Actuaries rule the world (Mortality edition)

An Indiana life insurer has made some news earlier this week when they reported their claims experience for the second half of 2021.  Life insurers pay out claims when people die.  People usually die fairly predictably on the basis of age, gender, previous medical history and geography.  Spikes are either due to one-off catastrophic events (plane crashes) or something weird and notable.

The head of Indianapolis-based insurance company OneAmerica said the death rate is up a stunning 40% from pre-pandemic levels among working-age people…

Davison said the increase in deaths represents “huge, huge numbers,” and that’s it’s not elderly people who are dying, but “primarily working-age people 18 to 64” who are the employees of companies that have group life insurance plans through OneAmerica.

“And what we saw just in third quarter, we’re seeing it continue into fourth quarter, is that death rates are up 40% over what they were pre-pandemic,” he said.

“Just to give you an idea of how bad that is, a three-sigma or a one-in-200-year catastrophe would be 10% increase over pre-pandemic,” he said. “So 40% is just unheard of.”

Most of the claims for deaths being filed are not classified as COVID-19 deaths, Davison said

A couple of points need to be made.

This is reflected of the Delta wave and not Omnicron.

Death categorization is a very inexact science. Death determination is often made by coroners. Coroners are often elected positions with frequently low to no training requirements. Reporting to the CDC for inclusion in the WONDER database is slow in pre-COVID times (the dataset is good through 2020 at this time).

However life insurers have a far simpler problem. They pay out a claim on a verified death of a covered life. They fundamentally care about dead/not dead as the unit of meaning. Further details are needed to verify that the coverage actually applies to the claimed death, but the fundamental questions are simple: Active policy? dead or alive?

Life insurance companies don’t care that some county coroners “doesn’t do COVID deaths.” Their actuaries know that they are paying a lot of claims for a population that tends to not have a lot of deaths leading to claims. Much like climate change, insurers will respond to the evidence in front of their actuaries’ noses that something big is happening that will cost them a lot of money if new trends continue.

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