Managing Longevity Risk

When we think about life insurance, we often focus on the policyholder's death. But what if life insurance companies have more to worry about than just untimely deaths? Increasing longevity is one of the primary challenges they now face. Life insurers have long relied on certain mortality assumptions, but in a world where people live longer than ever before, these assumptions no longer hold.

What Is Longevity Risk? - Longevity risk refers to the financial risk that arises when people live longer than expected, particularly in the context of insurance policies. The longer people live, the more money life insurers must pay out in benefits.

The Growing Longevity Trend - life expectancy worldwide has steadily increased over the past several decades. For example, in 2020, the average life expectancy was 78.8 years in USA, a significant jump from 69.7 years in 1950. This trend means that life insurers are now obligated to pay benefits for a longer period than originally predicted.

But it's not just life expectancy that's increasing. The number of people living well past 100 is also growing, creating an entirely new category of risk for insurers. The World Health Organization predicts that the number of people aged 100 years and older will increase tenfold by 2050.

The Solvency Dilemma - Solvency is a critical concept for any insurer, as it refers to the company's ability to meet its long-term obligations to policyholders. When life expectancy increases, insurers face a unique problem: they may not have enough capital reserved to pay for longer-than-expected lifespans.

Underestimating the Cost of Longevity - One of the things that stood out is the frequency of actuaries adjusting their mortality assumptions. During the initial stages of the company's operations, life expectancy models were based on data that didn’t factor in the recent improvements in healthcare, nutrition, and technology. Insurers were often caught off guard when a larger-than-expected number of policyholders reached their 90s or 100s. In hindsight, insurers realized that many long-term policies were not priced high enough to cover this risk.

Regulatory Implications - In addition to internal solvency concerns, life insurers must meet strict capital requirements set by regulators. According to the National Association of Insurance Commissioners (NAIC), insurers must hold reserves sufficient to cover expected payouts. With longevity risk increasing, insurers may need to boost their reserves, which could tie up capital that could otherwise be used for investment or business expansion.

Longevity Risk Management Strategies - While it’s clear that longevity risk poses a major solvency threat, insurers are developing strategies to mitigate this risk. Here are a few ways they're tackling the problem:

Adjusting Mortality Assumptions - Life insurers often rely on actuarial tables to predict the likelihood of policyholders reaching certain ages. By regularly adjusting these tables to account for rising life expectancies, insurers can better estimate their liabilities. According to the Society of Actuaries, updating these assumptions regularly is crucial for maintaining accurate risk assessments.

Diversification of Product Offerings - one of the most important strategies insurers implemented was diversifying its product portfolio. Insurers began offering products that addressed long-term care, critical illness, and annuity plans, which helped mitigate some of the risks associated with longevity. By offering products that span a range of lifespans, insurers can balance the higher risks of insuring elderly populations.

Reinsurance - Reinsuring part of the risk is another common strategy. Reinsurance allows insurers to share the financial risk of longevity with other companies. This not only helps with solvency but also reduces the impact of outlier events (e.g., a significant number of policyholders living exceptionally long lives). Reinsurance can be expensive, but it often offers an effective way to stabilize cash flow.

The Role of Technology in Longevity Risk - The role of data analytics and technology in managing longevity risk cannot be overstated. Advances in predictive modeling, artificial intelligence (AI), and big data have helped insurers better understand and forecast longevity trends.

Data and Predictive Analytics - By analyzing vast amounts of health data, insurers can predict lifespan with greater accuracy. For example, the University of Chicago recently released a study demonstrating how data-driven models could reduce the uncertainty associated with predicting life expectancy. The use of technology in underwriting and pricing life insurance is rapidly changing the landscape of the industry.

AI in Life Expectancy Predictions - AI algorithms have the ability to analyze patterns in data that would otherwise go unnoticed by traditional methods. For example, AI can identify genetic factors or environmental influences that may impact life expectancy. Insurers can use these insights to create more accurate, personalized insurance policies.

Balancing Longevity Risk and Profitability - So, what’s the solution to these challenges? How can life insurers manage longevity risk without compromising their financial stability? In my experience, sustainability and innovation are key. Insurers need to evolve with the times and adopt new technologies and risk management strategies that align with longer lifespans.

