Europa Regionum

The financial implications of people living longer than expected (so-called longevity risk) are very large. There are different implications for individuals, for households, for insurers, for local and central governments. Longevity is public goods for local and central government. Longevity is merit goods for insurers. Longevity is club goods for households. Longevity is private goods for individuals. Addressing longevity risk requires a multi-pronged policy approach. First, governments, local and central, should acknowledge the significance of longevity risk. Second, this risk should be appropriately shared between individuals, households, insurers and the government. Third, financial risk of longevity should be transferred to those that are better able to manage it. Moreover, longevity risk is a long-tailed risk. However, there is a limit to the number of capital market participants that are willing to provide long-term risk transfer solutions. In the paper there are highlighted a number of instruments for management financial risk of longevity. All participants in management financial risk of longevity need to: –– acknowledge their exposure to longevity risk, –– put in place methods for better risk sharing between governments, insurers, households and individuals, –– promote financial innovations for the transfer of longevity risk, –– provide better information on longevity and better education on old age finance. In sum, better recognition and mitigation of longevity risk should be undertaken now, including thorough risk sharing between individuals, households, insurers and government through the development of a liquid longevity risk transfer market. Longevity risk is already on the doorstep and effectively addressing it will be the more difficult, the longer remedial action is delayed.