Ageing is a structuring trend affecting the global economy. Sometimes seen as being limited to industrialized countries, it is in fact worldwide and, in absolute values, concerns the emerging much more than the industrialised countries.
While it is a challenge, especially for public and social finances, it is also a huge opportunity: we, citizens of the world, have an increasing probability of benefiting from a longer lifespan and furthermore from a longer healthy lifespan. Of course, there are some uncertainties related to obesity and epidemic risks, such as HIV, but these uncertainties are much more an incentive to innovation than a trend swing. It is in this environment that long term care is emerging as a specific challenge for the ageing society, especially in industrialised economies where large social solidarities are vanishing and the nuclear family model is prevailing. But this challenge can be addressed, probably by medical progress and certainly by insurance schemes. In fact, the long term care risk is insurable and those who are proposing a new social security branch for long term care are completely wrong. There is no market failure in this field and the competing long term care schemes of French insurers and American insurers are demonstrating how dynamic, innovative and open the market is. After 25 years of intense market experience, we are now able to design more accurate products for the future.
2. Components of Ageing
Ageing is a complex and worldwide phenomenon1. It makes its appearance with the industrial revolution but becomes really significant after World War II. Its complexity comes from the fact that it is made up of the combination of different trends.
For a long time, ageing concerned all ages excluding extreme old ages. It is only in the last thirty years that it also concerns extreme old ages. Convergence between countries has contributed substantially to ageing since World War II. More importantly, this trend was not confined to industrialised countries but it also extended to less developed countries. If a 65 years old and over population represents only 5,5% of the population of less developed countries, compared with 15% in the OECD population, it currently makes up 65% of the worldwide population of 65 and more (cf. Figure 1)2.
Of course, longevity gains contributed a great deal to welfare improvements around the world and, on average, poorer countries had a higher share of welfare gains due to longevity increases3. Moreover, if longevity gains are measured by lifespan income gains, the evidence shows that longevity changes since World War II worked towards reducing the disparity in welfare across countries (cf. graph below extracted from Bourguignon et alii)4. But one has to bear in mind that the poorest countries, mostly in Africa, remained largely untouched by this improvement.
Where are we going from here? Optimism concerning longevity is (too) largely shared. Of course, continuation of current trends in the future leads to optimism. Probably, the most optimistic anticipations are those of the Economic Policy Committee of the European Union Commission5. One reason for this over-optimism is probably due to government fears concerning future public pension expenditures and their anxiety not to underestimate their financing constraints. More realistically, OECD anticipates a substantial slowing of the ageing trend in industrialized countries at the 2050 time horizon (cf. Table 1)6. But, one should bear in mind that new factors, such as obesity or modified social behaviours (cf. former soviet countries), may reverse the current trends towards higher longevity.
Table 1: Comparing past with projected gains in life expectancy at birth
Source: OECD/DELSA – Population Database, OECD Health Data and Eurostat EUROPOP 2004.
Expectations concerning less developed countries are much more dramatic. They point to a growth of the 65 years and over population more than twice as high in less developed countries, between 2005 and 2050, as that in developed countries. As a consequence, in 2050, the 65 years and over population will represent 15% of the overall population in the less developed countries, compared to 26% in the OECD countries, and 80% of the 65 years and over worldwide population (cf. Figure 3)7. Such a growth will induce a worldwide explosion of the ageing phenomenon. But, one should bear in mind that, in less developed countries also, new factors, such as HIV or modified social behaviours, may reverse the current trends.
Philippe Trainar: Chief Economist Officer of SCOR Group.
1 Cf. Robine, J.M. (2007): current issue.
2 Cf. United Nations (2006): World Population Prospects: 2006 Revision.
3 Cf. Becker, G., Philipson, T.J. and Soares, R.R. (2005): “The Quantity and Quality of Life and the Evolution of World Inequality”, American Economic Review, March.
4 Cf. Becker, G. and alii (2005) and Bourguignon, F. and Morrisson, C. (2002) : “Inequality Among World Citizens: 1820-1992”, American Economic Review, September.
5 Cf. European Commission (2006): The Impact of Ageing on Public Expenditures (2004-2050), Economic Policy Committee.
6 Cf. Antolin, P. (2007): “Longevity Risk and Private Pensions”, Working Paper, No. 3.
7 Cf. United Nations (2006).
Tags: health and ageing, insurance products, Long Term Care