A Changing Mindset - While the increasing life expectancy may seem daunting, it’s important to note that life insurers can still thrive by adapting their business models. The key is forecasting future trends and preparing for long-term shifts in demographics. Companies that are proactive, rather than reactive, will continue to succeed in a rapidly changing environment.

Conclusion - Longevity risk solvency is a significant concern for life insurers in today’s world. As life expectancy rises, insurers must adjust their risk models and strategies to maintain financial stability. By updating mortality assumptions, diversifying product offerings, and embracing technology, insurers can mitigate the risks associated with longer life spans.

Fraud At Prudential Life Insurance - Japan

It is nothing short of astonishing that many sales staff at a major life insurance company were involved in improper conduct. The Financial Services Agency must impose strict penalties and ensure that the company implements thorough measures to prevent a recurrence.

Prudential Life Insurance Co., a foreign-affiliated company, has announced that about 100 employees and former employees had conducted improper business practices. They offered customers investments in fictitious financial products or asked customers to loan them money, receiving a total of ¥3.1 billion from about 500 customers.

The misconduct had been occurring since 1991. Some of them used funds obtained by improper means to purchase high-priced items such as automobiles and watches. About ¥2.3 billion remains unreturned to victims.

Prudential’s parent company is one of the largest insurance and financial services institutions in the United States. Its Japanese arm was established in 1987 and has now become one of Japan’s major life insurance companies.

It is utterly appalling that they defrauded their customers of money against the background of their company’s strong brand. This is a malicious act that undermines public trust in the insurance industry.

Prudential announced the investigation results on Jan. 16, but initially did not hold a press conference. The company also severely lacks the attitude of fulfilling its accountability.

Despite such a significant problem, Prudential said that it will not conduct a third-party investigation. This is utterly incomprehensible. As an organization, why couldn’t the company grasp the problem and work to rectify it at an early stage? Clarifying the truth is essential to restore customer trust.

Life insurance sales staff are required to take a customer-oriented approach to caring for customers’ future concerns, such as over illness, nursing care and life after retirement. It is utterly unacceptable for them to take advantage of relationships they have built through selling life insurance products to defraud customers of money and borrow money from customers, among other improper conduct.

The company’s corporate culture, which attaches too much importance to sales performance, is said to have fostered this misconduct.

Prudential referred to its sales staff as “life planners,” indicating a business model of building close, long-term relationships with customers.

However, the sales staff’s compensation system was commission-based, with salaries fluctuating significantly depending on sales performance, and the company also had a lavish awards system for employees who achieved good performance. From the third year of employment, sales staff with poor sales performance could receive only the minimum wage level under this system.

This extreme performance-based system likely created a breeding ground for misconduct. Sales staff were granted broad discretion similar to that of sole proprietors, and the company’s legal compliance system was neglected.

Regarding the about ¥2.3 billion unreturned to victims, the company said that it will establish a committee composed of experts to advance compensation for them. This process must proceed swiftly to dispel customers’ anxiety.

Malaysia Medical Insurance To Curb Premium

The insurance and takaful industry has backed the government’s introduction of a base Medical and Health Insurance/Takaful (MHIT) plan under the Reset Strategy, calling it a key step to widen healthcare coverage and manage rising private healthcare costs.

In a joint statement, the Life Insurance Association of Malaysia (Liam), Malaysian Takaful Association (MTA) and Persatuan Insurans Am Malaysia (Piam) said the initiative by the Joint Ministerial Committee on Private Healthcare Costs would expand financial protection for essential healthcare needs and strengthen long-term health system reforms.

The associations said the plan would help channel private healthcare spending more efficiently and support a shift to value-based care that improves health outcomes and keeps costs under control. They added that the industry is ready to deliver the base MHIT plan nationwide in line with Bank Negara Malaysia’s (BNM) White Paper on the initiative.

They said the plan’s design includes features such as deductibles, co-payments and defined annual limits to help keep premiums and contributions stable.

