China’s working-age population will start to decline within the next three years, exerting strong pressure on the country’s social security system while also presenting insurers in the country with the opportunity to generate new revenue streams, according to a Swiss Re white paper.It argues finding solutions to the challenges posed by the end of China’s “demographic dividend”, which has driven a prolonged period of socioeconomic growth for decades, will require a concerted effort among the public and private spheres.
In particular, it recommends insurers should focus on five initiatives; proactively driving and supporting regulatory reform that will foster the development of complementary pension and healthcare insurance markets; collaborating with the social security system to help the government manage its pension and healthcare systems at lower levels of risk and cost; further understanding customer insights and innovating with products and channels; developing managed long-term care services; and managing for profitability and risks, such as interest rate risk and longevity risk.
The paper, which the Swiss reinsurer has produced in conjunction with global management consulting firm, the Boston Consulting Group (BCG) also notes as China’s working-age population – those aged 15 to 59 years – declines, the so-called “silver” segment of people – 60 years of age and older – will grow rapidly from around 165 million in 2010 to nearly 440 million by 2050, accounting for roughly 34% of the country’s total population.
“By 2050, China will be the most ‘aged’ among Bric [Brazil, Russia, India and China] countries with a much larger population of people ages 60 and older,” said Robert Wiest, president of Swiss Re China.
It will be difficult for China’s social security system to cope with the pressures of the ageing population. In the pension system, the mandatory social insurance scheme’s benefits might not keep pace with the rising cost of living while the voluntary pension schemes are underdeveloped, the white paper suggests.
Moreover, the traditional family support network is weakening owing to the mass rural to urban migration and the 4-2-1 (four grandparents, two parents, one child) family structure.
In the healthcare system, the scope of treatments, services, and medicines are still limited while long-term care (LTC) has a significant supply gap.
“China’s ability to deal with these challenges will have a significant impact on its prosperity level for decades to come,” said Richard Huang, a BCG partner based in Beijing.
“It will take the efforts of all stakeholders – the Chinese government, corporations, and insurers – to meet the challenges posed by China’s ageing population,” Jia Jingwei, head of China business development of Swiss Re added. “Insurance companies, in particular, will need to play a larger role.”
Meanwhile, the white paper also warns insurers in China will also need to be prepared for the impacts of ageing on their own workforce.
“Considering the scale of Chinese population, the rapid growth of the silver segment will pose both unprecedented challenges and opportunities for insurers,” said Chris Kaye, a BCG partner based in Hong Kong.
“Insurance companies that take correct and prompt actions can turn the silver segment into ‘gold’ which means new revenue streams and higher profits.”
The impact of Chinese economic and insurance trends on the London market will be one of the topics on the agenda at next month’s Insurance Day Summit London, which will take place over May 15 and 16 at the Grange Tower Bridge hotel in London.
Director of market development for Europe, the Middle East and Africa at AM Best, Nick Charteris-Black will moderate the discussion, which will also feature contributions from president of Navigators Holdings UK, Paul Hennessy, as well as JLT Re chief executive, Alastair Speare-Cole.
They will join a stellar line-up of industry speakers and politicians at the two-day event, including Lloyd’s chief executive, Richard Ward, Hannover Re’s Ulrich Wallin, financial secretary to the treasury, Mark Hoban, Jonathan Evans MP and industry rainmaker Robert Hiscox, to deconstruct a number of regulatory, capital management and operational challenges facing the sector.