The main characteristics of the insurance market for longevity risk: a literature review

Abstract

Longevity risk is the probability of surviving more than own financial resources. This paper aims to define the characteristics of the insurance market for longevity risk. First, it identifies the aging of the population between the OECD countries and the need for long-term care services (i.e., their quality of life). Second, it tries to summarize the main characteristics of the insurance market for longevity risk from the literature point of view. According to the financial literature, the market to ensure the aging population's long-term needs can be considered a puzzle as there are some constraints from the two sides of the market. From the demand point of view, two issues limit the request for insurance products: the role of the State and misunderstanding about the exposure at risk by the population. At the same time, there are other constraints from the supply point of view: the adverse selection and moral hazard issues that impact the pricing of longevity risk. All these constraints limit the growth of this market. Third, it identifies some suggestions for further investigation in the growing field of financial literature. This paper contributes to the existing literature by identifying the constraints that avoid the insurance market's growth for longevity risk and by remembering some solutions to reassess the role of the welfare state.