Australian Insured Lives pilot project
Evolution of insured lives
We argue the need for collecting more systematic data on the evolution of insured lives, in order to improve product sustainability and cover in life insurance and enhance the efficiency of underwriting and claims processes.
The current data collections in the life insurance industry are limited to static observations on retail customers collected at the point of underwriting, and then for some once more at the point of claims. There is a notable lack of data on the voluminous corporate or industry fund insurance, and all data is limited by the absence of dynamic insights on how lifestyle and medical risks evolve over time for the insured population. The current data has no capacity to inform causal questions and has low predictive power.
We propose the collection of more systematic longitudinal data on life insurance customers, as well as customers that have been excluded from insurance and those who have lapsed their insurance, or have not considered insurance at all.
The data collection will target both retail and group insurance and across all products offering living benefits or death benefits. The study will generate insights on fundamental causal questions, such as the evolution of mortality risk and morbidity risk over time due to changes in lifestyle, habits, family dynamics and the role of genetics.
The data will enable the modelling of the causes of disablement and the link between impairment and disability, and will provide insights on latent individual traits such as personality, psycho-social attributes and perceptions of insured value, and how these may change over time.
It will also observe dynamic shifts in risk appetite and attitude that can help resolve longstanding economic questions of adverse selection and moral hazard. The causal nature of the data will offer valuable predictive insights and tools for assessing the effectiveness of interventions on risk prevalence.
The insights from the study will help insurers understand customer expectations from an independent study rather than let them be defined by various interest groups that may lack credible supporting evidence or contain bias. It will help address questions of insurance exclusion and sufficient cover that is fair.
Given recent medical and technological advances, the study will also test the efficacy of the long-standing model of life insurance of underwriting lifetime risk using data that is collected only at one point in time. An important objective is to understand to what extent the general population prevalence rates of mental health apply to insured lives (incidence, severity, impairment, recurrence), and the impact of mental health treatment on key outcomes.
These insights will further guide the proactive provision of mental health treatment, and suicide prevention, which benefits everyone in the community.
Chief investigators
Hoa Bui is a consulting actuary and a Non-Executive Director in insurance and superannuation. Previously a senior partner at KPMG, an executive at AXA Australia, AC&L & TAL, and a past president of the Actuaries Institute, Hoa has a long term interest in disability and insurance and has led major industry insured lives data collection and analyses, both in non-profit and commercial settings.
Doron Samuell is a consultant psychiatrist, behavioural economist and former chief medical officer and advisor to several life insurers and the Insurance Council of Australia. He is a prime ministerial appointment to the board of Industry Innovation Science Australia where he co-leads a project on the commercialisation of research.
Demetris Christodoulou is an Associate Professor at the University of Sydney Business School and the co-Director of the PEMA research group. Demetris has worked in equity valuation, reporting quality, financial economics, and life insurance. He has provided research training in data analytics, econometrics and visualisation to several industry and government organisations and to more than a thousand of executives and practitioners. He was the founding Director (2007-2022) of the Methodological and Empirical Advances in Financial Analysis (MEAFA) research group.
Seed grants
The project has so far received two seed grants to conduct the pilot study. In July 2023, it received $20,000 from the Discipline of Accounting, Governance and Regulation at the University of Sydney Business School, plus $5,500 from the Accounting and Finance Association of Australia and New Zealand (AFAANZ).
PEMA has then provided a top-up of $4,500, bringing the total seed funds to $30,000. These funds will be directed towards conducting a pilot study that would provide a proof of concept on the feasibility and benefits of conducting a long-term longitudinal study on the evolution of insured lives.
Industry workshop
In September 2023, PEMA will hold an industry engagement workshop for representatives of the life insurance industry, at the University of Sydney's CBD campus. The workshop will brief the industry on the significance of the proposal, the mechanics of the study and ask for feedback on the scope and research agenda of this transformative project.
The workshop is open only for life insurance industry representatives. If you would like to participate as a representative of your organisation, then please get in touch at business.pema@sydney.edu.au.