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Club Vita unveils new model for predicting life expectancy

The new model will modernize longevity risk management techniques for U.S. Pension Plans

A new white paper, “Zooming in on ZIP Codes,” showcases a pioneering interactive map that captures variations in life expectancy

7 August 2019

“ZIP code modeling has several practical benefits for the risk management of pension promises for groups of individuals,” says Dan Reddy, CEO of Club Vita US. “Not only are ZIP codes insightful for assessing how healthy the lifestyles are of people living in different neighborhoods, but they are also readily available, so there is no need to collect sensitive individualized health information.”

Club Vita’s report references that, between 2001 and 2014, life expectancy increased at a faster rate for more financially well-off retirees. Statistics from the VitaCurves model also identified specific characteristics of individuals within pension plans that resulted in increases and decreases of liabilities of up to 6% relative to the standard Society of Actuaries tables. With a reduction of liabilities on average, the paper says most plans could be over-valuing their liabilities.

“We first developed ZIP code-based techniques using postcodes in the UK, where we have built our expertise in longevity modeling over the last 11 years,” said Douglas Anderson, founder of Club Vita. “Following our success there, we calibrated our process to Canadian data and have now applied our techniques for the first time here in the U.S. In all three cases, we reveal a spectrum of around 10 years in life expectancy.”

Club Vita’s ZIP+4 code model will also facilitate the development of new products, allowing pension plans to prepare themselves for extreme longevity events, such as medical breakthroughs, while keeping control of plan assets. In addition, Anderson points out the reduction in uncertainty enables insurers of blocks of pensions to offer lower prices to take on this risk, which makes insurance more affordable and long-term pension promises more secure.

Anderson adds, “The barrier to many pension plan sponsors using life insurers to secure participants’ benefits is the confidence in getting value for money, and that’s where ZIP code modeling helps. The amount of each retiree’s pension is unaffected and the security of the promise is strengthened.”

Club Vita extended its global footprint to the massive U.S. market in 2019. The company initially launched in the UK in 2008 and brought its model to Canada in 2015. In June, Mercer announced it was the first consulting firm to offer Club Vita’s longevity risk reporting to its clients in the United States.

The white paper, “Zooming in on ZIP Codes,” can be accessed here.

Club Vita’s ZIP code model will be available for use on September 1, 2019 by Mercer clients and any pension plan that signs up directly with Club Vita. If you’re interested in learning more about working with Club Vita, please contact Dan Reddy.

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