how will we care? finding sustainable long- term care solutions for an ageing world swiss re...
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How will we care? Finding sustainable long-term care solutions for an ageing worldSwiss Re sigma 5/2014Kulli Tamm, Senior Economist
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Do you own a long-term care (LTC) insurance policy?
1. Yes, I own LTC insurance2. I seriously considered
buying LTC insurance3. No
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Do you own a long-term care (LTC) insurance policy?
1 2 3
2%
90%
8%
Results from a Swiss Re conference where the topic was long-term care!
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Key sigma messages
• Care needs will increase significantly over the next 10-15 years
• Awareness of care risks is grossly lacking
• Financing and providing formal long-term care will strain the public purse
• The bulk of care is already provided informally
• Private insurance solutions play a small role
Growing the private insurance market requires offering a suite of products that better meets consumers' needs and provides more visible and tangible value to the policyholder
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The ageing population and its care needs
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-20%
0%
20%
40%
60%
80%
100%
120%
Population growth by age group(2010 to 2030)
0-19 20-64 65-79 80+
The "silver tsunami": most-rapid ageing will occur in the next 20 years
• Close to 1 billion people 65 and over in 2030 (up from around 530 million in 2010)
• In Latin America and Asia the number of people aged 65 and over will nearly double
• In advanced countries the working population will stagnate, or even decline
Source: United Nations, Department of Economic and Social Affairs, Population Division (2013)
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60 to 65
65 to 70
70 to 75
75 to 80
80 to 85
85 to 90
90 and
older
-10%
0%
10%
20%
30%
40%
50%
60%
mild medium severe
As the number of elderly rises, so does the need for funding and provision of long-term care services
60 to 65
65 to 70
70 to 75
75 to 80
80 to 85
85 to 90
90 and
older
-10%
0%
10%
20%
30%
40%
50%
60%
Source: Bundesministerium für Gesundheit (Federal Ministry of Health)
Females Males
Prevalence of dependency, illustrated for Germany, 2011
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Care for the elderly should be seen as an integral part of broader health and social care
Advanced care need due to multiple ADL* failures, with need for significant home care or institutional care
Level of care services provided
Healthy
Very early care need due to eg some IADL* failures; focus on adaptation and prevention
Early care need due to multiple comorbid* conditions but able to live at home with home care assistance or day care
End of life palliative care orcatastrophic institutional care
Costs
*IADL = instrumental activities of daily living; ADL = activities of daily living; comorbid=medical condition(s) existing simultaneously but independently with another or a related medical condition
Source: Swiss Re Economic Research & Consulting
The continuum of care:
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Key common risk factors are associated with old-age disability• Demographics (age and
gender)
• Health conditions
• Behaviour and lifestyle choices
• Social support
• Socio-economic status
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Long-term care today
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Switz
erland
Germ
any
Slov
enia
Kore
a
Canad
a
Esto
nia
Denm
ark
Japa
n
Hunga
ry
Fran
ce
Belgium
Czech
Rep
ublic
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
otherout-of-pocketprivate in-surancesocial securitygovernment
Today, in most OECD countries, formallong-term care is financed through government programs
Note: Data on out-of-pocket spending for some of the countries are underestimated. For example, in the Netherlands, cost sharing on long-term care services is estimated to account for 8% of the total LTC expenditure. The share of out-of-pocket spending for Switzerland is overestimated as cash benefits granted for care in care facilities are not considered.
Sources: OECD Health System Accounts, (2010), US: Congressional Budget Office, (2013).
Formal LTC expenditures by sources of funding in select OECD countries
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Informal care often dwarfs formal expenditure• Informal care is the preferred form of
care in most countries, and in emerging markets often the only form of care available
– Generally excluded from official statistics!
