Longevity and its implications for private insurance – an example from Germany
08 Jun 2009
Longevity has enormous economic, societal and social implications. The problems of an ageing society are a massive challenge for developed economies.
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A concurrent increase in longevity and a decrease in fertility are causing a negative change in the dependency ratio of the economically active to the economically inactive throughout developed countries. Under current models of retirement the dependency ratio will continue to increase significantly into coming decades. The current expedient to prevent further deterioration is largely confined to migration; but this may not be a viable indefinite solution. Only a substantial restructuring and rethinking of current life patterns, while maintaining intergenerational equity, will allow a smooth transition to more mature societies.
As highlighted by other articles in this newsletter, longevity is increasing. Individuals in developed economies are living longer; while fertility rates are dropping, causing a worsening dependency ratio. Pension and long-term health care costs are set to rise considerably which will be a burden both for the public sector as well as pension funds. Governments and private sector pension providers will need to study means of reducing their financial exposure to longevity increases. One way is to look to insurance products to mitigate this risk.
Emerging markets are widely regarded as key to the future growth of the world economy - and in this regard, no emerging market is deemed to be more important than China. Over the past three decades, China has grown at a more rapid tempo than any country in history - and expectations are high, both in China and internationally, for a continuation of extremely rapid Chinese economic growth over the coming decades. Such assessments do not take China’s dramatically changing demographic outlook into account. Over the past generation, China’s demographics abetted the country’s remarkable economic rise. In the generation ahead, by contrast, China’s economic performance will be constrained by a multiplicity of demographic factors, including declining manpower availability, rapid population ageing, and dramatic changes in family structure. These demographic pressures do not preclude continuing economic progress for China in the years ahead. Attention to demographic risk, however, suggests that China’s future pace of growth may be considerably slower than Beijing’s leadership (and many international investors) currently assume.
One group of observers at the World Demographic and Ageing’s Forum ‘Upcoming Demographic Changes in Islamic Countries’ conference were students from the University of St. Gallen. Much attention is currently focused on the higher part of the population pyramid. The students, instead, provided a perspective from lower down the pyramid. Younger generations, in Islamic countries and elsewhere, will be just as impacted by demographic change as older ones. The St. Gallen students reflect here on their experiences of the Forum and their wider perception of demographic change.
If we are to redesign policies and environments that respond effectively to the challenges of population ageing, we need to reorient ourselves to the opportunities that ageing represents.
Insurers need to keep up with the latest genetic research when constructing life insurance products.
Our ageing society – a statistical snapshot.
Innovation in health care products can have a significant impact on longevity, and, in turn, on the life insurance industry.