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PreScouter Case Study: Evaluating Longevity Risk
The following is a case study of the work that was carried out by PreScouter for a Fortune 500 client in the insurance and financial services industry.
About the Client:
The Client’s organization specializes in insurance and financial services. The Client was interested in investigating the topic of longevity risk to aid their committee investigating emerging risks to the business.
The Director of Marketing Strategy at the Client’s organization approached PreScouter to identify, analyze, and compare specific stochastic models used in evaluating mortality to determine if the Client’s current assessments could be improved. The Client was also interested in learning more about the global factors contributing to the change in life expectancy, with a greater focus on the US population.
To answer the Client’s inquiry, PreScouter assembled a team of one MBA and one PhD in Marketing to review the academic literature and white papers addressing the topic of longevity risk. The project team was led by PreScouter’s Financial and Professional Services Thought Leader.
The work was divided into two phases:
- Phase 1: involved identifying and analyzing the most relevant stochastic models. A brief description of each model was provided. Analysis identified the demographic groups most represented as well as the trends and correlating factors affecting the outcome of each stochastic model. Finally, PreScouter analyzed how such trends translated to longevity risks for the Client.
- Phase 2: included a detailed presentation of the factors contributing to an increase in life expectancy as well as those contributing to a decrease in life expectancy based on a thorough literature review carried out by PreScouter’s team of experts. This analysis, in addition to the work done in Phase 1, was used to present the various factors of importance to the client’s business, and to determine their impact to the business.
What PreScouter found:
The goal of this inquiry was to help the Client conduct an informed assessment of whether or not longevity risk is increasing, identify factors that contribute to this trend, and assess how this impacts the insurance and financial services industry.
The completed inquiry included 14 stochastic models used and developed by governments, global organizations, academic research groups and financial institutions developed since 1992. The PreScouter team recommended to the Client to look further into 7 of these models in more detail based on the following factors:
- Use by relevant players in the insurance industry
- Applicability to the North American Market
- Prevalence of use in the industry
- Use of correlating factors in determining output
- Publication year
In the second part of the study, which included the presentation on the changes of life expectancy globally with a deeper look at the US population, PreScouter identified 5 factors contributing to an increase in mortality rates (or decreased life expectancy) and 4 factors contributing to an expected decrease in mortality rates (or increased life expectancy). After detailing each factor, PreScouter provided the Client with valuable insights into the shifting trends of life expectancy and their relative driving forces, detailing the potential impact on the Client’s company (and specifically ramifications to their longevity risk) in the future.
The PreScouter team identified and predicted impact on life expectancy of several factors (e.g. smoking and obesity rates, technological advancements, etc.) for the US Population and matched data to provide an accurate view of these factors over the next ~50-80 years. Through this work, the PreScouter team predicted a change in longevity risk for the Client over this timeline.
PreScouter’s findings were used to strengthen the client’s existing resources concerning the topic of longevity risk. PreScouter presented the results directly to the relevant team within the client’s organization, and was able to deliver new insights regarding the company’s longevity risk and its evolution over the next 100 years.
The client appreciated the rigors PreScouter applied to validating the sources of information in which the findings were based and in the end brought more clarity and confidence to their strategic decisions around longevity risk.
The Client immediately recruited PreScouter on another project to assess the market opportunity represented by a new class of workers in the US.
At PreScouter, we provide custom research, on demand, to quickly excel business development, R&D, and product development planning and decision making.
Interested in having your inquiry answered? Contact us today!
Sofiane is one of PreScouter's Project Architects. He leads the financial and professional services and high-tech verticals at PreScouter. Sofiane earned his B.S. in Materials Science and Engineering from The University of Illinois at Urbana-Champaign, and his Ph.D. in Materials Science and Engineering from the Georgia Institute of Technology. His research focus was in nanotechnology and energy storage. After graduating from Georgia Tech, he worked as an emerging technology and business strategy consultant at several firms and for his own clients before joining PreScouter.
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