Club Vita, a provider of longevity risk data, announced today the publication of a new white paper, “Zooming in on ZIP Codes,” which addresses how integrating ZIP codes and identifying other socioeconomic factors can help pension plan sponsors better capture diversity and sharpen life expectancy estimates for their participants. Having accurate estimates is essential for sponsors as they assess how much money to save to make their future payments.
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Douglas Anderson, founder of Club Vita (Photo: Business Wire)
Club Vita teamed up with Mercer, a global consulting leader in advancing health, wealth and career, to develop the longevity model for U.S. pension plan participants. The proprietary model, VitaCurves, is an industry-first in employing the nine-digit ZIP code, or ”ZIP+4 code,” which offers significantly more detail on geographical differences in life expectancy than other methods.
By homing 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.
“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 at Daniel.Reddy@clubvita.net.
About Club Vita
Club Vita is a longevity data analytics company, which facilitates the pooling and statistical analysis of demographic data from defined benefit (DB) pension plans to reveal insights that would not be evident to the plans acting alone. Its two existing clubs have served the needs of plan sponsors and their advisors in the UK since 2008 and Canada since 2015. Club Vita’s innovative team has designed, built and refined ZIP code based socio-economic models for managing longevity risk. These enable plan sponsors not only to tailor their assumptions to reflect their people, but also to develop strategies to actively manage their longevity risk, so longevity is no longer just an actuarial assumption. Club Vita’s models are used by several firms of actuarial advisors and insurance companies participating in the pension risk transfer market. For more information, please visit https://www.clubvita.us/.