Extreme longevity is the next ‘grey swan’ event for which enterprise risk managers and financial services providers must prepare, an actuarial expert has warned.
Bio-medical advances would push life expectancy out to 120 years, thus bringing about a “greying black swan” event, Actuaries Institute chief executive Melinda Howes said.
“Half of 65 year olds alive at present will live to 100 due to bio-medical advances in the next 35 years,” Howes said.
This “re-boot” of a healthy life expectancy would be caused by the ability to engineer microbes, tissues, and bio-robots.
Providers of life insurance, annuities, and defined-benefit payouts must face “the actual realised financial liabilities (that will) emerge slowly over time”, Howes said.
Longevity had “profound implications for the financial services industry”, she said.
“How much of a person would need to be replaced before they are counted as legally dead and can collect their life insurance?”
“If you live beyond 120 as a brain in a vat, fully conscious and able to communicate and participate in life online and in virtual reality, are you still eligible for lifetime annuity payments?
“This is something that enterprise risk managers need to be paying very careful attention to see what the implications are going to be for your organisation.”
Australians were not being told about quick jumps in life expectancy which meant people could live for much longer, and that this would happen much sooner than popularly thought.
The Netherlands and Australia now had the world’s longest life expectancies due to very high standards of health and education, and good safety nets with social security, Howes said.
She drew an analogy with the global financial crisis where “the modelling of potential losses was not deep enough”.
Similarly, a baby born in 2012 could be expected to live to 120 years, but the financial modelling being done was too simplistic.
Ageism was an issue that had to be overcome “because there won’t be enough people to do the work”, Howes said.
Another hurdle would be generational inequity.
“We’ll have to get over the idea that our taxes are paying for our pensions. They’re not. They’re paying our parents’ pensions,” she said.
At present, two generations of workers paid for one generation to retire, Howes said.
By 2040, two generations of workers would be paying for two generations’ pensions, and by 2070, two generations of workers would be paying for three generations.
“We can’t afford to be touchy-feely about this. The good news is that you’re going to live to 100,” Howes said.
“The bad news is that you’re going to live to 100.
“Baby-boomers will re-define retirement. People in their 70s now are much healthier than 70-year-olds were 30 years ago.”
