abcd
Panning for Silver
The Implications of an Ageing Population
Joanne Wells
Younger Member Convention 2002
TODAY'S PRESENTATION
à Population trends
à Opportunities for insurers
à Longevity and medical advances
à Developments in the pricing and underwriting of risk
THE CHANGING DEMOGRAPHICS
Age profile of the UK is rising
à Ageing of the ‘baby boomers’
à Declining fertility
à Improving mortality
à Some consequences:
– The number of people aged over 50 is forecast to grow by
6m over the next 25 years
– Total number of older people is higher and these people are
also living longer
– A different target market for the financial services industry
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DEMOGRAPHICS
Fertility Rate
3.00
Children per woman
2.75
TFR
2.50
2.25
Replacement level
2.00
1.75
1.50
1951
1961
1971
1981
1991
2001
2011
2021
Year
Source: Government Actuaries Department
DEMOGRAPHICS
Improving Mortality
Life expectancy at different ages
Males
Females
Age
1999
2011
2031
1999
2011
2031
0
79.6
79.9
80.0
83.8
84.1
84.2
60
21.3
22.2
22.9
24.8
25.5
26.1
65
17.0
18.0
18.8
20.1
21.1
21.8
75
9.7
10.9
11.6
11.9
13.1
13.8
85
5.2
5.8
6.4
6.4
6.8
7.7
Source: Government Actuary’s Department
DEMOGRAPHICS
Projected Age Distribution United Kingdom 1971 2070
90+
100
%of total population
80
60-74
Project ed
70
45-59
Median
80
60
50
30-44
40
30
40
30
15-29
20
10
0
1971
90
70
60
50
100
75-89
90
0-14
20
10
0
1991
2011
2031
2051
Year
Source: Government Actuaries Department
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Income in Retirement
WEALTH
Pensioner incomes, by age
£450
Earnings
Investments
Occ pen income
£400
Benefits
£350
£63
£300
£61
£49
£59
£114
£105
£76
£143
£144
£149
Recently retired
Under 75s
Over 75s
£250
£200
£13
£42
£150
£100
£50
£0
Source: Department of Social Security (2001) Pensioners’ Income Series, 1999-2000
Home Ownership
WEALTH
Percentage of people owning their own home, by age
With Mortgage
Outright
90%
80%
70%
8%
8%
3%
65%
63%
58%
30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
75+
16%
60%
48%
50%
40%
30%
56%
41%
62%
61%
59%
58%
43%
20%
10%
0%
32%
12%
<30
6%
7%
9%
16%
29%
Source: NOP, Financial Research Survey, 2000
LONGEVITY HAS ITS BENEFITS
.......and its problems
à All financial services brochures for the silver market show
happy attractive old people - we all want to live longer
à ‘Silver market’ is expanding………..
à Insurers run significant extra risks on their new and existing
business
à Reinsurers are keen to selectively expand into this large market
by assisting their clients
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WHICH RISKS ARE PROVIDERS FACING?
à We are living longer - but not necessarily in a healthy state
à We will work, and need income protection, for longer
à People will need life assurance at older ages
à Annuitants are already living longer and will continue to do so
à Impaired annuity market will grow
à The need for long term care will be greater
PROVIDERS FACE EXTENDED RISKS FOR:
à Income protection
à Life assurance
à Critical Illness
à Annuities
à Impaired annuities
à Long term care
NEW RISKS FOR INSURERS
Life Assurance
à Improving longevity is good news for existing block!
à More demand from older lives
– People have children older
– Inheritance tax, demand up to age 90 or longer
– Retirement age to increase?
– Demand for higher ages at entry
– Little data available
à Reinsurers have mortality studies from around the world and
have written such business in specialist areas
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NEW RISKS FOR INSURERS
Life Assurance
à Mortality continuing to improve……
à ……….…..but already priced in?
à Rates close to bottom?
IMPROVED LONGEVITY HAS ITS RISKS
The Annuity Market
à Existing blocks - improvements greater then expected
à New business - how much further will mortality improve?
à How much have rates changed - due to improved longevity?
– Male 65, £100,000 purchase price in 1991: £9,455pa
– Male 65, £100,000 purchase price today : £8,511pa
– Reduction in annuity: 10%
à Can reinsurance help?
REASSURANCE AND ANNUITIES
Will reinsurers help?
à Reinsurers know about mortality, but most of us are reluctant to
take longevity risk from existing blocks
à Why?
– Life insurer has margins in investment and expenses
– Everyone worried about the scale of future improvements including the reinsurers
– A large possible downside for little upside!
à So where can we help in this market?
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IMPAIRED ANNUITIES
A growing market
à We are keen to provide support to clients for impaired annuities,
why?
à The market is relatively new and growing
à Opportunities for innovative product development
à Underwriting and mortality pricing are our key strengths
à Risk can be high, so insurers keen to pass risk on
à Potential upside is higher - in relation to downside
IMPAIRED ANNUITIES
Key questions for reinsurers and providers
à Which market segment?
– Serious impairments
– Lifestyle impairments
– Occupation / location
à What is risk profile for each impairment?
à How will medical advancement affect experience?
