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Enhancing risk management for an aging world

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Abstract

As the world confronts unprecedented global aging, academics and policymakers are growing increasingly aware of the need for better risk management tools to handle the demographic transition. It is therefore imperative to identify innovative insurance and financial market products that can enrich the range of options for households, firms, and governments facing the challenge of an aging population. After outlining thoughts on how rising longevity might shape financial markets, we discuss opportunities for the finance and insurance industries in this arena. We also highlight how policymakers could respond to improve efforts to better manage risk.

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Fig. 1

Source OECD (2016b)

Fig. 2

Source Derived from Blake et al. (2008), Figs. 2 and 3 with uncertain parameters

Fig. 3

Source Horneff et al. (2017)

Fig. 4

Source Lusardi and Mitchell (2014), Fig. 1

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Notes

  1. This discussion updates and substantially extends Mitchell et al. (2006).

  2. Also there is little evidence that pro-fertility policies in the context of democracies would reverse the long-term decline in fertility rates (Sundström 2001), even if it were deemed socially and economically desirable.

  3. This represented the expected value of Medicare premiums and out-of-pocket costs for a 65-year-old couple seeking to cover a 90% expense with 90% confidence.

  4. A description of several European nations’ LTC systems is provided by Bocquaire (2016).

  5. See the useful literature reviews in Davidoff and Welke (2004) and Davidoff et al. (2016).

  6. A related problem is that lenders will foreclose if the borrowers fail to stay current on their insurance premiums, property taxes, and maintenance. This causes negative publicity for obvious reasons. The US Housing and Urban Development (HUD) agency has determined that 18 percent of reverse mortgages taken out in the 2009–2016 time span will default, and HUD’s program is already almost $8B in deficit (McKim 2017).

  7. Several studies reviewed in Lusardi and Mitchell (2014) examine whether the measured impact could be attributable to reverse causality. They conclude, with others, that the preponderance of the evidence is consistent with the directional effects running from financial knowledge to better retirement preparedness.

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  1. International Foundation of Employee Benefits Professor, Professor of Insurance/Risk Management and Business Economics/Policy, The Wharton School of the University of Pennsylvania, 3620 Locust Walk, Steinberg Hall-Dietrich Hall, Philadelphia, PA, 19104, USA

    Olivia S. Mitchell

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  1. Olivia S. Mitchell
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Correspondence to Olivia S. Mitchell.

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This paper was prepared for presentation at the Geneva Risk Economics Lecture for the European Group of Risk and Insurance Economists (EGRIE) meetings, London, September 18–20, 2017. The author appreciates research support from the Pension Research Council and Boettner Center for Retirement Research at The Wharton School of the University of Pennsylvania. Valuable comments were provided by Monika Bütler. This research is part of the NBER programs on Aging and Labor Economics, and the Household Finance working group. Opinions expressed herein are those of the author and not those of any institution with which the author is affiliated.

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Mitchell, O.S. Enhancing risk management for an aging world. Geneva Risk Insur Rev 43, 115–136 (2018). https://doi.org/10.1057/s10713-018-0027-x

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  • DOI: https://doi.org/10.1057/s10713-018-0027-x

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