Education-based risk indices and insurance competitiveness

This paper examines the implications of incorporating education as a risk factor into life insurance, focusing on its effects on insurers’ income statements. While the relationships between education and mortality have been widely studied in demography, epidemiology, and public health, their relevance for the insurance sector remains largely unexplored. To address this gap, we introduce the Education-based Risk Indices (ERI), which quantify differential mortality risk by educational level across ages and sexes relative to the population average, and analyse how the ERI can inform premium setting and shape competition in a market of rational insureds. The complete approach is illustrated with data from Spain. Individual-level population and mortality microdata from 2021 to 2022 are employed to construct life tables by education and derive the ERI by modelling the relationship between stratified and overall death rates. An application is presented through a simulation of a competitive insurance market in which one company adopts ERI-based pricing while another relies solely on age and sex. The findings indicate that integrating education into pricing strategies yields a measurable competitive advantage, enhancing insurers’ financial performance relative to traditional approaches. Robustness analyses and a discussion about issues to be considered in real applications are also included.