– New drugs for Alzheimer's for example
LONG TERM CARE
Markets
à Two separate markets
– Pre-funded
– Immediate needs
à Insurers and reinsurers and tried to develop a pre-funded
market in the early 90s, without success
à Immediate needs market is now growing
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LONG TERM CARE
Immediate Needs
à Impaired annuity, with different characteristics
à Older age at entry, typically aged 80 and higher
à Lower expected life expectancy
à No compulsion to effect annuity
REINSURANCE FOR IMMEDIATE NEEDS LTC
à Underwriting at advanced ages is a difficult art
à Pricing information is scarce
à Potential error could be high
– Living one more year causes larger proportionate loss
à For shorter term annuities investment yield less significant
à Reinsurance product a great benefit for providers
EQUITY RELEASE
Role of Reinsurance
à Great product for the ‘silver market’
à Product structure is complex ‘behind the scenes’
à Product design depends on ‘expected’ longevity
à Lenders require repayment based on ‘expected’ deaths
à Reinsurance product can swap ‘expected’ for ‘actual’
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WHAT IS A REASSURANCE PRODUCT?
à A combination of advice and support on:
– Product development
– Pricing
– Underwriting
– Claims
– Marketing
– Research
à Followed by a comprehensive financial programme to share the
risk between the provider and reinsurer
THE SILVER MARKET
Reinsurance Services Required
à Research
à Pricing
à Underwriting
à Product design
à Ongoing advice
à Fits very well with our skills and services brought to a long term
client partnership
Developments in the Pricing
and Underwriting of Risk
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SOCIAL POLICY
à To underwrite and price for the elderly we must consider a
wider social view
à Government and social policy will be a major influence
à Current elderly population are not high priority for government
à What will happen as elderly population becomes more affluent?
GOVERNMENT INITIATIVES
Our Healthier Nation
à Priority areas are:
– Heart disease and stroke
– Accidents
– Cancer
– Mental health
à Aim to reduce death rates
à Targetted at working population - up to 65
IMPLICATIONS OF GOVERNMENT POLICY
à As initiatives work, there will be knock on effect to older ages
à Improving mortality will continue into old age
à We will view people with minor impairments as ‘standard’
à Those disease free will be ‘super preferred’
à Major implications for annuity market, especially with growth of
impaired products
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AVAILABILITY OF TREATMENT
à Availability of diagnosis and treatment for older lives will be key
à As our generation ages, we will demand the best care - and
many of us will be able to pay for it
à We won’t accept priority given to younger lives
à More treatment will be given to elderly lives
à Underwriting will become even more specialised
MEDICAL ADVANCEMENT
à Life expectancy for men was 45 in 1901 and is projected to be
84 in 2011 (GAD 1998 population projections)
à Medical science has advanced substantially in the 20th century
à Still developing very fast
à Of specific interest to the life assurance and health industry:
– New diagnostic techniques
– New screening programmes
à May improve mortality - but what about morbidity?
SPECIFIC DEVELOPMENTS
à Improvements in treatment of hypertension have already
benefited incidence of heart attack and strokes
à Screening initiatives
– Cervical screening
– Prostate cancer
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New Screening Programs
EXAMPLE
Prostate Cancer
Ratio of Population Incidence Rates in Calendar Year
to 1979
220%
200%
180%
160%
45-54
55-64
65-74
140%
120%
100%
80%
EXAMPLE
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
60%
New screening programmes
à Prostate Cancer
à Screening programme now proposed
– 2 year trial launched April 2001
– 230,000 men between 50-69 invited to attend for check
à Sweden has had a full screening programme for some time
– They have one of the highest incidence rates of prostate cancer
in the world
PROSTATE CANCER
Possible effects of successful screening
à Many more cases of prostate cancer detected
à Average age of detection will reduce
à Diagnosis before disease is life threatening
à Cases which would have gone undetected will be found
à Mortality rates will improve, morbidity rates will worsen
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CRITICAL ILLNESS
Prostate cancer
US Age Standardised Population Incidence Rates
as a Percentage of Rates in 1973
500%
450%
400%
350%
300%
250%
200%
150%
100%
50%
0%
Less than 65
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
More than 65
POSSIBLE FUTURE DEVELOPMENTS
à Early detection system for lung cancer
à Early use of MRI scans for Multiple Sclerosis
à Memory assessment testing for Dementia
à MRI screening to detect silent stroke
à Full body scanning
à Genetic screening by GPs in general practice
PRICING
Life and Health
à Developments point to improving mortality
à Are these improvements already priced in?
à If so term rates could be close to bottom
à Critical Illness rates set to increase at older ages
– Especially if definitions not updated
– Guarantees to become more expensive, if available
à Other health products to become more expensive at older ages
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Annuities
PRICING
à More players will enter the impaired annuity market
à ‘Own mortality table’ pricing by reinsurers
à Segmentation of annuity market resulting in lower standard
rates
à More criticism of annuities?
à Further product development
UNDERWRITING THE SILVER MARKET
à No ‘clean’ proposals at older ages
à How do diseases interact?
à Underwriting decision for a disease may vary by product
à For example, diabetes:
– In middle age insurable for life assurance (with rating)
– May not be insurable for health assurance
– In old age the survivors may be ordinary rates
SUMMARY
Some speculation
à Medical science will continue its relentless advancement
à As a result mortality will continue to improve at the middle and
advanced ages
à Demand for health insurance will grow in these age groups
à Product designs in both the health and annuity areas will
change
à Interaction between product development actuaries and
underwriters will become ever more important
à Risks run by life insurers and reinsurers will need careful and
close monitoring
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THE SILVER MARKET
Summary
à Large potential for growth in risk products
à Pricing and underwriting are major challenges
à Reinsurers will continue to research this growing market and
provide their clients with competitive advantage
abcd
Panning for Silver
The Implications of an Ageing Population
Joanne Wells
Younger Member Convention 2002
14