China In-Depth: Ageing Asia
Annuities and retiree care for an ageing Asia
Longer lifespans are generally seen as a positive outcome of economic growth. Yet, the Chinese face the double challenge of rising standards of living within the context of a shortfall in the pension system.
Pension shortfall represents the gap between estimated financial resources required at the time of retirement to maintain an individual’s standard of living and their actual savings at that time.
In China, most of the wealth resides with a younger generation that is not yet considering the cost of living through retirement. However, as in most nations, the state system is supported by the working population and so it must shoulder the burden of increased numbers of retirees.
Chinese citizens have traditionally relied on bank savings, profits from real estate and their children for post-retirement income.
However, China’s one-child policy has stunted population growth and the workforce will not be able to support the sheer number of retired citizens.
The next decade will see a strong increase in demand for long-term annuities as wealth levels rise and family structures shift. The relaxing on the one-child policy and a growing desire to place careers before caring for family members means that pensioners will not be able to rely upon their children for income.
China is not the only nation experiencing this demographic challenge. South Korea and Japan have both experienced similar growth in numbers of older people.
They have also both seen their birth rates fall to record lows. Japan’s fell to 1.43 in 2018, well below the 2.07 to maintain population stability.
In 2017, South Korea’s birthrate reached a new low of 1.05 before plunging to 0.98 in 2018. It requires a birth rate of 2.1 in order to maintain its population.
Though China’s birth rate is higher than its neighbours and has risen slightly in recent years, the government is taking action to address this problem.
- Growth of private provision – annuity and health insurance products will be a key beneficiary of Asia’s ageing population and increasing demand for financial products that offer a safe, steady income stream.
- New technologies such as motion detectors, medical devices with real-time analytics that provide proactive rather than reactive senior care will support local healthcare provision.
- In order to encourage startups in the insurance/insurtech space, the government will offer tax breaks and interest-free loans.
While greater longevity is considered a blessing, most people fear outliving their assets.
Lifetime annuities guarantee a fixed income stream until the point of death. The insurer pools assets across groups with similar longevity expectations. Its margin will come from the initial offer, the investment returns it makes and the actual longevity experience
Variable annuities offer consumers a product that protects policyholders against longevity risks but also gives them the potential upside of returns from the equity markets. Initial income levels will not be as high as for lifetime annuities, which can make planning more difficult unless consumers have access to other income streams.
This opportunity has yet to be exploited in the Chinese market. However, elsewhere in Asia, annuities represent a relatively small segment of the market.
There is a wave of senior care devices combining clinical monitoring with the internet of things (IoT).
One of the companies to offer these products is Meimei. Meimei is a Beijing-based retiree care startup that offers a range of medical devices and smart home appliances that are integrated with real-time analytics. These make it possible for more proactive as opposed to reactive senior care. For example, motion detectors can be used to monitor the location of Alzheimer’s patients, or the movement of individuals to protect against pressure build-up causing bedsores.
Alzheimer’s is reaching the point of being a global epidemic. China will have 40 million suffering this condition by 2040. This represents half the worldwide total.
Although government-funded Alzheimer’s support centres and national broadcasts have raised awareness of the condition, the private sector will play a crucial role in its management.
Several startups have targeted the diagnosis and management of this incurable disease. Dr Brain is the most notable for its focus on diagnostics. O It has built a cloud-based database and established partnerships with dozens of hospitals across China in order to make it easier for trained medical staff to quickly diagnose the disease through the Dr Brain app.
Four-fifths (80%) of retirees will experience hearing loss, yet fewer than 5% of those suffering from hearing impairments in China have access to specialised care and hearing aids, compared to more than 40% in the West.
The fact that more than 60 million Chinese are hearing-impaired emphasises the opportunity for private enterprise in this space.
Sonova is not a startup, but a medical device company using 3D printers to customise hearing aids for the Chinese market at its specialised R&D facility outside Shanghai. The Sonova hearing aid is based on a low-energy microchip and enables direct streaming from any Bluetooth enabled device, circumventing the traditional amplifier based design.
Finally, pure technology but also upgraded retirement communities
Half of China’s 200 million seniors live alone. There is also an increasing reluctance on the part of the younger generation to stay at home to care for ageing parents. This has encouraged several Chinese life insurers, including Taikang, Union Life, and China Life to develop retirement communities outside major urban centres.
Union Life recently invested $30 million in the acquisition of seven facilities in the Shanghai-Nanjing region.
These private facilities require significant upfront investment and have ongoing labour costs, yet other life insurers have followed Unions Life’s lead.
Taikang Life’s most recent site can accommodate up to 2,000 people and has a hospital, gym and cinema.
The Japanese healthcare system is a model example of strength and resilience. The average lifespan is 84 years and Japanese society is not only the healthiest but also the “oldest” in the world.
Nevertheless, this healthier aged population still faces the same threats presented by an ageing population experienced by other nations.