In the world of financial services, there are many different factors which influence the decisions of the professionals and businesses operating in the industry. Age, for example, can massively influence both life insurance and car insurance.
According to The Insurance Surgery, longevity risk refers to the increased risk of pension providers and life insurance companies having to pay out more money over a longer period of time due to their commitments (as a result of people living longer).
For many decades, average life expectancy has been rising, with many people now expected to live for much longer periods of time compared to a few decades ago. This is largely due to advances in healthcare and the acquisition of new knowledge which the average person did not have previously. More information is available at The Insurance Surgery.
Longevity risk refers to the increased risk of pension providers and life insurance companies having to pay out more money over a longer period of time due to their commitments (as a result of people living longer). Any policy which guarantees to pay the policyholder for the rest of their life will have the greatest longevity risk.
It is now necessary for pension/insurance providers to take longevity risk into account, and there are many different ways it could affect how they operate in the future. For one, life insurance policies may well become significantly more expensive, and even private pensions may change (employer may not be able to fully match contributions in the future, for example).
It is likely that many businesses involved in insurance/pensions will enlist the help of specialist companies like Hymans Robertson, which can provide them with risk management advice as well as expert data analysis.
What Does the Future Hold?
The financial services industry is not what it used to be, with frequent technological advances and a changing customer base transforming the landscape. With longevity risk coming into play, it is likely that pensions and insurance will work differently compared to previous decades.
It may well be the case that disruptive startups will find a way to outmanoeuvre their more established counterparts by creating services which are more apt at dealing with modern day problems like longevity risk.
Longevity risk is likely to continue to become more prominent for insurance and pension providers as life expectancy continues to increase. As such, there can be no doubt that these businesses will now have to evolve to keep up with the ever changing financial services industry.