A confluence of demographic and economic trends make longevity risks perhaps the biggest growth opportunity for insurers, but writing such long-tail coverage profitably also might present the industry with its biggest challenge in the decades ahead.

Retirement financing and securing lifetime income are the main objectives for most annuities holders today, according to the latest "Voice of the Insurance Consumer" survey by Deloitte’s Center for Financial Services. That means the stage is already set for potentially dramatic market expansion, given estimates by the Pew Research Center that roughly 10,000 Baby Boomers will turn 65 every day between now and 2030.

Add to that phenomenon the potential for ongoing lifespan extensions due to continuing advances in medical care, as well as expanding access to health insurance and wellness programs driven by the Affordable Care Act, and one can see why longevity should become an even more widespread and pressing concern.

Worries about living too long

In other words, more people will likely worry about living too long rather than dying too young as we head deeper into this century.

Also keep in mind that fewer and fewer people going forward can count on pensions from defined benefit retirement plans. Even Social Security benefits may be at best uncertain over the long haul, given that current payments have already started to exceed contributions.

In such an environment—with an increasing percentage of the population having to account for their own retirement income, and do so over a longer period of time—it’s logical to hypothesize that insurers are destined to have a rising number of prospects at least interested in products reassuring them that they won’t outlive their assets.

Some carriers are seizing the opportunity to bolster their share of the longevity market in a big way by taking on the pension obligations of employers looking to offload defined benefit plans. Longer term, with the transition to defined contribution plans accelerating, the 401(k) system should provide a natural platform for longevity solution marketing, reaching prospects who are prime candidates for guaranteed lifetime income products.

Recent federal advisories should help facilitate the use of this channel for annuity sales. The Internal Revenue Service (IRS) last year issued rules allowing individuals to buy longevity annuities in both their 401(k) and Individual Retirement Accounts. Then last October, the IRS put out a notice allowing employers to include annuities in target-date mutual funds that often serve as a default investment option in 401(k) plans. The Department of Labor followed up with a letter of its own confirming that possibility.

However, while opportunities for growth appear to be multiplying, the challenge remains as to how carriers will be able to fulfill longevity income commitments and still earn a positive return.

Stay engaged with customers

Going forward, carriers will need to carefully consider how they design, model, and price longevity products to meet economic targets and reduce downside risk over the long term as lifespans keep rising.

It’s also likely a good idea to stay engaged with customers over the life of a longevity policy, rather than just treat them as a one-time sale. Indeed, Deloitte’s consumer survey found that four in 10 annuity buyers had purchased more than one such product over the years, primarily to fortify their retirement security and bolster an income stream that they can’t outlive.

What else do you think insurance carriers can do to help clients adapt to life in a society and economy where living to a ripe, old age is increasingly likely to be the rule rather than the exception?

Sam Friedman (samfriedman@deloitte.com) is insurance research leader with Deloitte’s Center for Financial Services in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.

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Longer lives pose growing opportunity, bigger risks for insurers

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