How Zim specific mortality tables can transform insurance market

AMONG the drivers of economic growth and development in emerging countries like Zimbabwe, the insurance sector is often overlooked.

Insurance is perhaps not as flashy as the information and communication technology (ICT) sector, for example.

But, insurance is a behind-the-scenes force driving growth at all levels of society.

The sector helps to facilitate economic activity by providing long-term capital for investment and growth.

Insurance funds also guarantee financial stability for individuals and firms in times of difficulties.

Improving the regulatory climate for insurance players and expanding the country’s lucrative insurance market is key to creating inclusive growth in the economy.

While recognising the role the insurance market can play in development, the Insurance and Pensions Commission (Ipec) unveiled the first ever mortality table for life insurance companies in the country in July this year.

The mortality tables will help determine effective pricing of insurance products.

The new mortality tables are specific to Zimbabwe, a significant departure from the South African developed mortality tables that were not correctly depicting the mortality experience for Zimbabwe.

A mortality table is a statistical chart that displays the average life expectancy for a given age group and the frequency of death for that group.

It is a key component in life insurance as it provides the basis for assessing risk when determining an individual’s life expectancy and calculating the cost of a policy.

Mortality tables are used by life insurance companies to determine how likely policyholders are to die within a specified period of time.

By understanding the death rates of people in certain age groups or with specific medical conditions, insurers can set premiums that ensure healthy profits for their business as well as protecting their clients’ interests.

Highlighting the changes taking place in the insurance sector with regards to the introduction of the mortality table, Ipec Commissioner Grace Muradzikwa said this marked a key milestone for Zimbabwe.

She said using tables from other countries has its own challenges which includes the fact that the mortality experiences in other countries were less likely to be a true reflection of Zimbabwe’s experiences due to differences in economic, social, and demographic situations.

Presenting during the fourth session of the 2023 Ipec and National Social Security Authority (Nssa) Journalists Mentorship Programme, Ipec Director for Actuarial Services Mr Robson Mtangadura said the new mortality table caters to the local perspective, and is able to correctly price insurance and pension products.

“Historically, Zimbabwe has relied on mortality tables from other countries, mainly the United Kingdom and South Africa, to price its insurance and pension products.

“However, the use of foreign tables, adjusted for local experience, was problematic as they did not accurately reflect the mortality experience of our population, leading to potential flaws in pricing and risk assessment

“Mortality tables in the insurance and pensions sector are used mainly for the following purposes: Determining the price or premium that policyholders or pension fund members should contribute or pay in exchange for a promised benefit, determining the present value of liabilities that should be set aside towards policyholders or pensioners given the long-term nature of life insurance and pension contracts,” said Mr Mtangadura.

He said Zimbabwe has not been using country-specific mortality tables which resulted in the following challenges: “Over or undercharging of insurance products, which may adversely affect insurance uptake (overpriced) or unsustainability (undercharged), differences in mortality experiences to differences in economic, social and demographic situations, resulting in potential miscalculation of risks.

“Mortality changes over time due to change in lifestyles, working habits and medical advancements – these changes are usually country-specific, which makes it difficult to adopt experiences of other countries.”

It is clear from Mr Mtangadura’s observation that mortality is a key ingredient in pricing of various insurance products especially in life assurance and pension products and that mortality rates are the key assumption in determining the insurance claims that the insurance company may then experience for the lives it has insured.

Actuary Dr Taonaziso Chowa — who is also a lecturer at the University of Zambia — hailed the introduction of the country-specific mortality table, saying it was a huge milestone for Zimbabwe as most developing countries have not even started to think about having their own mortality tables.

“So before that, we were using South African tables like the experience of South Africa (SA) 1985-90 and the SA1956-62 or United Kingdom eg A1924/29

“This brings uncertainty as to whether such modifications lead to an accurate depiction of the Zimbabwean mortality. For example, comparisons done on foreign life tables against the 2012 (Both Sexes) life tables show that foreign life tables (SA and UK) fail to capture the mid-life hump 20-50 years and the relatively higher mortality for ages between 0 and 25,” said Dr Chowa.

He said mortality was also improving due to various interventions like the anti-retroviral therapy programme being administered by the Government.

“In some research work that we did in 2015 (in partnership with economist Prosper Matiashe) we were trying to bring that to light and I think that is when the talk of having a mortality table specific for the country started because we started seeing that what the Zimbabwe National Statistics Agency (ZimStat) was saying in terms of life expectancy was actually far from even what you would get through some extrapolation of the World Health Organisation.

“What we were seeing is the reality that the Government of Zimbabwe had made very big strides in anti-retroviral therapy and what that ART did and through the Aids Levy was ensuring that people are tested and put on treatment. The availability of ARVs resulted in unexpected longevity in people living with HIV, yet this was not being captured by the Life Offices Association of Zimbabwe (LOA) and ZimStat,” said Dr Chowa.

“But I also feel that the tables might have had some distortions that came through the HIV and Aids, so we might still need to make some adjustments to it because if you look at it, ARVs came a bit late so they could be still be some kind of bad harm which you call an HIV/ Aids harm which normally needs to increase mortality, which might mean that people might also be overpriced.

“So I still think that they still need more direction and a bit of actual judgment in the process of doing that.”

Actuarial Society of Zimbabwe (ASZ) president-elect Mr Prosper Matiashe also hailed the introduction of the country specific mortality table saying it has the potential to lead to more affordability of life assurance and pension products.

“Developing Zimbabwe mortality tables for insured lives was a key step towards ensuring that the mortality rates used by insurers are reflective of the local insured population.

“The process also enhances trust from customers given the assurance that the mortality assumptions used by insurers are reflective of the mortality experienced by the customers.

“If the previous mortality tables were higher than reflective of the local Zimbabwean insured population, premiums will reduce in the long term thus creating affordability for the customers.

“This may then increase demand for life assurance and pension products. In the long term, higher savings through life assurance and pension products provide patient capital to the economy hence economic growth,” he said.

Turning to the challenges, Mr Matiashe said key challenges include the credibility of the data used in preparing the mortality tables.

“Companies may have not been keeping data in the right format to be able to provide data reflecting the true underlying mortality. Hence the first mortality tables may not depict the underlying mortality especially at older ages. Hence a complete and immediate application of the new mortality tables can significantly change the pricing of products which isn’t backed by underlying mortality trends.

“It is therefore important for a five-year transition period in which actuaries fuse in the new mortality tables and the company own mortality tables and ensure smooth progression of adjustments.

“The mortality rates will need to be updated over consistent intervals of between three to five years. It is therefore important for the industry to maintain data in the right format and integrity so that the next updated mortality rates become a better reflection of the underlying mortality of the local insured population accordingly.”