Chapter 21: Mortality and morbidity

Question 1

Why do insurers divide lives into homogenous groups?

Answer 1

So that the lives within the group can be assumed to be exposed to the same risks, thus no risk assessment should be completed for each life -> charge all lives in the group the same premium

Question 2

What is selection?

Answer 2

Not all lives in a homogenous group are the same in terms of risk, if policyholders take advantage of this, e.g., if the insurer doesn’t distinguish between the class of work then those in less dangerous occupations will view the policy as more attractive

Question 3

How are homogenous groups formed

Answer 3

By using rating factors, such as age, gender, medical history etc.

This information is collected from the policyholder through questions and investigation.

The cost and benefit of the inclusion of the rating factor should be weighed (e.g., is it worth it to collect blood samples)

Question 4

What are the main rating factors for mortality? (16)

Answer 4

1. Age
2. Gender
3. Occupation
4. Nutrition
5. Housing
6. Geographical areas
7. Social class
8. Climate
9. Level of education
10. Genetics
11. HIV Status
12. Hobbies (dangerous activities)
13. Frequency of travelling
14. Religious affiliation
15. Marital status
16. Education

Question 5

How is occupation a rating factor for mortality?

Answer 5

• Work can be rural
• Expose you to harmful chemicals
• Dangerous activities
• Sedentary vs active work
• Some work attract healthier individuals through health checks
• Consider the previous occupation - mine worker now postman
• Individuals income

Question 6

What are the five different kinds of selection that do occur?

Answer 6

1. Temporary initial selection: Mortality/ morbidity pattern observed to differ only for the first s years
2. Class selection: The population can be divided, e.g., group formed by gender but can be divided further, gender is a permanent attribute of the individuals concerned
3. Time selection: Mortality and morbidity normally vary with calender time, due to medical advances
4. Adverse selection: Characters by the way in which select groups are formed, usually involve an element of self-selection
5. Spurious selection: Ascribing mortality differences to groups formed by factors which are not the true cause of the differences