The Effect of a Change in the Rate of Mortality upon the Value of Sickness Benefits

Abstract

The valuation reports of friendly societies during the last few decades, as well as, more recently, the first and second reports by the Government Actuary on the valuations of Approved Societies administering the National Health Insurance Acts, have furnished striking evidence of the financial strain which the improvement in vitality amongst the general population has been placing upon sickness funds. In his Messenger Prize Essay on Friendly Societies, read before the Institute over 40 years ago (J.I.A. Vol. xxvII, p. 307), Sir George Hardy drew attention to the loss or profit arising on a sickness fund as the result of light or heavy mortality, and he submitted tables showing the effect upon the value of sickness benefits of a decrease of 20% or an increase of 20% in the rates of mortality, the standard rates taken being those shown by the Experience of the M.U. 1866-70 and the A.O.F. 1871-75. Since then, apart from a reference to the subject in the course of lectures in 1911-12 by Sir Alfred Watson on Friendly Society Finance and a short paper to the Faculty of Actuaries in 1928 (T.F.A. Vol. XII, p. 83), the questions arising out of changes in the rate of mortality, in so far as sickness values are affected, appear to have received but little attention.