The number of over-65s will increase by 80% to nearly 1 billion over the next 15 years making elderly care needs one of the biggest global challenges for insurers and stakeholders, a report has warned.
Swiss Re's study How will we care? Finding sustainable long-term care solutions for an ageing world found across the globe people would not have enough wealth to cover the costs of a longer stay in nursing home - even if they sold their homes.
Similarly, median incomes in most countries would make it very difficult for retirees or their children to fund their stay.
The problem is that people underestimate the cost of LTC and overestimate what the state will provide," said Kurt Karl, chief economist at Swiss Re.
The current systems of funding and providing long-term care (LTC) for the elderly are unsustainable, according to Swiss Re's research.
In many advanced markets, state provisions do not fully cover the high costs of care. In most emerging markets, state-provided systems are often non-exsitent, while traditional models of family care are coming under pressure from demographic changes such as younger people moving from rural to urban areas, and increasing female labour force participation.
Societal changes like these and demographics will lead to a shortage of informal caregivers. Another issue, in both the advanced and emerging markets, is limited capacity in residential care homes and a shortage of qualified formal carers.
Public spending on care for the elderly is expected to increase in the coming decades but even so, tax-payer funding is limited and the large scale of the LTC challenge will strain already-tight government budgets, the report said.
An integrated, multi-stakeholder approach - including private insurance - is needed to deliver the full contiuum of care, Swiss Re said.
Role of insurance
To date, insurers have played only a small role in the financing of LTC, with different demand- and supply-side factors holding back the development of a large-scale private insurance sector.
There is scope to grow the market with more hybrid-type solutions that combine LTC insurance with life, retirement/pension and critical illness products.
Insurers can also develop new products that better suit customer needs, such as immediate-need annuities and short-term care products.
However the report warned that insurers cannot do this alone and all stakeholders, including governments, healthcare institutions, care providers and consumers should contribute to what can be a financially sustainable LTC solution.
For example, private insurers can become investors in care infrastructure and services, and employers can do more to raise awareness of LTC risks, Swiss Re said.
There also needs to be stronger coordination of the different agents involved in care delivery and greater promotion of healthy-ageing initiatives.
"The different stakeholders and insurers can work together to create an effective and affordable system for LTC. In doing so both the insurance industry and society at large will benefit" said Lukas Steinmann, co-author of the report.