1 Executivesummary

3 AsiaPacific’schangingdemographiclandscape

10 Socio-economicimpactofdemographicchanges

15 Insuranceopportunitiesandchallenges:lifeandhealth

Insuranceopportunitiesandchallenges:non-life

28 Conclusions

29 Appendix:DemographictrendsinChina,India,Indonesia,Japan,Korea

Swiss Re Dots ImageryTitle: SR_05_Continent_AsiaPacificCategory: SR_05_Agriculture&Nature

Copyright © 2010 Swiss Re

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EconomicResearch&Consulting

October 2013

AsiaPacificDemographicTrends

1

AsiaPacificishometo61%(4.4billion)oftheworld’stotalpopulationandtothreeofitsfourmostpopulouscountries.China,IndiaandIndonesiatogetheraccountfor40%(2.9billion)oftheworld’spopulation.AsiaPacific’slargepopulation,estimatedat4.2billionin2010andprojectedtoincreaseto5.2billionby2050,hasbeenakeyfactorintheregion’srapideconomicdevelopment.

Growthdrivenbydemographicdividend... Growthiscloselyrelatedtodemographictransition.ItisestimatedthatasmuchasonethirdofAsia’sstronggrowthtodatecanbeattributedtoits“demographicdividend”,thatisitslargepopulationofyoungpeopleandthereforeyounglabourpool.However,anunderlyingthemeofcurrentdemographictrendsisthatofanageingpopulation.

AveragepopulationgrowthinAsiaPacificisforecasttofallto0.1%by2050from1.1%in2012.China’spopulationisexpectedtoshrinkfrom2031onwards.

Thenumberofpeopleaged65andoverinAsiaPacificisestimatedtogrowto911millionin2050from288millionin2010.

By2045–2050,lifeexpectancyinmanycountrieswillbeatorover80years. ThefertilityrateinmanyAsiaPacificcountriesisexpectedtofallbelowthereplacementrateof2by2045–2050.ThishasalreadyhappenedinChina,HongKong,Japan,SouthKorea,SingaporeandThailand.

Theregion’sworking-agepopulationisexpectedtopeakat68%ofthetotalby2015.

...andrapidcapitalaccumulationandsavings. Inadditiontoitsyounglabourpool,Asia-Pacific’sgrowthhasalsobeendrivenbyrapidcapitalaccumulationandhighsavings,andhenceinvestmentrates.Accordingtoeconomiclifecycletheory,savingsareusuallyhighduringtheworking-ageyearsandlowornegativeduringtheearlyandlaterstagesoflife.Withmanyoftheregion’scountriesstillinearlystageofdevelopmentbutalsohavingageingpopulations,thereareconcernsthatAsia-Pacificwill“growoldbeforegrowingrich”.Ashrinkingworking-agepopulationtosupportagrowingolderpopulationwilllikelyleadtorisingold-agedependency.ManygovernmentsinAsiaPacificarereformingtheirpensionsystemsinresponsetothisdynamic.Somecountrieshaveintroduced“pay-as-you-go”(PAYG)pensionplanswhicharefinancedbycurrentworkercontribu-tions.Withtheexceptionofafew‘younger’countriessuchasIndonesiaandIndia,however,theageingpopulationmeansheightenedlongevityrisk.ThiscouldrenderPAYGplansunsustainableinthelongertermasthecostofsupportingtheoldagedinretirementmaybetoogreataburdenfortheyoungergenerationstobear.Withlongerretirementsandprogressivelylessgovernmentandemployersupportforthepost-workingyears,itislikelythatindividualswillincreasinglyneedtomaketheirownfundingarrangementsfortheirold-ageyears.Thelifeinsuranceindustrycanprovidesolutions,suchaswithlifeannuitypolicieswhichprovidepolicyholderswithperiodicpayoutsuntildeath.Ageingpopulationriskalsohasimplicationsforthehealthsector.Withlongerlivestherewillberisingdemandforandassociatedexpenditureonmedicalcareservices.Moreover,advancesinmedicineandincreasingdemandforcustomisedserviceswilllikelyinflatethecostoftreatments.Financingthisexpenditurewillbeakeychallengeforbothgovernmentsandindividuals.TheauthoritiesinAsiaPacificwillfaceaheavyburdenfortotalhealthcareexpenditureifcurrentfinancingpatternsremainunchanged.Itisestimatedthatiftheratioofhealthcarespending-to-nominalGDPstaysatcurrentlevels,theregion’shealthprotectiongapwillreachUSD197billionin2020.1Thisisnotleastbecauseofthelikelygrowingneedforhealthcareprovisionsinretirementgiventherapidlyageingtrendinmanycountries.

