Gender and age are the risk factors considered most often in pricing life insurance products. Many studies confirm that the life expectancy and health of individuals are related to factors other than gender and age, such as smoking and obesity, but including them in the consideration of pricing may not be feasible in practice. Regardless, harmful activities are often underreported. It is believed that smokers generally have higher mortality rates than nonsmokers; however, it is difficult to verify whether the insured are smokers in Asian countries. In addition, the coverage in Taiwanese life insurance policies is usually low. Thus, most policies do not require health exams, and there is no way to check if the insured are overweight.
In Taiwan, we can still collect useful information about the insured without performing a medical exam. Since Taiwan has used the population register system for more than 100 years, the official documents of individual records can be found in every county office, even if the applicants do not reside in that county. One can get copies of the household registration transcript in less than one hour. These official documents contain useful information, such as the marital status and history of each individual. In this study, we explore whether it is feasible to treat marital status as a risk factor in life insurance products using Taiwan’s marital mortality database.
The empirical study of Taiwan mortality by marital status confirms that married people have the lowest mortality rates and highest life expectancy. Comparing with the unmarried, married males seem to benefit more than married females. For example, for married and single individuals aged 15, the married male is expected to live about 8 years more than the single male, while the difference for the female is only about 3 years. Moreover, if the premiums of life insurance policies are calculated according to an individual’s marital status, the discount in premiums for the married over the single can be as much as 40%. The amount of discount is even larger than discounts offered to nonsmokers compared with smokers, and to persons of normal weight compared with obese persons. This confirms that marital status is a feasible factor to be included in pricing and marketing life insurance products in Taiwan.
In this study of modeling mortality rates by marital status, we find that the proposed relational model (RM) has the smallest prediction errors, with respect to MAPE (mean absolute percentage error), and is slightly better than LC, RH, and CBD models. In addition, the prediction errors of all mortality models are significantly smaller for the elderly group (65 and over) than those for the younger population (ages 30–64). This might suggest that mortality improvements are not the same for different ages. However, since we only analyze Taiwan data, and our data period is too short, we need to collect more data to confirm our findings.
In this study, we also evaluate methods for smoothing mortality rates of small areas. The proposed methods include information from a large area to reduce fluctuations in mortality rates in small areas. Treating Taiwan as the large area and Pen-Hu county as the small area, we find that the partial SMR and Whittaker ratio have the smallest MSEs. We recommend the Whittaker ratio method. Furthermore, we find that all graduation methods can help to reduce the MSE of mortality rates,
Note that, although we find mortality rates of the married are lower, we cannot conclude that being married causes people to live longer. In Taiwan, the proportion of married people is higher among those with higher income and higher education. We cannot tell whether marriage, higher income, or higher education causes people to live longer. On the other hand, the marital data used in this study are at the aggregate level.
It will be more reasonable to use individual data and the idea of multiple decrements to construct the life table by marital status.
Acknowledgments
The authors are grateful for the insightful comments from two anonymous reviewers.
This research was supported in part by a grant from the Ministry of Science and Technology in Taiwan, MOST 104-2410-H-156-005.
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