Mortality rates are much higher in Scotland than in the southwest of England, according to a recent report by the Office for National Statistics (ONS), showing a clear divide in health between the rich and poor areas of Britain.
The state of the nation’s health affects group risk policies because charges can be higher depending on the company’s regional location. Geographical variations in health are one way to determine likely risks to an employee’s health in a particular region (overall general health of the group is another factor).
Paul Casey, GE Frankona Re’s media relations manager, says group life insurance actuaries would look at mortality rates, the health and habits of people in a region and when they are most likely to die, and set the premiums accordingly.
But morbidity rates are more relevant when setting premiums for income protection and critical illness. In this case actuaries look at the type of industry and the risk of illness or injury the job involves. They examine the incidence of serious conditions such as cancer, heart attacks and strokes in a certain area.
Ken Richart, the group risk manager at Swiss Re Life & Health, says the price of policies is “borne of the insurer’s own experience”, but national statistics play a part, as the pool of risk must be taken from a region. An individual risk policy is priced according to the pool of the whole of the UK.
He says occupation, age and gender are additional considerations to pricing a group risk product.
“People in managerial jobs may incur a ten per cent increase to a scheme, while the difference between the best and worst areas may be as high as 22.5 per cent. Unskilled workers may be charged more than 30 per cent,” he says.
He says pricing can become “arbitrary” if the claims experience for a particular company is minimal or if an area is considered more favourable.
As an example he suggests schemes in Strathclyde may be priced more expensively than another part of Scotland, such as the Aberdeen area, which has a lower death rate.
How would this affect the price of a scheme if applied to a company with offices in the north, west and south? Are there price disparities and if so, is this fair?
Richart says the price of premiums would be averaged out between the offices in the south and the north.
Casey justifies the loading of schemes in the north rather than the south: “Some of the locational adjustments to group risk schemes are reflective of the type of industry and the risks prevalent in those areas.
“In the south there are mainly white-collar, technical workers, in the Midlands the type of work traditionally was coal mining and in the north shipbuilding and heavy industry. That was the way the UK was chopped up.”
However, Casey says loadings to schemes have reduced. Prices are adjusted according to primary risks, which include health and safety issues, and secondary risks including environmental risks in the workplace, such as dust and smoke which cause respiratory diseases.
But he says these adjustments are not a major factor to a scheme. “Underwriters look at the risk of accident, which is high in heavy manual work. In the south where there are more office workers, they may encounter tripping over a paper file, for example,” he says.
Technical manufacturing industries, car plants and computer manufacturers tend to be based in northern areas of the UK because of staffing costs and the cheaper location.
“But their lifestyle is certainly a contributory factor, like diet, smoking and drinking,” says Casey. “In the manufacturing industries people are more likely to drink and smoke more and in the north they have a fattier diet.”
Malcolm Tarling, the assistant media manager at the Association of British Insurers (ABI), says insurers will look into factors relating to the risk and the likelihood of a claim, and rate the product accordingly.
He says: “In the same way, if you live in an area prone to storm damage you would expect, not unreasonably, to be charged more for your house insurance.”
Insurers band IFA clients into socio-economic groups and consider their age, sex, and the type of job they do to get the best price.
Stuart Gray, the director of Taylor’s Risk & Healthcare, says this is one factor out of about 20 affecting rates insurers charge on a risk. It is a difficult issue to broach with clients, he says.
Is this fair? Yes, he says, because there are statistics that prove the mortality rate is higher among people in Scotland than the southwest and insurers base rates on the claims experience. “It’s an objective claims decision,” Gray says.
“If you take a 50-year-old and a 20-year-old, the 50-year-old is more likely to die sooner. In the same way, if you live in Scotland, you’re considered more likely not to live to a great age.”
In contrast, where people live is not normally taken into consideration in an individual case because they would answer questions on the state of their health.
Scottish Equitable’s director of actuarial and marketing of group risk, Simon Gadd, explains: “You won’t know the state of health of every individual in a group. Pricing the group policies according to occupation and location gives some sort of proxy for the assessment of risk.”
Further, it is easy to know where the offices of an employer are based and the type of job employees do. Other factors include the mix of gender and the average age.
Scottish Provident product marketing and development manager Nick Kirwan attributes poor health in the north and Scotland to the distribution of wealth and to poor, damp housing caused by the climate.
But he says Scotland is endeavouring to improve the situation. The first heart failure liaison unit is now based in Glasgow, set up by the National Health Service.