How insurers can serve Asia’s aging population

oct 3, 2024 Asia’s population is rapidly aging as people live longer and birthrates fall—and many of the region’s retirement-income systems are ill-prepared for the shift. By 2050, people over 60 years old are expected to account for 25 percent of the population in Asia and the Pacific, up from 14 percent in 2020. ^[1] In many Asian countries, the standard retirement age is 60 or younger. Although some governments in the region plan to increase retirement ages over time, many residents are slated to receive 20 to 30 years of retirement income.

Emerging markets in Asia ^[2] face a significant challenge in funding sustainable retirements, with an estimated cumulative pension savings shortfall of $74 trillion, ^[3] which comes out to about $50,000 a worker, or 11 times the average annual income. In India and Indonesia, for example, pensions cover only 8 percent of the population.

As populations age, the strain on public support systems is expected to intensify. Several changes can help alleviate that pressure. Governments can consider increasing retirement ages and encouraging people to work longer and save more, including using tax and other incentives. For example, in Australia, the introduction of aged care insurance is being discussed, as the country currently lacks private long-term care insurance. ^[4] Proposed funding models include options such as raising taxes or introducing a Medicare levy dedicated to aged care. Additionally, there are suggestions for means-testing contributions from individuals receiving care to ensure a fair distribution of costs. In addition, the private sector can offer retirement products to supplement government pensions. Insurers in particular are well placed to help ameliorate Asia’s pension gaps by offering products such as annuities.

Insurers’ efforts in this area haven’t yielded the desired results so far due to several factors:

• Most retirement products offered by insurers are inflexible and have provided unattractive returns due to historically low interest rates, failing to meet individuals’ retirement needs. For instance, guaranteed lifetime income annuities sold by many insurers in Asia typically come with low returns and high fees. These products also tend to lack flexibility in how income streams are paid out and how assets are allocated. Additionally, rising inflation further erodes the purchasing power of these income streams.
• Senior care products—such as annuities with a healthcare component, long-term care insurance, and life insurance with a long-term care component—are unaffordable for most people in both developed and developing countries, resulting in low market penetration. In China, for example, the commercial long-term care insurance market comprises only about 1 percent of total health insurance premiums. ^[5] High-end annuity products that provide access to retirement communities built by insurers have been introduced in some markets, but they remain prohibitively expensive for the average worker. Living in those communities in China costs at least 6,000 yuan ($825) a month, ^[6] while a retired urban salaried employee receives an average monthly pension of about 3,500 yuan. ^[7]

Asian insurers have other options to serve the aging population while creating business value. Strategies to help insurers address the retirement shortfall can include introducing innovative products, modifying the way products are sold to help educate customers, and creating ecosystems of retirement services.

Introducing innovative products

New products and partnerships can help address retirement income needs across Asia. Moreover, insurers can harness technology to enhance services and use data analytics to assess risk more effectively, thereby achieving more affordable premiums and attracting more customers.

As insurance and asset management continue to converge, in emerging markets with younger populations, insurers are introducing additional asset accumulation and management products such as target-date funds and alternative asset funds. Some insurers are also partnering with asset managers to offer products that adjust over time, reducing the complexity of financial planning. One example of this is a product with a diversified portfolio that adjusts its underlying asset mix over time to decrease exposure to stocks and increase exposure to bonds as the customer’s target retirement date approaches. While these target date fund products have increased in popularity in the US over time, their penetration remains low in Asia. Moreover, in other markets we are starting to see these products evolve with various forms of guaranteed income features embedded in the design.

Products with more flexible options—such as varied payment structures, payout terms, and retirement ages—can help insurers better serve customers. Asian insurers can find inspiration for such products in Germany, where one multinational insurance company embraced flexibility for its retirement products by offering various payment options (allowing customers to make multiple premium payments at their own pace instead of one large single premium payment) and payout options (a lump sum, recurring income, or a combination of both). Customers also have the flexibility to withdraw money with no penalty.

Additionally, in developed markets with older populations, insurers are focusing on innovative solutions for decumulation, such as reverse mortgages, inheritance planning, and health-related products such as long-term care protection and end-of-life and palliative support.

Reverse mortgages, for example, an equity release product that allows retirees to convert their home into a source of stable monthly income, can help older homeowners address income shortfalls. While the homeowner population is significantly increasing in the Asia-Pacific region, reverse mortgages in the region account for only about 10 percent of the global market for these products, which was valued at $1.7 billion in 2023. The United States holds the largest share of the global market, at 54%, followed by Europe at 28%. ^[8] The size of the reverse mortgage market in Asia has potential to grow as the gap in retirement savings is likely to encourage more consumers to consider this product.

Insurers in Asia should consider acting fast to capture the first-mover advantage as private asset managers enter the market for private-sector retirement products. It is not a given that one or the other will end up dominating the market. For instance, in the United States, asset managers have ascended to a position of preeminence in retirement products, while in Germany, life insurers have assumed the lead. ^[9]

Modifying the way products are sold to help educate customers

Advisers can encourage customers to start their retirement planning early and explain the products that are available.

Insurers should consider developing retirement specialists among financial advisers to educate customers in Asian markets, who often don’t understand what retirement products’ income streams or payout structures will look like. These specialists should be able to explain the products in a simple, straightforward way and quantify the cash flow customers can expect. Insurers can support these specialists by establishing centralized offices to produce training materials and provide timely market insights. Use of technology such as generative AI (gen AI) can further enable advisers to better serve and educate clients.

Financial advisers specializing in retirement planning will need to be trained to offer personalized guidance that considers customers’ full financial picture, helping them adjust their portfolios to account for life stages and other factors.

Creating ecosystems of retirement services

Working with other businesses that cater to older populations can allow insurers to enhance the customer experience and increase loyalty. Health, wealth, and retirement services can become more interconnected to form a cohesive ecosystem created through partnerships or acquisitions that can help insurers cross-sell products to a broader subset of consumers.

For example, a company offering retirement savings products could collaborate with a senior-living provider to offer customers in-kind benefits alongside, or instead of, traditional monthly retirement payouts. This way, customers could save for retirement and, when they retire, receive both a monthly income and access to senior-living housing.

One Chinese insurer, for example, has implemented this approach by offering a comprehensive package of insurance products—including annuity, medical, and life insurance—to high-net-worth individuals. This package is complemented by the opportunity to live in a retirement home where residents receive healthcare and medical rehabilitation services. With time, as more insurers enter this market, prices could come down enough to allow participants to build scale and reach more customers.

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A recent report ^[10] by the Swiss Re Institute highlighted the opportunity for life insurers in the private retirement savings market. The report estimated that growth in the market will lead to $1.7 trillion in additional savings premiums over the next decade, marking a 65 percent increase in new business premiums compared with those generated over the past 20 years. The time to act is now. Insurers should consider seizing the opportunity to better serve Asia’s aging population, expand their business rapidly, and establish dominance in the retirement-preparedness market.