How will we care? Finding sustainable long-term care solutions for an ageing worldSwiss Re sigma 5/2014Kulli Tamm, Senior Economist

2

Do you own a long-term care (LTC) insurance policy?

1. Yes, I own LTC insurance2. I seriously considered

buying LTC insurance3. No

3

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

6

-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)

7

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

9

10

Long-term care today

11

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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13

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

13

14

• 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

17

18

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

20

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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:Kulli_Tamm@swissre.com or Lukas_Steinmann@swissre.com

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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