Page 149 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes their next birthday by looking at a life table. Life tables are highly generalized and do not
include individual factors that may increase or decrease chances of death, for example whether
the person smokes, where they live, and if they have a healthy diet or pre-consisting medical
conditions. At best, mortality tables should be looked at as a rough average of likely lifespan.
The three basic sources of mortality statistics are:

Population statistics derived from census enumerations
The returns od deaths from registration offices
Statistics derived from insured lives
From data showing the length of life and ages at death in the past it is possible to predict
probabilities of death and of survival in the future. This prediction is based on the assumption
that, like the law of chance, there is a law of mortality by which human beings die; that certain
causes are in operation which determine that out of a large group of persons at birth a definite
number of lives will fail each year until all have died; and that the force of mortality could be
measured if only the causes at work were known. But it is not necessary to analyse this law of
mortality completely and to know all the operating causes in order to predict the possible rate
of mortality in a group of persons. By studying the rate of death among any group and noting all
the circumstances that might, according to our best knowledge, affect that rate, it is possible to
surround any future group of persons with approximately the same set of circumstances and
expect approximately the same rate of death. Thus without complete knowledge of the law of
mortality a working basis is found for predicting future rates of death. It is necessary then to
have mortality statistics in order to develop a scientific plan of life insurance.

8.5.1 The Measurement of Mortality - Mortality Tables

You must remember that the establishment of any plan of insuring against premature death
requires some means of giving mathematical values to the chances of death, and the
considerations advanced in the first division of this unit show that the laws of probability can be
used for this purpose as soon as trustworthy data are secured showing the course of past mortality.
Mortality tables, as such data are called, are records of past mortality put into such form as can
be used in estimating the course of future deaths.

8.5.2 Sources of Mortality Tables

You need to know that there are two sources from which the best-known mortality tables in
existence today have been obtained: (1) population statistics obtained from census enumerations,
and the returns of deaths from registration offices, and (2) the mortality statistics of insured
lives. Well-known examples of the former are the English life tables of Drs Farr, Ogle and
Tatham, successively in charge of the General Registry Office of England and Wales. Dr Farr’s
life table, for instance, was based on the registered deaths in England and Wales during the years
1838-54, and on the two census enumerations of population for 1841 and 1851.

8.5.3 Description of a Mortality Table

Let’s take a look at the description of a mortality table. A mortality table has been described as
the picture of “a generation of individuals passing through time”. It shows a group of individuals
entering upon a certain age and traces the history of the entire group year by year until all have
died. Since any description will best be understood by reference to an actual table, the American
Experience table, used almost exclusively for the computation of premium rates by old line
companies in the United States, is presented below.

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