The world is facing an ageing crisis as the balance between young and old shifts at an unprecedented rate. This poses significant challenges to the ability of developed nations to support benefits for the elderly, as well as sustain economic growth rates and high living standards. Medical advances and better healthcare have helped secure longer lives for mankind. At the same time, the working population is dwindling. In the European Union the ratio of people aged over 64 to the working-age population will almost double between 2000 and 2050 from 27 to 53 per cent. And the next 50 years will see the mean age in developed countries rise from 37 to 46 years. Europe will be even older, with an average age of nearly 50.
By 2020 shrinking numbers of workers across Europe and Japan could limit gross domestic product growth to less than half the rise of productivity. “The challenges of global ageing are fundamental, unprecedented and potentially destabilising to global prosperity,” says the Commission on Global Ageing, a Washington-based think tank of 86 political leaders, business and non-governmental organisation executives and policy experts. “Urgent corrective actions are needed to avert more painful consequences later on.”
Meeting the care needs of an increasing number of elderly people who can no longer live without care and support will put an enormous burden on public finances and is likely to severely constrain economic growth. By mid-century as many as 40 per cent of households in some countries could depend on the government for their income and health security. But few countries will be able to provide specialist care for their large aged population.
The most significant feature of this demographic change, from a long-term care (LTC) perspective, is the growth of the ‘oldest old’, the 80-plus population. They will have the highest need for LTC. Although the proportion of the oldest old is still low, they are the fastest-growing population segment. They are increasing at 3.8 per cent per year and comprise more than one-tenth of the total number of older people. In 2050, 19 countries are projected to have at least ten per cent of their population aged 80 plus, including the UK and many other European countries, according to the United Nation’s Population Division.
The greatest threat to health is the rise of chronic diseases. Unless major advances in treatment or prevention are made they will become more prevalent as life expectancy increases, states the World Health Organisation. Disability is a key feature of many of these conditions and affected individuals may need care for a long time, particularly as they get older. In addition, later in life, individuals may develop cognitive disorders like dementia and many will be disabled for many years by musculoskeletal disorders like osteoarthritis, requiring more care.
LTC is a concept and cannot be classed as a single product. It encompasses medical and other healthcare, personal care, and financial support. Currently, the family network remains the primary source of care for the world’s elderly, despite growth of welfare systems in developed countries. In all societies women aged 45 to 65 are responsible for the majority of caring. Although most care is given in the home, the rate of institutionalisation rises considerably with age, with women 50 per cent more likely to go into an institution.
Besides the demographic factors there are a number of threats to this care structure. High divorce rates and consequent changes in family structures, increasing mobility of family members, changing household structures and sizes, and a growing number of women in the workplace will all adversely impact future care, according to Swiss Re.
“When the numerous social and cultural trends are overlaid on this demographic shortage it does not seem unreasonable to predict that the availability of family carers will reduce substantially in the future,” states a Swiss Re report entitled Long-term Care Opportunity. “And is family care giving the care method which most benefits society as a whole? There is a cost to society when well-educated and economically productive people give up work to act as carers.”
Today, despite some welfare aid, most old and frail people cannot meet more than a fraction of their needed healthcare costs. Yet the future will see the elderly receive even less, or possibly nothing at all, as governments struggle to avoid economic crisis. In most countries the trend is towards targeting available public funding to those most in need, typically those on low incomes who have no family support. Means tests are being employed, using income and asset threshold levels to determine who qualifies for state assistance.
Global ageing, however, does present a major opportunity for insurers, especially in the LTC arena. “There are opportunities for forward-thinking companies to design flexible new products which help consumers, young and old, to adapt to changing circumstances and use their available financial resources to achieve a more secure and independent life,” says Swiss Re.
The majority of the LTC insurance (LTCI) markets are still in their infancy, being less than a decade old. The US market is most mature; it launched its first LTC products 30 years ago. LTCI can be written in many different ways. It can also be packaged with a wide range of other products and services to provide tailor-made solutions that add real value to the customer.
People’s needs are altered by a whole range of factors, many of which interact: age, gender, marital and family status, state of health, income and asset levels, trends in public provision and availability of formal care. Swiss Re presents a number of solutions:
|•||Age: Both young and old need LTCI, but products need to be designed with specific age-group needs in mind. For the young, eldercare for themselves is remote. Although young people will benefit from lower premiums, they have more immediate demands on their protection and investment budgets so packaging LTCI with other products is likely to be more appealing: savings retirement vehicles or other protection products.|
|•||State of health: Most LTCI products are sold to people in reasonably good health not yet in need of care. However, those who already require care or are in receipt of care present needs that can be met. Impaired life annuities can be packaged with other investment products, care management services and advice to ensure existing financial resources are being used most effectively.|
|•||Income and asset levels: In markets with a high level of homeownership, many elderly are asset rich and income poor. Here LTCI can be packaged in a way that enables use of the home’s capital value – in the UK seven to 50 per cent of the retired population would be able to afford LTCI if they could use the capital value of their homes.|
Taking out LTCI is not the only solution to global ageing – although it is a major step forward. Asking people to take responsibility for themselves in later years will substantially reduce the pressure on the government.
However, the concept of dependency must change. If everybody is ageing at the same time, ‘old’ is no longer what it once was. The old are a vast untapped labour resource, one with a wealth of experience. While most governments will have to increase retirement age, companies themselves should introduce flexible retirement ages, part-time work and working from home facilitated by available technology. Governments need to radically revise their welfare systems. They need to promote healthy ageing with comprehensive healthcare programmes that help delay the onset of chronic, disabling conditions that affect healthy life expectancy, instead of dealing with dependence and when it occurs. Insurers and reinsurers need to use their knowledge to develop innovative products that help an ageing society provide for a future very different to today.