Swiss Re has warned that the overall cost of increasing longevity has been underestimated and is calling for better forecasting models to improve understanding of longevity risk.
In a report published this week, the reinsurer says over the last 20 years, more people are living into their seventies and eighties thanks to medical advances, improved living conditions and healthier lifestyles.
However, it says not enough money has been set aside to meet the costs of state pensions, annuities and life insurance.
Swiss Re head of life and health research and development Daniel Ryan, who wrote the report, says: “Unprecedented increases in life expectancy experienced in recent decades have been consistently underestimated, causing funding difficulties for employers, insurers and governments.”
Ryan says current models for forecasting life expectancy are based on historical trends but trends do not take into account one-off factors. He gives the example of the ban on smoking in public places, which led to fewer lung cancer diagnoses, but which cannot have the same impact on reducing lung cancer in the future.
He argues that instead, forecasts should be based on analysis of relevant events that can occur over a person’s lifetime. Ryan says models could be based on data drawn from professions such as actuaries and medical experts and through countries sharing public health data.
He says: “An improved understanding of what will influence future mortality will help tackle the looming pension crisis and help societies make suitable provision for people’s longer lives.”
Highclere Financial Services partner Alan Lakey says: “It is obvious that people are living longer and on top of that we are ill more often. The cost and implications of this, both economic and social, are never fully taken into account when forecasting life expectancy.”