Supertrends. Pushing for change. Silver economy
At the heart of the “Silver economy – Investing for population aging” Supertrend lies the projection that the world’s senior population will double to more than two billion by 2050. This evolution is set to proceed regardless of the state of the world economy or political events, creating needs associated with an aging population in healthcare, insurance and funding solutions, and consumer and property markets. Looking ahead, a focus on emerging markets (EMs) makes sense, given that two-thirds of the incremental number of seniors will live in that group of countries, which remain underresourced in both healthcare provisioning and public and private insurance solutions.
Therapeutics and devices
Healthcare remains the sector most pronouncedly affected by an aging population. The incidence of many chronic diseases increases with age, which is why a larger elderly population is linked to a disproportionate rise in healthcare expenditure. Based on the historical trajectory, healthcare costs can be expected to continue to rise at a rate several hundred basis points above GDP growth. This raises an important debate and requires solutions to contain healthcare costs amid such demographic developments. Technology can and will play a critical role in providing such solutions.
Medical progress should also provide more effective and affordable therapies for the diseases or disorders that come with age. Ideally, preventative intervention can avoid costly disease in the first place, e.g., lifestyle-related cardiovascular complications. However, this approach seems less effective with cancer, another leading cause of death that carried a cumulative healthcare burden in excess of USD 1.2 trillion in 2010, according to the World Health Organization. Unlike other cancer risk factors such as smoking and an unhealthy lifestyle, aging cannot be avoided. Next-generation technologies, such as antibody-drug conjugates and personalized cancer vaccines, are making great strides in clinical testing. Considering the industry’s full oncology pipeline, it will be paramount that healthcare systems exploit the full savings potential from patent expiries through the development of generics as well as biosimilar products of biologic drugs, creating financial headway for innovation.
Regardless of indication, therapeutic area, or nature of intervention (drugs, disease, or other forms of therapy), a focus on valuecreating innovation or cost leadership is critical, as it alone ensures negotiating leverage for pharmaceutical, biotech and medtech companies in a world facing steepening healthcare costs. Transasia Bio-Medicals, for example, has become the number one supplier of in-vitro diagnostics in India through a strong focus on costs and profound understanding of local requirements, allowing the company to expand its model to other emerging markets as well as certain developed ones.
Care and facilities
An aging population – in conjunction with the age-related conditions and diseases that go with it – calls for dedicated care options and settings as well as facilities equipped to provide them. Today’s senior cohort often live a healthier and more active life than earlier generations, which enables them to live independently for longer and they seek to maintain this lifestyle as long as possible. The one-size-fits-all retirement home option will no longer satisfy the diverse demands of this cohort. Builders and operators of dedicated senior housing concepts – spanning the full spectrum of the care continuum, from assisted living to intensive care – will therefore play a crucial role in satisfying demand. In order to conceptualize the sheer scale in terms of both demand and investment, we calculated the incremental hospital beds that would currently be required to lift the top ten countries (with the highest absolute increase in seniors) to the global average in terms of hospital beds per capita. The result – four million beds – may not sound like a significant investment at first glance. But consider that this number represents four times the number of US hospital beds or the equivalent of 10,000 mid-sized hospitals. Furthermore, this is merely the required investment today and it will only rise going forward as the senior population rapidly expands. Training new doctors and nurses to staff additional infrastructure will also increase costs. Any advances on this front, however, will help alleviate significant shortages across prominent EMs today and thereby contribute to social equity.
When it comes to care provisioning, managed care organizations (MCO) will also play an important role. These companies combine their deep understanding of risk factors, the healthcare environment and a wealth of data on historic care episodes and claims in order to guide patients to the most effective care setting, ideally before catastrophic (and costly) consequences and complications strike. For example, MCOs can identify early on those patients on a trajectory toward dialysis and transition them into dialysis care, avoiding a “crash” into dialysis through a serious and expensive medical emergency.
Health and life insurance
Pension pain point
With a growing senior population comes the need for funding solutions for both living expenses as well as healthcare expenditures. The latter, as mentioned before, can be substantial despite ongoing efforts to rein in healthcare costs. The fact that many of these countries that will add the highest absolute number of seniors between now and 2050 seem ill prepared to ensure the funding of their senior population is of concern. For an assessment, the Melbourne Mercer Global Pension Index is informative. The index awards most of these countries’ pension systems a grade C or even D, highlighting the inadequacy of present systems. Even the USA appears to fall short of expectations, with the index awarding that country a C+. This seems consistent with a report from the Federal Reserve Bank of St. Louis that found that 35% of US households do not participate in a retirement plan. “For many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement,1” the report warned.
Part of the solution will come from shoring up pension systems through unpopular measures (e.g., increasing contributions, increasing taxes, and raising pension systems). However, it is also becoming increasingly clear that the private sector will also have a role to play. Against this backdrop, it makes sense that a German insurer bought a stake in a Chinese life insurer in 2019, and we expect more such transactions aimed particularly at companies operating in EMs. A similar trajectory can be expected with regard to the development of health insurance in EMs, given the similar underlying backdrop: under-penetration of insurance in EMs, and patients’ needs to cover unexpected out-of-pocket healthcare costs in both developed markets and EMs.
Senior consumer choices
Despite the concerns mentioned earlier, seniors today are a powerful consumer group with high spending power, reflecting the accumulation of wealth over the course of their lives as well as the inheritances received closer to retirement age – another effect of increasing longevity. This significant spending power combined with ample free time makes the leisure and tourism sector a major potential beneficiary once coronavirus-related travel restrictions are lifted and activity rebounds. Additional industries that should benefit include personal care and beauty products and home automation manufacturers. Furthermore, some medical equipment and devices, such as prescription glasses or hearing aids, only receive patchy insurance coverage in most countries and thus usually feature high out-of-pocket expenditures for patients, making the decision to acquire them essentially a consumer choice.