The study, “Expanding Retirement Income Opportunities for Insurers: Managing Increased Longevity Risk,” from
The opportunity has two major customer segments: individuals and defined benefit plans (DB), Conning says. Insurers already have a basic suite of products that transfer group and individual longevity risk to insurers. Further product development will enhance the ability of insurers to answer customer concerns about current products, and deepen penetration in these segments.
“The life industry has grown significantly during the past two decades by helping individuals accumulate retirement assets,” says Scott Hawkins, analyst at Conning Research & Consulting. “However, Baby Boomers are increasingly concerned about outliving their accumulated assets as they near or enter retirement. At the same time, pension plan sponsors are concerned about managing their assets to meet their obligations to current and future retirees as life spans increase. The longevity risk concerns of both individuals and groups represent significant premium growth opportunities for insurers over the medium term.”
The market opportunity from both individuals and DB plans is large and potentially profitable, according to the study. That profitability rests, however, on the ability of insurers to understand and manage the longevity risk they will be accepting. While tools and solutions to accomplish those tasks do exist, some are relatively new and need further development. Given that, the longevity opportunity is a series of waves insurers should use the next few years to invest in that development, Conning suggests.
Opportunities for insurers exist in exploiting differences in mortality of specific populations or groups, from fluctuations in specific age cohorts along the mortality/longevity spectrum, or from providing solutions to mismatches between investment and payment durations, according to Stephan Christiansen, director of insurance research at Conning. “However, profitable growth for insurers offering these products also depends on developing effective solutions to challenges of product distribution and on successfully managing the broad-scale accumulation of longevity risk within the insurer’s own portfolio,” he says.