• In many countries, the majority of care is provided informally by unpaid family members
• Demographic trends point to a growing scarcity of informal carers
• Capacity of residential care homes is also limited, and there is a shortage of qualified formal carers
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LTC is currently rarely financed through private insurance
• Less than 2% of LTC globally is financed by private insurance
• The role of LTC insurance is largely determined by the existing social security setting
• In most emerging markets there are hardly any social or government schemes for LTC funding, and private insurance solutions are similarly rare
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• USA – comprehensive private LTC insurance not a runaway success
– Medicaid only provides safety net
– Comprehensive policies, typically reimbursement with up to USD 150/day
– Big hype in the 90ies, but now "problem child" of the L&H sector
• France – government health and LTC, private supplementary LTC
– Mandatory social health insurance and means-tested LTC scheme
– Supplementary LTC with fixed benefits, typically USD 20-25/day
Selected markets with long-term care insurance
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CanadaItaly
AustraliaSpain
FranceUK
GermanyJapan
SwitzerlandChina
USMexico
0 6 12 18 24 30 36
68
56
Maximum length of stay financed by …
… median income… median wealth
Months
Affordability of nursing home care
Sources: Swiss Re Economic Research & Consulting based on various reports, see sigma 5/2014 for
details
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The economics of private insurance solutions
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Supply side issues – LTC insurance is "sold, not bought"• Lack of appropriate data
• Long-term guarantees are expensive and difficult to price
• Adverse selection
• Volatile government social policies can undermine the development of a private market
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Demand side issues – awareness, affordability, biases
Source: European Insurance Report 2012, Customers for Life, Swiss Re
Finland
Denmark
Sweden
Norway
Netherlands
Turkey
France
Spain
Belgium
Italy
Switzerland
Austria
Poland
Germany
Total
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Proportion who believe government is responsible for caring for the old
In 10 years Today
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Creating a better care market for older lives
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Select an image from the Brandic menu
Insurers cannot tackle the care gap alone
• A multi-stakeholder approach is needed
• Governments can help raise consumer awareness and clarify own role
• They could also partner with insurance companies:
– care infrastructure investments
– delivery coordination/managed long-term care
– health prevention and healthy ageing initiatives
• Help of new technologies
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A fundamental re-think of the design and purpose of current long-term care insurance products is required!
• Annuity products: immediate needs annuities in the UK
• Hybrid products: LTC insurance combined with life, retirement/pension or critical illness
• Other insurance approaches
• Non-insurance solutions: eg reverse mortgages
Insurance products with more tangible benefits can help make care more efficient
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Conclusions
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Private insurance can be part of an integrated, multi-stakeholder and financially sustainable LTC solution
• Addressing the rising care needs of the elderly population is a complex challenge
• The current funding and provision systems for LTC are unsustainable
• A multi-stakeholder approach is needed
• Governments should tackle lack of consumer awareness regarding available LTC solutions and encourage the development of efficient and coordinated care markets
• Insurance can be a part of the solution for care needs, but a fundamental re-think of the current product space is required
Thank you! Read more at:www.swissre.com/sigma For further information contact:[email protected] or [email protected]
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Private long-term care marketsCountr
y
Premium volume (2012, USD million)
nominal CAGR (2003-2012 in
LC)
LTC product s Role of insurance Benefit type
US 11 6459 550 (individual)2 095 (group)
5.5% Pre-funded, deferred Primary risk sharing mechanism
Mainly reimbursement, usually cap at USD 150/day for 3 years, waiting period 90 days, often with inflation protection
Germany 1 095 (voluntary LTC insurance)
19.0% Pre-funded, deferred, stand alone and rider to L&H
Supplements mandatory social or private LTC
Reimbursement and fixed benefits
France 826599 (life insurers)192 (Mutual 45)35 (Institutions de Prévoyance)
7.9% (only life insurers)
Pre-funded, deferred Supplements public LTC Mainly fixed benefit, typically USD 20-25/day, waiting period 90 days (lump sum also available, premiums and benefits can be inflation protected)
Israel 710240 (individual)470 (group)
22.5% Pre-funded, deferred Supplements public LTC Fixed benefit, typically with a waiting period of 30 days, limited period
Singapore 250 (ElderShield)
6.7% Pre-funded, deferred ElderShield is the part of the healthcare system designed to meet LTC needs (together with Medishield and Medisave)
Fixed benefit for six years
UK 220 1.3% Pre-funded, long-term care bonds,
Immediate needs annuities
Primary risk sharing mechanism
Fixed benefit (INA)
Canada 99 13.6% Pre-funded, deferred Supplements public LTC Fixed benefit and reimbursement, typically, waiting period 30 to 90 days, limited period or lifetime
Sources: Supervisory Authorities and Insurance Associations