Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Insurance Industry
Transcript
- Lucas: So we've spent a lot of episodes talking about how fewer kids change specific industries — toys, housing, restaurants. But there's one industry that gets hit from both sides: the insurance industry. Luna: Both sides meaning fewer young buyers and more old claimants? Lucas: Exactly. On one side, you've got a shrinking pool of young adults buying life insurance. On the other, the aging population is filing more claims — especially in long-term care. And the product lines themselves are shifting in ways most people don't notice. Luna: Well, let's start with the life insurance side. I know in the US, the number of individual life insurance policies has been dropping for decades. Lucas: Right. According to LIMRA, the industry trade group, the number of individual life insurance policies in force in the US peaked back in 1985 at about 177 million. By 2023, it was down to around 110 million. That's a 38 percent decline, even though the population grew by over 90 million people. Luna: Wow. So fewer people are buying life insurance per capita. And it's not just a US phenomenon. Lucas: No, it's global. Take Japan — they're about 15 years ahead of us demographically. Their individual life insurance policies peaked in 1994 at about 140 million. By 2024, that number had fallen to roughly 84 million. That's a 40 percent drop in 30 years. Luna: And Japan's population only declined by about 3 percent in that time. So the drop is way steeper than population alone would explain. Lucas: Exactly. So what's happening? Part of it is that younger people — especially millennials and Gen Z — are less likely to see life insurance as a priority. They're marrying later, having fewer kids, and many are renters without a mortgage to protect. The whole 'I need to leave something for my family' narrative doesn't land the same way. Luna: But insurers aren't just sitting around watching premiums shrink. They've started to pivot. Lucas: They have. And the pivot is fascinating. In Japan, the big life insurers — companies like Nippon Life and Dai-ichi Life — have radically changed what they sell. Instead of traditional whole-life or term policies that pay out on death, they've shifted to 'living benefit' products. These policies pay out if you're diagnosed with a critical illness, or if you need long-term care, or even if you simply reach a certain age. Luna: So it's less about protecting your dependents after you die, and more about covering your own expenses as you age. Lucas: Right. And the numbers show it. In 2000, living-benefit riders accounted for maybe 5 percent of new policy sales in Japan. By 2023, they were over 40 percent. The industry essentially reinvented its core product because the customer profile changed. Luna: And we're seeing that trend in the US too, just a bit behind. I know some large carriers like MetLife and Prudential have been pushing living-benefit riders heavily. Lucas: Yeah, the so-called 'hybrid' policies — life insurance with a long-term care rider — have become a huge growth area. According to a 2025 report from the American Council of Life Insurers, hybrid policy sales grew at a compound annual growth rate of 18 percent from 2020 to 2025. Luna: But there's another angle here that I think is even more interesting: the long-term care insurance market itself. It's basically in crisis. Lucas: It really is. Traditional stand-alone long-term care insurance has become almost unaffordable for most people. Premiums have been skyrocketing because insurers underestimated how long people would live and how much care they'd need. Genworth, one of the biggest writers of stand-alone policies, stopped selling new individual long-term care policies back in 2019. Luna: And the replacements — the hybrid policies — are still expensive. But at least you get a death benefit if you never need care. So it's not 'use it or lose it.' Lucas: That's the key psychological shift. The insurance industry is moving away from pure risk transfer — where you pay premiums and maybe get a payout — toward products that combine investment, savings, and insurance. It's a fundamental change driven by demographics. Luna: Let's zoom out for a second. If we think about the macroeconomic impact, falling birth rates mean a higher dependency ratio — more retirees relative to workers. That puts pressure on social insurance systems. But it also creates new markets. Lucas: Absolutely. One of the most interesting newer markets is what's called 'longevity risk' transfer. Pension funds and insurance companies have huge liabilities tied to how long people live. If people live longer than expected, those liabilities balloon. So there's a growing industry of reinsurers and investment banks that create products to hedge that risk. Luna: You mean like longevity swaps? Lucas: Exactly. The first longevity swap was done in the mid 2000s. By 2025, the market for longevity risk transfer was estimated at over $100 billion in notional value. And it's growing fast because every pension