve) over time, although there can be exceptions, for example, due to the increasing effect of AIDS in some countries.
Adverse selection
The individual’s own choice influences the composition of a select group.
Adverse selection is characterised by the way in which the select groups are formed rather than by the characteristics of those groups. So any other form of selection may also exhibit adverse selection.
Selection (sometimes called anti-selection or adverse selection) is taking advantage of inefficiencies in a provider’s pricing basis to secure better terms than might otherwise be justified, normally at the expense of the product provider. Selection is not a fraudulent, immoral, or illegal activity.
In other words, adverse selection can occur when a person buys a policy that they believe is a ‘good deal’ (and therefore a ‘bad deal’ for the provider). Policyholders with worse than average experience will be more likely to take out the contract.
Spurious selection
The distorting effect of a confounding factor gives the false impression that one of the other forms of selection is present.
When homogeneous groups are formed we usually assume that the factors used to define each group are the cause of the differences in mortality observed between the groups. However, there may be other differences in composition between the groups, and it is these differences that are the true cause of the observed mortality differences.
Decrements and a selective effect
One way in which lives in a population can be grouped is by the operation of a decrement (other than death). This could be retiring on ill-health grounds, getting married or migrating to a new country. Those who do and do not experience this selective decrement will experience different levels of the primary decrement of interest, often mortality or morbidity.
Decrements may be found to have a selective effect. A selective decrement will ‘select’ from the population lives whose rate of decrement from another cause differs from that of the whole population.
Risk classification
The process by which potential insured lives are separates into different homogeneous groups for premium rating purposes, according to the risk they present. It involves trying to identify any risk factors specific to the individual that might influence the likely risk of that individual.
List 8 factors the insurer would wish to identify when offering pet insurance
- Type of pet
- Breed
- Gender
- Age of pet
- Location
- Extent of cover chosen
- Pre-existing medical conditions
- Age of owner
Suggest two examples of how anti-selection can arise within a life insurance company
- People who smoke will tend to seek life assurance from companies that charge identical premiums for smokers and non-smokers, whereas non-smokers will apply to companies that differentiate between them and therefore charge cheaper premiums to non-smokers. The first company will suffer from adverse selection, as the ratio of smoker to non-smoker lives that it takes on will increase.
- Selective withdrawal (of healthy lives) worsens the company’s average mortality experience from those policies that remain.
Risk grouping and rating factors
Both the ability of prospective policyholders to provide accurate responses to questions and the cost of collecting information limit the extend to which rating factors can be used. In general a proposal form should not ask for information which requires specialist knowledge.
In practise, rating factors will be included if they avoid any possibility of selection against the company, and satisfy the time and cost constraints of marketing. This decision is often driven by competitive pressures. If several companies introduce a new rating factor, which is a good descriptor of the underlying risk, then other companies will need to follow this lead or risk adverse selection against them.
Select period
The ‘select period’ is the time horizon beyond which we assume no significant difference in mortality between two types of lives.
Why it is necessary to have different mortality tables for different classes of lives
- When a life table is constructed it is assumed to reflect the mortality experience of a homogeneous group of lives, i.e. all the lives to whom the table applies follow the same stochastic model of mortality represented by the rates in the table.
- If a table is constructed for a heterogeneous group, then the mortality experience will depend on the exact mixture of lives with different experiences that has been used to construct the table. Such a table could only be used to model mortality in a group with the same mixture. It would have very restricted uses.
Principal factors contributing to variation in mortality and morbidity - OCCUPATION (7)
- Occupation can have several direct and indirect effects on mortality and morbidity.
- Occupation determines a person’s environment for often more hours each week. The environment may be rural or urban, the occupation may involve exposure to harmful substances such as chemicals, or to potentially dangerous situations such as working at heights.
- Some occupational effects may be moderated by health and safety at work regulations.
- Some occupations are naturally healthier, whereas some work environments give exposure to a less healthy lifestyle.
- Some occupations by their very nature attract more healthy or unhealthy workers. This may be accentuated by health checks made on appointment or by the need to pass regular health checks, e.g. airline pilots.
- However, external factors can distort a presume state of health, for example, former miners who have left the mining industry as a result of ill health and then choose to sell newspapers will inflate the morbidity rates of newspaper sellers.
- A person’s occupation largely determines their income, and this permits them to access a particular lifestyle, content and pattern of diet, quality of housing and access to healthcare.