1 “HealthProtectionGap”Asia-Pacific2012,SwissRe(2012)

AsiaPacificishometo61%oftheworld’spopulation.

Thelevelofold-agedependencyislikelytoriseincomingdecades.

Increasingly,longevityriskwillneedtobedealtwithattheindividuallevel.

Thishasimplicationsforthehealthinsurancesectortoo.

Executivesummary

2

Thefundingoflong-termcareisachallenge. Fundinghealthcare,especiallylong-termcare(LTC)servicesisapressingchallenge.Todatethemajorityofhealthcareexpenseshavebeenfinancedeitherbygovernment(e.g.,inJapan,Thailand,Australia,SouthKoreaandChina)orbyindividualsprivatelyasout-of-pocketexpenditure(e.g.,India,Singapore,Vietnam).Facedwithrisinghealth-carecostsandconstrainedbudgets,governmentsintheAsiaPacificwilllikelystruggletomeetthecareneedsoftheirexpandingelderlypopulations.Thetrendwillincreas-inglybetowardsasharingofthecostsbetweentheindividual,stateandtheinsuranceindustry.Theimpactofchangingdemographicpatternsalsohasimplicationsfornon-lifeinsurers.Forinstance,theageprofilesinAsiaPacificsupportcontinuedstronggrowthofoutboundtourismwhichcouldleadtoincreaseddemandfortravelinsurance.Thechangesinconsumptionpatternsandwealthaccumulationamongthehealthyelderlyaregainingincreasingattentionfrominsurancecompanies.Meanwhile,olderdriverstendtohaveaccidentsmorefrequently,buttheseareoflowerseverity.Thishasaneffectonclaimsbehaviourandthereforealsomotorinsurancepricing.Separately,thehigherlevelsofdisposableincomesthatcomewithmoredouble-incomehouseholdscouldgenerategrowingdemandforpersonalaccidentorcasualtyinsurance.

Scope of this report

TheopportunitiesandchallengesofchangingpopulationdynamicsinAsiaPacificforthelifeandnon-lifeinsurancesectorsareaddressedinthisreport.Thiscomesafteramoredetailedexaminationofthetrendsandsocio-economicimpactsofthedemographictransitionunderwayintheregion.InthisreportAsiaPacificreferstothegeographicalregionincludingAsiaandOceania.DatafortheAsiaPacificregionisusedwhereavailable,mostlyfromtheUnitedNationsPopulationDivision.2OtherwiseindicatorsarelimitedtoAsiaasdictatedbyavailabilityofinformationfromnationalstatisticsbodiesandother.Notalldemographicfactors(e.g.,morbiditypatterns,educationprofilesanddivorcerates)arecoveredinthereport.

2 UNdatadonotincludeTaiwan.FiguresforTaiwanareobtainedfromUSCensusandTaiwanExecutiveYuan,andwillbeincorporatedintheanalyseswhereverappropriate.

Thedemographicdynamicsalsoaffecttheportfoliomix,productfeaturesandriskmanagementofnon-lifeinsurers.

Demographictransitionhassignificantsocio-economicimpacts,andinsurersneedtoadapttothese.

Executivesummary