fund in the developed world is sitting on unhedged longevity risk. Luna: And then there's the life settlement market — which is sort of the flip side. Instead of an insurer paying out when you die, you sell your policy to a third party for cash while you're still alive. Lucas: Right. The life settlement industry has grown because people are living longer and sometimes need cash more than they need a death benefit. In 2020, the total face value of life settlements in the US was about $14 billion. By 2025, it had grown to roughly $25 billion. Some analysts project it could hit $85 billion by 2030. Luna: And that creates a whole secondary market where investors are essentially betting on when people will die. Which feels a bit morbid, but it's a real asset class now. Lucas: It is. And it's been securitized. There are bonds backed by pools of life insurance policies. Investors get a return when the insured person dies and the policy pays out. The returns are uncorrelated with stock markets, so institutional investors like pension funds have been buying them as a diversification tool. Luna: That's wild. So demographics are not just reshaping insurance products, they're creating entirely new financial instruments. Lucas: Exactly. And this is where the economics gets really interesting. The insurance industry is essentially a giant machine for pooling and pricing risk. When the underlying population structure changes, the machine has to retool. We're in the middle of that retooling right now. Luna: Speaking of retooling — I want to bring up one specific example that I think crystallizes this shift. In Japan, there's a company called Sompo Holdings. They started as a property and casualty insurer, but in the last decade they've aggressively moved into senior care and health services. Lucas: Right. They now operate one of the largest chains of nursing homes in Japan. Their logic was: if we're going to be paying for long-term care claims anyway, why not own the facilities and capture the operational profit too? It's a vertical integration play driven by demographics. Luna: And their stock has outperformed the broader Japanese market significantly over the past five years. So the market is rewarding that pivot. Lucas: That's the kind of move we're seeing more of. Insurers are becoming healthcare providers, senior housing operators, even wellness companies. The old model of just collecting premiums and paying claims is fading. Luna: It makes you wonder what the insurance industry will look like in 20 years. Lucas: Honestly, I think the term 'insurance' might not even apply to some of these products. They'll be more like bundled financial and health management services. And that shift is being forced by the simple reality that there are fewer young people and more old people. Luna: Before we wrap, I want to touch on one more thing: the regulatory side. Regulators are struggling to keep up with these product innovations. Lucas: That's a huge issue. In the US, state insurance commissioners have been debating how to classify hybrid policies — are they life insurance or long-term care? The regulatory framework was built for the old product lines. And the National Association of Insurance Commissioners has been working on new model laws, but it's slow. Luna: And in Europe, Solvency II rules don't really account for longevity risk in a way that encourages innovation. So there's a tension between consumer protection and market evolution. Lucas: Right. And that tension is only going to intensify as the demographic wave continues. I think the key takeaway for listeners is that the insurance industry is one of the earliest and most sensitive indicators of demographic change — because it's literally built on predicting human lifespans and family structures. Luna: And when those predictions stop working, the whole industry has to rethink its foundations. Lucas: Exactly. So if you're thinking about where to look for demographic impact, insurance is a great place to start. The products people buy today tell you a lot about how they expect to live — and die — in the future. Luna: And if walking through the economy with us has made something click, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Lucas: It's a small way to keep the show ad-free and independent. And we really do appreciate it. Luna: Alright, so back to those hybrid policies — one thing I didn't mention is that they're also becoming popular as an estate planning tool. Lucas: Good point. In fact, a lot of financial advisors now recommend hybrid policies to clients who have enough assets that they don't necessarily need life insurance for income replacement, but they want to cover potential long-term care costs without draining their savings. It's a whole new use case. Luna: And it's a use case that barely existed 20 years ago. That's the demographic shift in action. Lucas: Alright, that's a good place to leave it. Next episode we'll look at something a bit different — how falling birth rates are reshaping the funeral industry, but from a specific angle we haven't covered yet.