A detailed new report from the Swiss Re Institute notes that 27 per cent of all people in advanced markets will be over age 65 by 2050. It says new approaches to product design, risk pooling and product bundling are needed to meet the changing needs of this aging population.

“Increasing life expectancy, falling birth rates and wealth concentration among retirees will fuel demand for protection that provides guaranteed income, health and care coverage,” they write in the sigma report, Life(span) insurance: accumulation, decumulation and longevity solutions for ageing populations and longer lives.

Paul Murray, CEO of Swiss Re’s life and health reinsurance, in a statement says the impact of the silver economy on insurers is only going to accelerate. “The insurance industry has the opportunity to redefine its relevance to over 65s.” 

To do this, the report recommends insurers shift their focus from accumulation to decumulation – a switch they say to date has proven difficult for insurers who have yet to develop a decumulation product with broad appeal. They also note that voluntary annuitizations are rare.

Guaranteed income 

“Providing guaranteed income in retirement is a big opportunity but life insurers are still in search of the winning formula,” the report states. They add that developing products that retain policyholder assets into the decumulation phase of their lives will be critical for the long-term success of life insurers. (Retirement income innovation, they add, has so far focused more on enhancements to existing products rather than new products.)

“By 2050, a high-income 65-year-old retiring in advanced markets could expect to live a further 23 years,” they write. “Various types of annuities exist to cover this increased longevity risk. However, a broader range of options may be needed to alleviate longevity risk. For example, longevity risk-sharing pools can address mortality, longevity and health risks, simultaneously.” 

Cancer protection 

They add that another urgent need will be for cancer protection for older policyholders, as the median age of a cancer diagnosis is 67 while most critical illness policies expire before retirement.

“Tapping the mass decumulation market requires creating value for customers beyond investment yields,” they continue. “We see opportunities to use traditional business to make inroads into the decumulation and health markets through enhanced customer management and product innovation.” In one example, they recommend adding long term care (LTC) provisions to traditional products. They also note the opportunity which exists to grow the pension risk transfer market. 

The report also looks at insurers’ duration matching, saying this will also need to evolve. “Over time, longer lifespans will likely extend the payout duration of products, necessitating robust longevity modelling. They will also affect reserve requirements, solvency margins and the need for reinsurance,” they warn. At the same time, the report’s authors say they expect aging populations to put upward pressure on real interest rates, in turn boosting insurers’ returns and earnings.