Protection for China's ageing society

Demographic changes in China are leading to an acute challenge of how to sustainably fund a longer retired life for many more people. Life expectancy at birth for the overall population in China has risen to 78.2 years in 2021, from 71.9 years in 2000. Against a backdrop of a declining number of births, the population is rapidly ageing. The number of people in the 60+ age group reached 290 million in 2023 and is expected to reach over 30% of China's population by 2040, according to the World Bank. 

Society is facing challenges not only from how to fund pensions, but also the risks associated with longevity, health and long-term care. Ageing is naturally linked to deterioration in health, and the elderly population has a higher risk of critical disease, chronic disease and disability. For example, the incidence rate of tumours in the 45+ age group is more than twice that of the younger population.  In the 60+ age population, the incidence of cardiovascular disease (CVD) and dementia are respectively eight times and 35 times that of those aged 15-59 (see Figure 1). 

As a result, demand from middle-aged and older people for medical treatment and care services is significantly higher than in the younger population¹. Middle-aged and older people also face increasing need for sustainable retirement savings and income. Declining family sizes are leading to a rising old-age dependency ratio in China, and elderly people may not have the same degree of family support as in past decades. These trends are putting public protection systems under increasing strain and we anticipate that in future, individuals will need to assume greater responsibility for funding their own retirement incomes and planning protection against age related risks.

Our research shows that China faces significant protection gaps for mortality and health risks, and in retirement savings².  Private insurance can play an important supplementary role in a multi-layer protection provision for middle-aged and older groups, which can help to narrow protection gaps. 

To provide a comprehensive reference resource for policymakers and industry stakeholders, Swiss Re Institute and the Insurance Association of China (IAC) have cooperated on a research study to assess the level of current protection and demand for further protection of the middle-aged and elderly population in China. Our research focuses on the population aged 45+ in China and is based on the information collected by IAC from primary insurers. From this we can see potential areas for developing targeted private insurance solutions. 

Our study estimates that by the end of 2022, insured individuals aged 45+ accounted for about 30% of all in-force risk-type Life & Health (L&H) policies in China. However, the sum insured provided for this group accounted for less than 30%, and only 20% for life and critical illness (CI) policies (see Figure 2). We also find that population coverage of CI insurance declines sharply with age, starting from 45 years. Only <5% of population at 60-79 age was covered by CI at the end of 2018, according to data from the China Association of Actuaries, creating a mismatch between risk and protection (see Figure 3). Considering that groups aged 45+ account for 43% of China's total population and face multiple health, medical and care risks many times higher than younger groups, we believe the current risk protection for middle-aged and older groups is not sufficient.

The protection need for middle-aged and older people evolves through the lifecycle with the changing risks a person faces. The IAC's survey in our study collates insurance companies' perceptions of their customers' key concerns, as highlighted to them via their sales channels. This finds that middle-aged people (45-55 years) are believed to worry primarily about the risk of critical illness and medical expenditure, as well as increasingly about pension savings. It finds older individuals (55-65 years) are most concerned about financial security in retirement, and about L&H risks such as health, critical illness and accident. For senior groups (age 65+), their greatest priorities are protection for medical, critical illness and long-term care risks (see Figure 4).

We see opportunities for insurers, individuals and policymakers to increase risk protection of middle-aged and older people. 

The insurance industry may wish to consider expanding their innovation and supply of products tailored to middle-aged and older people. Based on the IAC's survey, we see three directions for innovation that Chinese insurers may consider. One is hybrid coverage, which for example can combine health insurance products with savings elements, to cover both the most relevant risk pools and improve financial security. The second is products that provide provision for age-related health services (such as care for disabled elderly) rather than just financial support, to meet the health needs of middle aged to elderly people. The third is to create customised insurance products for specific risks, population segments or protection needs such as covers for specific tumours or high-end medical products. 

Insurers may wish to implement a holistic business strategy specifically for middle-aged and older age groups. This is likely to require long-term investment commitments in data, technology and talent. The design of insurance solutions for the middle-aged and elderly population could take into account an expanding scope of services, and integration with digital and technology tools, which could benefit risk pricing and underwriting as well as increase the attractiveness of insurance products. Adopting new distribution channels with digital advances can also help to widen access to coverage.

For individuals, drawing on the IAC's survey, we advocate for greater awareness of the financial and insurance solutions available to help them better plan their retirement and address risks early on. A well-structured protection solution with an insurance element, planned at a younger age from a long-term perspective, may support people against various potential age-related risks. 

The public and private sectors can act jointly to promote the development of enhanced risk protection for the middle-aged and elderly in China, and so share the dividends of the silver society.