A favourable convergence: Retirement and life savings products

The youngest Baby Boomers are nearing retirement just as higher interest rates reinvigorate the insurance savings market. It's a favourable convergence, since retirees need steady, worry-free income. Insurers and their reinsurance partners are meeting this demand, but there's more we can do to help people prepare for their post-work lives –  and boost our industry in the process.

The sea change in the life insurance savings market over the past two years has been remarkable. US annuity sales are at their highest levels since record keeping began. In the UK, Canada and Australia, sales of life-savings products have followed a similar trajectory.

The drivers of this trend are clear. Interest rate hikes initiated to counter post-pandemic inflation have meant higher returns on life savings and annuity insurance products in many places, providing more options for reliable retirement income combined with the traditional protection that comes with insurance cover.

Baby Boomers, the generation born between the end of World War II and 1964, will be at least 60 years old this year, with many retired or planning to exit the workforce soon. They must manage retirement savings amassed over their working lives, and annuities have regained favour as part of a well-balanced investment plan to help people achieve retirement income security.

After the low-interest environment that dented annuities' appeal in recent decades, I'm pleased they have regained their spark as a means of helping people prepare for life beyond work. The impact on life insurers is significant, as well. Some have restarted dormant annuity businesses, for good reason. Over the next decade, we predict life insurers will generate USD 1.5 trillion of additional savings premiums, with total savings premiums reaching USD 4 trillion by 2034.

As CEO of Swiss Re's Life & Health Reinsurance, I lead teams that work with our insurance clients to help them manage capital and capacity to meet this surging life savings demand. This includes reinsurance support as well as bespoke financial market solutions that our clients need to grow, manage regulatory mandates and navigate market dynamics.

The institution of retirement is itself changing. As people in many societies live longer, their nest eggs must be sufficient to support active lifestyles extending well past 80 or even 90 years. As populations age and fertility rates taper, there are also fewer workers to support retirees. Social security systems founded in the mid-19^th century when life spans were shorter face mounting pressures to ensure their long-term viability.

Consequently, the onus is increasingly on individuals to manage their accumulated private retirement savings themselves, balancing risk and returns from stocks, bonds, and other financial products to assure income for decades. Annuities can help alleviate some of this worry for at least part of many people's asset base. 

Still, there are challenges ahead. The estimated retirement savings gap, the gulf between the financial resources people need, and what they have saved, for eight of the world's biggest economies was USD 106 trillion in 2022, according to Swiss Re Institute estimates. That's four times the annual US GDP. This gap is widening and could quadruple by 2050.

Today's insurance savings products are a partial antidote, but people will need additional options to shore up their finances for the long haul. With life insurers already managing an estimated USD 6 trillion in pension funds globally, our industry has the knowledge and scale needed to contribute in a variety of ways.

For starters, our industry should focus on developing financial products that can meet the varied objectives of individuals that change as they enter  different phases of life. This includes the period when they're still accumulating wealth and their families are often vulnerable to unforeseen events, through middle-age and challenges like chronic conditions, and into their golden years.

People are looking for uncomplicated products that can not only help them with rising medical bills and cover needs as they age but can also offer the peace of mind that comes with steady income beyond retirement. With our knowledge of mortality, disability and longevity risk, partners like Swiss Re can help life insurers create flexible, fit-for-purpose products that can be adapted or converted based on evolving circumstances and needs.

One example is combining life insurance protection with a cash value component and long-term care benefits that flexibly adjust based on investment returns and age-related life stage. Such products must combine sophisticated shaping of coverages with the simplicity necessary for digital distribution. Despite inevitable challenges that accompany innovations like these, they represent a promising avenue to meet up-and-coming insurance consumers’ needs.

 We must also consider customers' values. Young people, having grown up in an era when a changing climate is a central concern, may place sustainability criteria at the centre of retirement saving decisions. Insurance savings products that reflect this may win favour among Gen Z and Millennial insurance buyers embarking on their own journeys toward retirement.

Our industry's global reach and investment expertise also place insurers and reinsurers in an ideal position to work with a broad range of financial services counterparts, governments, regulators and others to help deepen capital markets in emerging economies. Strong capital markets fuel growth and development, creating a larger middle class whose members are destined to become the insurance customers of tomorrow.

By educating future retirees about their financial options while they are still in the workforce, re/insurers can also foster the basis for stable societies while simultaneously helping ensure a robust future customer base for our savings and protection products.

Beyond using industry channels to expand financial literacy, we should work with policymakers to integrate courses into education curriculums. We should transform the way insurance topics are communicated to underserved groups, including women, to expand access to protection beyond what have long been viewed as traditional insurance buyers.

The favourable convergence we're experiencing now – a growing retiree population, just as annuities regain their lustre – can make a dent in the pension savings gap. But there is clearly a much broader role for our industry in laying the foundations for long-term retirement security for more people – for the Baby Boomers, of course, but also for the generations to follow.