LIFE INSURANCE Will new mortality tables reduce premiums?

The new charts have statistics to predict how long people will live.
NEW YORK (AP) -- It's not often that actuarial tables make headlines.
But the introduction of new mortality tables for the insurance industry for the first time in more than two decades is drawing attention because it could lead to lower life insurance prices, especially for term insurance policies.
The new charts -- with the cumbersome name Commissioners Standard Ordinary, or CSO, mortality tables -- are statistics used to estimate how long people will live. They are the basis for determining the reserves that insurance companies must hold against future claims.
The new tables were approved late last year by the National Association of Insurance Commissioners to replace actuarial tables in use since 1980. The association's members, who are state insurance officials, are working to get them adopted in all 50 states.
Longer lives
Not surprisingly, the statisticians who developed the CSO mortality tables have determined that Americans are living much longer now than 20 years ago. The new charts go up to 120 years, compared with 100 years for the old ones. The average male life span has risen to 74 from 70, while the average women's life span has gone to 79 from 77.
Premiums on new policies may go down, experts say, because as people live longer, insurance companies will be able to hold and invest the money they take in for longer periods of time.
John Hartnedy, deputy commissioner of insurance in Arkansas and a member of the National Association of Insurance Commissioners' actuarial task force, said the premiums insurance companies charge are based on their own, real-time actuarial tables.
"When actuaries are pricing life insurance products, they're looking at their own mortality experience and they price according to that experience," Hartnedy said. "What the CSO mortality rates are used for is primarily reserves and cash values."
Still, the fact that insurance companies may be able to reduce reserves by up to 20 percent, according to estimates by Fitch Ratings analyst Martha M. Butler, could lead to lower premiums for consumers.
"Fitch Ratings believes there is a potential for ... a round of term insurance wars, but is unsure how pronounced it could be," she wrote in a recent report.
Some whole-life premiums will probably fall, too, she said. Universal life and variable universal life policies will be impacted the least, mainly in the way they're structured, Butler concluded.
Some insurance companies already are starting to promote lower premiums because of the changes in the mortality tables.
The USAA Life Insurance Co., a subsidiary of USAA, a San Antonio-based company founded to provide financial services for military personnel, announced recently it was lowering the premiums on its term life policies by 10 percent to 30 percent on average.
Kristi Matus, vice president of actuarial solutions for USAA Life, said the reduced reserve requirements "are the equivalent of our cost of capital going down."
"A couple of years ago, a 35-year-old male purchasing 20-year level [premium] term of $250,000 would have paid $275 a year. For that coverage today, he would pay $175," Matus said.
Years to adopt tables
Any savings for consumers won't necessarily be showing up quickly, because it will likely take several years for states to adopt the new tables. They are intended to be completely in effect for all policies issued after Jan. 1, 2009.
Martin D. Weiss, chairman of Weiss Ratings Inc. in Palm Beach Gardens, Fla., said the gap in updates of the mortality tables and the long phase-in period "reflect the built-in conservatism of the insurance industry."
Weiss, whose firm rates insurance companies, added that the delays "also suggest that for all these years, consumers have effectively been overcharged by many companies based on antiquated tables."
Some consumers might wonder whether they should wait to buy life insurance until premiums fall.
Jim Hunt, who operates a service through the Consumer Federation of America that evaluates life insurance policies, said he doesn't expect premiums to decline that much.
"You shouldn't wait for lower rates -- which I don't think will have that significant an effect -- if you risk dying without the coverage you need," Hunt said.