Capgemini Research Institute's newly published report on the future of the global life insurance industry poses some existential dilemmas for the industry's leadership. 

Life expectancy around the globe, combining with declining developing economy birth rates mean that by 2050, globally, there will be double the number of human beings in the 50+ age group. As the public sector inevitably struggles and fails to support an exponential growth in healthcare and other social costs to support this cohort (as an aside, see Zurich Insurance's excellent 2017 ‘The Future of Social Protection Systems’), so the part which life insurers play will become vital:  According to Prestige Economics' Jason Schenker, in 1955 there were 9 full-time employees in the US making social security contributions through their taxes, for every one beneficiary of social security payments.  In 2023, there are less than three workers per beneficiary and this ratio is set to decline further.

As the life insurance industry finds itself facing a new era in which core Protection products are less relevant, there will be an ever-growing shortage in retirement provision (according to Capgemini USD400 trn by 2050), potentially presenting the life insurance industry with capacity problems in the annuity markets at a time when the Savings & Retirement category is struggling to produce expected returns in capital-light retirement products…and all of this as the death of the post-war ‘baby-boomer’ generation leads to unheard-of levels of intergenerational wealth transfer, potentially causing 40% of the current level of global life insurance assets to exit the industry.  Global birth rates will decline (the UN thinks by 48% over the next 15 years), causing a shortfall in income from younger consumers at a point where decumulation becomes the principal activity for many life company Retirement businesses. Decumulation itself presents further challenges, because of the hitherto reliance upon volatility in the equity markets to produce income generating returns in the drawdown segment of the market.

There may be some benefit, argues CG, in shifting approach from the historically product-focussed behaviours of the life insurance industry in Europe and Asia, to one which more resembles that of the US, in which ‘Whole-of-Life’ products aim take consumers cradle-to-grave, offering lending and other monetisation points during the average consumer lifecycle, as our needs differ from buying to monetising our homes, securing a minimum level of retirement income and better provision in the earlier part of the post-retirement journey. There could also be a discernible shift in messaging from life insurers towards the mass affluent consumer group, or indeed a return to large scale financial planning and advice provision, with wider ‘waterfronts’ of tied products or even asset manager acquisitions (or vice versa). Long term care, ‘age well’ products and health/medical assistance products – or at least addressing the insurer’s distribution arrangements with the health sector – might all be areas in which change is manifested.

Historically, the life insurance industry has demonstrated time and again that it is capable of responding to major societal trends, but this has often been in the form of corporate transactional activity: the inception and growth of the PRT industry in the UK and elsewhere, demutualisation, consolidation and wholesale shifts in corporate strategy to the comparatively younger Asian market spring to mind. But the difficulty is that these age-old solutions don't address a crisis in which global demographics have aligned and insurance capital dwindles. The solution, according to Capgemini at least, lies in addressing the industry’s approach to product development and achieving lifelong engagement from its customer base in the process…