Liam, MTA and Piam said the industry would work closely with BNM to finalize implementation details, with the base MHIT plan expected to be launched in early 2027. They also gave assurances on operational readiness, saying members were committed to timely claims payouts, clear communication with hospitals and efficient claims processing so patients could access care without delay.

Indonesia OJK - Rampant Fraud Cases

OJK received information that the rampant cases of fraud are allegedly carried out by organized parties. This is suspected based on claim documents, which are almost uniform with almost identical claim details and carried out in certain areas.

The regulator treats this as a serious problem as it not only harms insurance companies but also threatens public trust and upsets the stability of the life insurance industry as a whole

In recent years, the OJK has found various modes of crime involving life insurance claims. They range from embezzlement of premiums by agents and the falsification of claim and death documents to extreme cases such as premeditated murder.

No separate data is, however, available on the number of fraudulent life insurance claims detected each year. The OJK continues to monitor the situation.

OJK has said that many policyholders are not fully conversant with the policy provisions, claim procedures, and consumer rights and obligations, which also aggravates the problem. Other contributing factors are weak governance and internal controls in some insurance companies, as well as the use of technology that has not been backed by adequate security systems.

In addition, the rising trend in digital fraud shows that fraudsters are increasingly taking advantage of technological gaps.

OJK has strengthened its regulatory and supervisory framework, including the issuance of the regulation, "Implementation of Anti-Fraud Strategies for Financial Services Institutions" in 2024. This regulation requires life insurance companies to have a comprehensive anti-fraud strategy, strictly verify claims, and report indications of fraud to the OJK.

Prudential Financial Japan Misconduct

The CEO of Prudential Financial's Japan life insurance unit will resign following revelations of misconduct by about 100 of its employees totalling roughly ¥3.1 billion (US$19.60 million or RM79.6 million), including embezzlement of funds, the Japanese company said on Friday.

The diversified US financial services company's Japan unit said in a statement that 498 customers were affected by the newly uncovered misconduct, such as employees improperly receiving funds through investment solicitations and personally borrowing money from customers.

CEO and president Kan Mabara is set to step down effective Feb 1, the company said. Hiromitsu Tokumaru, president and CEO of Prudential Gibraltar Financial Life Insurance, will replace Mabara, it added.

The Prudential unit, which had first flagged the misconduct in 2024, said it had been conducting a review since August that year after uncovering multiple cases of similar financial misconduct by employees and former employees during or after their employment.

Malaysia General Insurance - Growth & Profit 2025

Malaysia’s general insurance sector ends 2025 with resilience and underlying fragility. The industry has reported steady premium expansion and stronger underwriting results, but it has also exhibited persistent weaknesses involving motor losses, rising repair costs and climate-linked risks.

Overall performance is nonetheless stable, but underlying currents suggest that deeper adjustments are needed to increase resilience as the industry heads into 2026.

Premium Growth

Industry data provided by the General Insurance Association of Malaysia (PIAM) shows that overall gross written premium (GWP) for the first half of 2025 rose four per cent to RM12.3 billion from RM11.8 billion in the same period last year.

Underwriting profit strengthened by RM153 million to reach RM629 million, reflecting stronger cost discipline and healthy performance in several major portfolios.

Fire, personal accident (PA) and marine, aviation and transit (MAT) emerge as the most stable segments in 2025.

Fire, the second-largest line of business, grew 10.4 per cent to RM2.6 billion, maintaining a combined ratio of 67.3 per cent, meaning for every RM1 of premium collected, 67.3 sen were spent on claims and operating costs. 

PA expanded 11.2 per cent to RM800 million. MAT also remained profitable, cushioning weaknesses in other parts of the industry.

These gains, however, were offset by continuing pressure from the motor segment.

Motor insurance 

Motor insurance has remained the largest portfolio with 42.8 per cent of total premiums, but continues to weaken overall underwriting performance.

The segment grew 5.7 per cent against eight per cent in 2024.

More significantly, it continues to operate at a loss. The combined ratio remains at 102.2 per cent, which indicates that claims and operating costs exceed premium income.

The segment is weighed down by entrenched pressures as road accident rates continue to rise to 115 cases per 100,000 population, a trend since 2022. This is driving higher claims volumes and complicating efforts to stabilise motor insurance pricing.

