Increased life expectancy leads to higher demand for Life Insurance

Friday, September 3, 2010

According to a new report, people are living longer in the UK, and this improvement in life expectancy is giving rise to a high demand for Longevity Insurance. The report, based upon research commissioned by insurance company Swiss Re, has shown that people are living to greater ages than ever before, meaning that life insurance requirements are changing.

Longevity Insurance is a form of Life Insurance which only pays out to policyholders if they reach a certain age. The product is more popular within the UK than in other countries across Europe and America. Swiss Re have commented that they are expecting a high increase in demand for Longevity Insurance, as people’s views about their age changes in response to the improved expectancy figures.

The rise of healthier lifestyles, enhanced nutritional awareness, uptake in exercise and improved medical services have all led to people across the UK reaching more advanced ages than ever before. It is expected by industry experts that Longevity Insurance will enjoy increased demand as people realise that they will have to provide for themselves when they reach an advanced age.

Longevity insurance covers the risk to which a life insurance company or pension fund can be exposed, due to rising life expectancy trends among policyholders and pensioners. This can often result in payout ratios that are higher than expected.

Swiss Re have issued a statement: "Underestimating life expectancy by just one year – a relatively small miscalculation – can increase liabilities by up to 5 per cent. Longevity risk could be transferred to the capital markets in a similar way to the risks of natural disasters such as hurricanes and earthquakes, where the risk is moved to investors through financial products called catastrophe bonds.”