Club Vita Issues Report About How ZIP Codes Affect Longevity

Club Vita teamed up with Mercer to develop a proprietary model, VitaCurves, that uses the nine-digit ZIP code to help defined benefit (DB) plan sponsors more accurately make longevity assumptions.

Club Vita, a provider of longevity risk data, has produced a new white paper, “Zooming in on ZIP Codes,” which explains how integrating CIP codes and identifying other socioeconomic factors can help pension plan sponsors have a better handle on the life expectancy estimates for their participants.

Club Vita teamed up with Mercer to develop a proprietary model, VitaCurves, that uses the nine-digit ZIP code, or ZIP+4 code. Employing the nine-digit ZIP code offers significantly more detail on geographical differences in life expectancy than other methods.

By honing in on each participant’s ZIP+4 code to capture a wealth of lifestyle information, and analyzing them alongside factors such as gender, annuity amount and retirement health, Club Vita can help plan sponsors make more informed decisions on funding and risk management, often reducing costs.

Statistics from the VitaCurves model 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.

Mercer has previously contended that industry-specific mortality tables also are more accurate for use in defined benefit (DB) plan assumptions.

“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 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, Douglas Anderson, founder of Club Vita, 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’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.