Swiss Re have today released a new report presenting the need to develop robust, predictive approaches, to longevity forecasting that use forward-looking scenarios to consider aspects such as social factors and medical treatments. Daniel Ryan, head of life and health research and development at Swiss Re commented that ‘One of the key aims of this report is to build awareness, particularly for regulators and capital markets, that there may be other, more effective ways to approach longevity.’
Substantial increases in life expectancy, the report reveals, have been consistently underestimated. The fact that people are living longer has brought with it a massive pension shortfall which has been exacerbated by traditional methods of forecasting longevity which do not take into account of certain trends.
"The failure to consider future drivers of mortality in historical predictions contributed to employer pension funds under-reserving for longevity risk this also included other bodies such as governments, not budgeting effectively for funding for an ageing population," explained Daniel.
The building blocks of a type of disease-centred model are presented in this report and calls upon experts from a variety of disciplines – actuaries, medical experts and demographers-to work together towards a greater understanding of potential developments in human longevity
‘We need a running dialogue between different parties in order for this collaborative approach to be implemented. Currently different disciplines and not constantly involved, we need to stress the importance of a running dialogue between the different parties to ensure the development of these type of models,’ commented Daniel when asked about the collaborative approach.
When further asked how the building blocks presented in this report could be taken forward and used in practice, particularly for actuaries, Daniel commented:
‘At a company level, the new approach outlined in the report could be a complimentary approach to current actuarial approaches, with the involvement of a number of expert individuals. Actuaries could use the new approach in one of two ways. One being that they take on the new approach and have detailed consideration disease by disease, the other being that they make comparisons with the new approach after carrying out the assumptions they usually do”.
An effect of these improved models would be that insurers and reinsurers would work together to manage their customers' longevity risk more effectively. Daniel stressed the importance of the insurance industry and described it as a ‘main driver’ as Reinsurers investing in their research and development capabilities will be important as insurers look to address regulatory requirements, including Europe's Solvency II.
Please click on the Report cover to download and view the report.
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