Repair costs continue to climb. Spare parts inflation has been rising at an annual compounded rate of 10 per cent since 2021, making vehicle components one of the fastest-growing categories of claims expenditure and pushing the segment further into loss-making territory.

Flood losses

Flood-related claims are less frequent than motor accidents, but their severity remains a major concern for insurers.

The industry continues to cite the 2021-2022 floods in Malaysia as a reference point for risk planning, given that the tragedy saw losses of between RM5.5 billion and RM6.5 billion and displaced more than 40,000 people. Despite this, flood insurance penetration remains low.

According to PIAM, flood extensions, which can be added to fire coverage, can cost as little as RM14 per month. And special perils cover, an optional add-on for motor insurance, typically accounts for only 0.5 per cent of the sum insured.

Affordability is not the main barrier, but the take-up rate remains limited. This leaves many households and businesses vulnerable to climate-driven disasters.

Digitalisation progress, adoption uneven

Notable progress was made in 2025 with regard to digital solutions, with adoption varying across insurers. The e-police reporting (ePR) pilot was launched on Sept 1 2025, on the North-South PLUS Highway.

This enables motorists to file police reports for minor accidents online. In all, 328 reports were lodged via the platform by Nov 30, 2025. 

Insurers also expanded the use of digital roadside assistance (DRA) applications, allowing policyholders to request towing services and track claims digitally.

These tools improve customer experience and operational efficiency, but full-scale adoption has been gradual; industry-wide impact will take time to materialise.

Vouchers for lower-income group

The Perlindungan Tenang Voucher programme, a government initiative providing subsidised vouchers to help the lower-income to buy basic insurance or takaful protection, remains a key channel offering protection.

Participation throughout 2025 has reinforced its role in widening access to basic insurance coverage.

Insurers also deepen their focus on electric vehicle (EV) risk research as EV adoption introduces new repair cost structures and risk exposures.

Insurers recognise that motor risk profiles will shift over time as EV numbers grow, making product development and data-driven analysis essential priorities.

2026 priorities

PIAM has outlined several priorities for 2026. This includes talent development via the General Insurance Internship for Talent (GIIFT) programme, stronger consumer education initiatives and tools such as a building cost calculator to address under-insurance in property coverage.

Two broader challenges are also shaping the 2026 outlook - the major financial and safety risk from the rising number of uninsured motorcycles, and the need to build stronger climate resilience.

Insurers have reiterated support for climate science and plan to enhance risk management and underwriting practices to better absorb climate-related shocks.

All things considered, 2025 has been a stable year for Malaysia’s general insurance sector, supported by growth in key segments and gradual advances in digitalisation.

Nonetheless, persistent losses in the motor segment and the growing impact of climate-linked events have highlighted unresolved structural issues.

The industry is beginning to pivot towards solutions that involve operational efficiency, digital adoption, financial inclusion and EV readiness.

Whether these efforts are adequate to address deeper vulnerabilities will become clearer in 2026, a year that is likely to test the industry’s ability to transition from managing pressures to building long-term resilience.

People Welfare Insurance Scheme Malaysia

The People’s Welfare Insurance Scheme (SIKR) 3.0, launched today, offers enhanced coverage to protect low-income. Finance Ministry had approved the scheme with an initial allocation of RM20 million, effective from Oct 1, 2025, to Sept 30, 2026.

For SIKR 3.0, the sum insured has been increased to RM13,500 for natural death, RM26,500 for accidental death, and RM13,500 for permanent disability resulting from accidents. The Coordination Unit of the Prime Minister’s Department will formalize the scheme through a memorandum of understanding with Prudential BSN Takaful Berhad.

SIKR is a complimentary syariah-compliant annual group term takaful plan sponsored by the government, providing protection for 300,000 heads of households from the hardcore poor and poor categories registered with the eKasih database.

The first SIKR was launched in 2022 with RM13.4 million in government-paid contributions, covering 268,887 household heads.

Under SIKR 2.0, coverage was RM10,500 for natural death, RM25,500 for accidental death and RM10,500 for permanent disability from accidents.