Living longer will change the way we consume insurance

Since the end of the 20th century, there has been a global trend toward lower birth rate and mortality, which lengthens life expectancy and therefore modifies the composition by age group of societies. This affects developed countries more immediately and sharply, but it is a phenomenon that already occurs in emerging countries.

Worldwide, dynamics converge on the aging of the population, a process that has profound repercussions on the economy and on national health and well-being systems, as shown in the report Demography: an analysis of its impact on insurance activity, by MAPFRE Economics.

• Fewer workers, more retirees

The proportion of people of working age compared to those who reach retirement age is decreasing.

Currently, this ratio is 2.6 (people aged 20 to 64 by those aged 65 or older) in Southern Europe, 5.9 in South America, and it reaches more than 15 in East Africa, the youngest region in this regard. But in just 20 years, UN projections have already reduced it to 1.5, 3.4 and 12.3, respectively. And by the end of the century, in 2094, forecasts place it at just 1.2, 1.6 and 4.1 in those same regions.

• Less births

The world's population has been moving toward a zero growth rate for decades. The UN estimates that in 2024, the global fertility rate (births per woman) is 2.3—mainly due to the influence of Africa—still above the replacement figure of 2.1. However, forecasts indicate that by 2050 it will have reached that point, and will fall to 1.9 at the end of the century.

Currently, the fertility rate is especially low in Southern Europe and East Asia, with 1.3 and 1.2 births per woman. In practically the entire developed world, this figure is below the replacement rate.

• Life expectancy will continue to rise

Medical advances are the main factor that has driven a very significant decline in mortality percentages and a sustained increase in longevity in recent decades. Far from stopping, forecasts show that this trend will continue around the world for the remainder of the century, although circumstances such as COVID highlight that these dynamics are not free of uncertainty and situations such as wars or natural disasters can alter them.

Life expectancy at age 65 is now 21 years in Southern and Western Europe (up to age 86), and nearly 18 years in South America (up to age 83). This will gradually increase and, in 2094, according to UN projections, a person who reaches that age in Southern and Western Europe will live on average 28 more years, up to age 93, and in South America, 24 more years, up to age 89. As a result of this trend, more developed countries are already extending the retirement age.

• Migration partially offsets the decline in population

Although mortality and birth rates are the main factors for explaining demographic changes, in some countries international migration is also a determining factor. Until the year 2000, the growth of high-income countries was due to the natural increase in the population, but in the 2000-2020 period the contribution of migration was already greater.

In these cases, “positive net migration can help mitigate, albeit only partially, the natural decline of the population” due to low birth rates, says Manuel Aguilera, director of MAPFRE Economics. In fact, immigration is expected to be the only driver of demographic growth in the richest countries in the coming decades.

The demographic trends seen above determine the composition of the population by age group, which has a direct impact on variables such as real estate, automobile, healthcare expenditure, retirement savings linked to pension systems, credit or the need for protection against the risk of death and disability, all of which are very important for the insurance industry.

The MAPFRE Economics study shows that the number of homes is closely linked to the evolution of the population aged 25 or older. If the adult population grows, the real estate fleet will also do so, which is necessary for the development of home-related and credit insurance, such as life insurance associated with it. However, with a stagnant population, this sector of the economy will continue along the same path.

The number of vehicles per inhabitant, and consequently the number of automobile insurance, is more closely related to purchasing power. If countries manage to increase their productivity, and therefore their GDP per capita, they will generate greater demand in this sector. This direct relationship occurs in general in all Non-Life insurance: GDP per capita is the factor that explains 62% of the variability in spending on these insurance policies, according to MAPFRE Economics.

The strength of public pensions depends on the proportion of the workforce compared to retirees. Thus, “the urgency of complementing retirement savings in a country or region depends on the speed at which this ratio will decrease in the coming years,” says Manuel Aguilera, due to “the pressures that reduced contributions and increased spending can place on public coverage.”

In terms of health, the increase in healthcare expenditure, far from being linear, increases sharply as older ages are reached. The data also show that contracting health insurance is closely linked to disposable income. Therefore, “the higher the proportion of people aged 65 or older and the higher the GDP per capita, the higher the growth of healthcare expenditure, which favors the development of private health insurance as a complement to the mandatory healthcare coverage of a country,” says Aguilera, director of MAPFRE Economics.

With all the demographic and economic variables presented, MAPFRE Economic Research has developed an indicator that measures the growth potential of the insurance industry driven by demographic factors. The ensuing ranking is lead by China, India and the United States, due to the advantages offered by countries with such a large population, and Spain ranks 35th out of 179.

If you want to learn more about this ranking, you can read it here and at this link you’ll find the full report.

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