Modeling Healthy Life Expectancy - PowerPoint Presentation

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Modeling Healthy Life Expectancy

Pei Wang, Research Assistant at Goldenson CenterNicholas Frei, Actuarial Analyst at Sun Life Financial

Revolutionizing Our View of LongevitySlide2

Table of Contents

MotivationEngineering

Applications

Conclusion

2Slide3

1. Motivation

3Longevity

Modern Challenges

Healthy Life ExpectancySlide4

Longevity

Fascination with immortality, death and everything in betweenWhat is the upper limit?4Slide5

Modern Challenges5

Health careFinancial Security

Cognitive Disabilities

Long-Term Care

2.7% of Americans have a healthy lifestyle consisting of exercise, nutrition, healthy BMI and not smoking.

70% of Americans are worried about

retirement.Slide6

Healthy Life Expectancy

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Life Expectancy

ULE

HLESlide7

A New Solution

Healthy Life Expectancy is a positive new spin on looking at longevityThe HLE ToolkitModeling the ‘healthy’ and ‘unhealthy’ portions of someone’s life equips us to tackle the modern challenges we’ve mentionedAlternative methods to approaching healthy living, financial advice, and underwriting

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2. Engineering

8DefinitionsAssumptions

HLE Model

Example calculation

sSlide9

Definitions

Some definitions from the HLE model:9

Termination from a healthy state occurs by death or disability

Disability uses a long term care definition, which is the inability to perform some of the activities of daily living

The only exit from disability is death

Cognitive Adjusted ULE (Conditional on the disability being cognitive in nature)Slide10

Assumptions

Healthy attained age mortality ratesUses first year select SOA mortality ratesIncidence rates of disabilityBased on SOA long term care incidence ratesAttained age mortality rates for Non-cognitive disabled lives

Based on SOA RP 2014 mortality rates for disabled livesAttained age mortality rates for Cognitive disabled lives

Based on

regular SOA annuity mortality rates

Personal information – gender, age, smoker status, exercise and dietary habits, body mass index, income, education level, marital status, sleep

habits

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HLE Model – Flow Chart

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Healthy

Healthy

Dead

Dead

Unhealthy

Year 2

Year 1

Year 1

Year 2

Dead

Year 3

Healthy

Y1

Y2

Y3

…Slide12

HLE Model – Formulas

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=

P

(Healthy life

(x)

stays healthy and dies in the coming year)

=

P

(Healthy life

(x)

gets disabled at the start of the year)

=

P

(Disabled life

(x)

dies in the coming year)

Then

=

P

(Healthy life

(x)

dies between

x+k

and x+k+1

)

=

(1 -

)

+

[

k-t|

 Slide13

HLE Model – Validation of Formulas

Independently evaluated HLE, ULE and LE with separate formulas and one test was to ensure LE = HLE + ULEAdditional validation using Monte Carlo simulations with actuarial assumption inputs to reproduce

the analytically developed calculationsMonte Carlo simulations had the added benefit of providing a distribution of realized HLE’s

Quantiles

of HLE distribution used to develop adjustment factors for input actuarial assumptions based on personal data

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Example Inputs14Slide15

Example Calculations

Male 60, non-smoker, 5 ft 10in, 230 lbsRarely exercises; < 5 hours sleep; 3-7 drinks per week

Graduate and annual earnings > $100,000Diet and state of health fair

Output

HLE =

19.2

years

ULE =

2.7

years

Cognitive adjusted ULE = 6

.4

years

Relative HLE =

79.1%

15

Male 60, non-smoker, 5

ft

10in,

180

lbs

Exercises 3

-

4 days per week; >

8 hours

sleep; 2 to 3 drinks per week

Graduate and annual earnings >

$

100,000

Diet and state of health very good

Output

HLE =

27.4

years

ULE =

2.3

years

Cognitive adjusted ULE =

4.2

years

Relative HLE =

112.8%

VSSlide16

3. Applications16

Wellness ToolIndividual Financial Planning

Underwriting

Health Care Cost Estimation

Long Term Care Design and PricingSlide17

Wellness Tool

HLE is not carved in stone for an individualProactive lifestyle changes (exercise, diet, sleep, etc.) can have a significant impact on HLE (and ULE)Easy to understand and communicate that increasing HLE increases an individual’s quality of life

The new “step-counter” app

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Individual Financial Planning

Annual retirement spending should not be level across the expected lifetime of an individualDuring the HLE period, retirement spending can be maximized subject to a given level of annual basic expenses

During ULE period, basic expenses are expected to increase but discretionary expenses will be significantly reducedIncorporating HLE and ULE in a financial planning model will significantly change optimal spending patterns

The HLE framework can provide guidance on what type of product (annuity, long-term care etc.) makes the most sense

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Financial Planning - Illustrative Example

Assume initial assets of $1.5M, i = 6%, HLE = 22 years and ULE = 8 yearsAssume p.v. of basic expenses = 20% of initial assetsAssume basic expenses are double over ULE period and there are no discretionary expenses

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Financial Planning - Illustrative Example

Financial planning not based on HLE:Annual spending over LE of 30 years approximately $103,000Financial planning model based on HLE:Annual spending over HLE approximately $112,000

Annual spending over ULE approximately $41,000Additional annual discretionary spending is $9,000 or approximately $750 of additional monthly spending

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Underwriting

The creation of a model which can explicitly measure HLE and demonstrate the impact of lifestyle practices on HLE can add more rigor to current simplified underwriting practices:Model results can be obtained in real time

HLE relative index can be used to differentiate between high and low risk individuals

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Health Care Cost Estimation

The HLE model can be enhanced to incorporate more detailed lifestyle and dietary details and serve as a patient screening tool for medical providersThe enhanced HLE relative index could be used to develop risk classes for patients and be incorporated into a health care cost predictive model22Slide23

Long Term Care Design and Pricing

An HLE deferred life annuity for a limited duration of ULE years could be used as a substitute or to complement a long term care policy purchaseLTC policies could be designed as a deferred limited duration coverage product based on HLE and ULE estimates at underwritingThe cognitive-adjusted ULE could be used to estimate the additional costs incurred arising from a cognitive disability in LTC

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4. Conclusion24

The HLE perspectiveLimitationsNext Steps

AcknowledgementsSlide25

The HLE Perspective25

Quantifying “quality of life”Emphasis on a healthy lifestyleApplications in health, financial planning, long term care and underwritingSlide26

Limitations

Underlying mortality ratesPossible recovery from disabilitiesCurrent factors and assumptions can be refinedMore factors can be included

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Next Steps

27 Many open research questions are available on how to incorporate more rigor on explicitly measuring lifestyle changes on

HLE

Nutritional and medical professional input

Immediate

next step by the

Goldenson

Center is to develop a web-based application that will be available to the public

to

measure individual HLE Slide28

Acknowledgements

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Advisor: Jay

Vadiveloo

Team Members:

Nicholas

Frei

Jay

Krutiak

Cory Wang

Pei Wang

Yanhan

Wang

John PotterSlide29

Questions?