New Delhi: India is starting the process of revising decade-old mortality calculations in a move that will effect prices of insurance policies for many.
The move comes as increased longevity and rapid changes in lifestyle, particularly in urban India, are making the complex task of pricing of life insurance risk more difficult.
The current mortality tables are prepared by market leader Life Insurance Corp. and are used as a base by all the 16 firms in the industry. The new mortality table will be constructed by an independent body that will be floated jointly by the Institute of Actuaries of India and the Life Insurance Council, the industry body.
The two sides are working on an agreement which would spell out the way in which the new body would be set up. The agreement is expected to be ready in a month, said an official of the Institute of Actuaries. It was unclear on how the basic data for the new tables will be sourced and the time needed to prepare a new set of mortality rates.
The average life expectancy of Indian men has increased from 59.7 years in 1991 to 63.87 at present; for women, it has increased from 60.9 years to 66.91 years—also, the first time that women are forecast to outlive men in India.
“The need for updating and standardizing mortality tables has been felt for some time because of increased longevity,” said U.S. Roy, managing director and chief executive officer, SBI Life Insurance Co. Ltd, in which India’s largest bank, State Bank of India, holds 74% equity.
“LIC’s table was prepared for a very different population compared to those that are insured today. It makes sense to have up-to-date information,” said Azim Mithani, chief actuary, ICICI Prudential Life Insurance.
Mortality tables are key to pricing an insurance policy. Some other factors that are used by actuaries in pricing a policy are interest rate trends, insurers’ expenses and tax rates.
When the insurance market was thrown open to the private sector seven years ago, the private insurers had no choice but to use LIC’s mortality tables to price their policies.
They use LIC’s mortality table as a base and combine that with their own claims experience to price products. Therefore, even if the base is the same for all companies, the final pricing also depends on their own experience.
Once the new mortality tables are in place, the current practice in pricing will continue. “Insurers will use the new mortality table as a base and adjust for their own experience,” said Mithani.
The life insurance industry has been growing at a fast pace, and one of the spin-offs of the growth is that the industry has made inroads into new strata of society. Insurance regulator Irda’s annual report for 2005-06 showed that the insurance premium collections in April-September 2006 grew 162% on year to record Rs29,664.64 crore.
“There might be a change (in mortality table determinants) for the country as a whole, but LIC’s tables are still valid,” said a former actuary of LIC, who did not wish to be identified.
He said that the insurance industry’s growth brought in new customers, from relatively poorer economic backgrounds.
Typically, relative deprivation coincides with poorer health indicators. Therefore, it is very likely an improvement in average longevity has been offset by the changing profile of insurance customers, he added.
But, with rapid transformation in lifestyle habits, primarily in urban areas, experts say that the 10-year-old mortality tables may not accurately capture some of the risks. Conversely, they would not strictly capture the impact medical advances might have had on longevity.
Recent medical research also shows there have been rapid changes in urban India in the recent past. Researchers are more or less unanimous that hypertension, cardiovascular disease, and diabetes, are the major diseases affecting urban populations across India. “These diseases are generally referred to as lifestyle diseases, they being the fallouts of affluence,” said Kishore Bhaskar, a nutritionist at the All India Institute of Medical Sciences in the capital.
A recent report by endocrinologist Anoop Misra, published in the British Journal of Diabetes and Vascular Diseases, shows that diabetes is prevalent among 5-15% of urban, 4-6% in semi-urban, and 2-4% of rural population in India.
The report lists a host of studies on diabetes trends in urban India, spanning an 18-year period from 1988-2006, said Misra, who is also head of the department of Diabetes and Metabolic Diseases, Fortis-Rajan Dhall Hospital here, and comprehensively indicates a rising trend in diabetes across cities such as Jaipur, New Delhi, Mumbai and Chennai.