Morbidity Tables are statistical charts that predict the probability of people getting sick, injured, or becoming disabled. Think of them as a “sick-day” forecast for an entire population. Primarily used by insurance companies, these tables are the less famous but equally important sibling of Mortality Tables (which predict the likelihood of death). While mortality tables help price life insurance, morbidity tables are the bedrock for calculating the risks and costs associated with health, disability, and long-term care insurance. They analyze vast pools of historical data to estimate, for example, how many 45-year-old non-smoking office workers in Germany are likely to file a disability claim in the next year. This allows an insurer to calculate the correct premiums to charge to cover future claims and still turn a profit. An error in these calculations can be catastrophic, either by making policies too expensive to sell or too cheap to be profitable.
At its core, a morbidity table is a sophisticated data-driven tool. Insurers and actuaries compile them by analyzing anonymous health data from millions of people over many years. They don't just look at age; they slice the data by numerous factors to get as precise a picture of risk as possible. Key variables include:
By combining these factors, the table provides a morbidity rate—the statistical likelihood of a specific health event (like a heart attack or a major surgery) occurring within a defined group. This rate is the fundamental number an insurer uses to price a policy.
For the average investor, morbidity tables might seem like an obscure tool for insurance nerds. However, for a value investor, they are a secret window into the engine room of any health or disability insurer. Understanding their role is crucial for analyzing these businesses.
Insurance can be a fantastic, long-term compounder of wealth—just ask Warren Buffett. The profitability of an insurance company depends almost entirely on its skill in underwriting, which is the art and science of pricing risk correctly. Morbidity tables are the “science” part of that equation.
Morbidity data can also offer insights into macroeconomic and societal trends. Rising morbidity rates for obesity-related illnesses, for example, could signal long-term challenges for public healthcare systems but also create opportunities for pharmaceutical companies, fitness businesses, and medical device manufacturers. Keeping an eye on these broad trends can help a value investor spot both risks and opportunities across different sectors.