Some things only make sense in the aggregate. The issue of longevity is a prime example. While longer life spans is one of the unalloyed successes of the preceding century, the aggregate impact of aging populations also represents a major challenge for governments and benefit companies.
A new report from Swiss Re, “A Window into the Future: Understanding and Predicting Longevity,” examines why rising life expectancy has been consistently underestimated, in recent decades and how insurers can craft better models to better understand the issue.
Daniel Ryan, the author of the report and head of Life and Health Research and Development at Swiss Re, says one reason is that much of research surrounding mortality has been done in a siloed manner. “There are a number of institutions that have spent time thinking about this from a public sector perspective, such as the National Cancer Institute,” Ryan tells Insurance Networking News. “But the issue is that we haven’t tended to put diseases together.”
Moreover, he notes that the interrelation of diseases is largely suppressed in traditional cause-of-death information collected by governments. “If you have a decrease in deaths from one disease what happens to those individuals?” he asks.
Thus, Ryan says, modelers need to shift from models that rely on historical information to encourage actuaries to seek out first hand information from doctors and epidemiologists in order to make models more forward looking. “A traditional stochastic model may not capture the full gamut of possibilities,” he says. “We need to develop forward-looking scenarios which directly ask people’s expert opinions as to what might happen on a disease by disease basis and combining those with databases that capture the full range of diseases an individual may develop over time.”
Given the range of medical advances currently percolating across the globe, as well as the laundry list of factors such as drug-resistant diseases that may increase mortality, Ryan says a disease-centered mortality model, based on forward-looking scenarios, is key to understanding longevity risk. “The future is highly uncertain, but a key benefit of predictive approaches is that they can increase confidence in the pricing and funding of future retirement income solutions,” the report sates. “However, holding longevity risk continues to be a major challenge for pension funds, insurers and governments and better methods need to be developed to share the risk appropriately.”
Bill Kenealy writes for Insurance Networking News
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