As a consulting actuary who has spent considerable time analysing population trends, I’ve observed growing consensus among demographers that we’re heading toward a fundamentally different demographic future than what we’ve experienced over the past century.

The data is compelling: global population will likely peak sometime this century before beginning a sustained decline – a phenomenon unprecedented in modern history.

The Emerging Demographic Reality

The charts from the Global Aging Institute tell a compelling story. Most demographic models now predict global population peaking between 2064 and 2086, with maximum populations ranging from 9.7 to 10.3 billion people. What’s particularly notable is that newer projections tend to forecast earlier and lower peaks than older ones – suggesting that fertility decline is accelerating beyond previous expectations.

China represents perhaps the most dramatic example of this demographic shift. Once feared for its population explosion (internally and externally, but perhaps for different reasons), China’s fertility rate has plummeted to approximately 1.2 children per woman – far below the replacement rate of 2.1. China’s population peaked in 2020. The precipitous decline in fertility has already resulted in a decline in the population. Some models now suggesting its population could halve (or worse) by 2100 from its peak.

The Middle Income Trap and Demographic Headwinds

This chart illustrates what demographers call the “middle income trap,” where countries achieve middle-income status but struggle to join the ranks of high-income nations. Despite substantial growth in East Asia (6.4% annually) and South Asia (3.9% annually) between 1990 and 2022, their GDP per capita remains far below U.S. levels. Meanwhile, regions with lower growth rates like Middle East & North Africa, Latin America, and especially Sub-Saharan Africa (0.8%) show little convergence with developed economies. Sub-Saharan Africa has become relatively poorer relative to the US in the last 30 years.

A key insight here is that population dynamics may exacerbate this trap. Many middle-income countries are ageing rapidly before achieving high-income status – a phenomenon economists call “getting old before getting rich.” Sub-Saharan Africa as a region is almost unique in that it is still growing. But this rate is declining and the global pattern is clear.

This creates a challenging environment where countries must support ageing populations without the institutional and financial infrastructure that developed economies built during their demographic dividends.

Immigration: The Decisive Variable

This chart highlights immigration’s critical role in determining population trajectories in low-fertility environments. For the United States, the difference between the “zero immigration” and “high immigration” scenarios by 2100 is stark – 226 million versus 435 million people. This 209 million person difference exceeds the entire current U.S. population.

This reality transforms immigration from a purely social or political issue into a fundamental economic consideration. Countries with below-replacement fertility essentially face a choice: accept immigration or manage decline. Japan has largely chosen the latter path, while countries like Canada and Australia have embraced the former. The economic implications of these choices will shape national fortunes for decades.

Beyond GDP Growth: Rethinking Economic Impact

A recent conversation with a colleague raised an important question: Does population decline necessarily mean economic weakness? This requires nuanced analysis beyond simple GDP growth metrics.

The Debt Challenge

Population decline creates particular challenges for debt sustainability. With slower or negative population growth, overall GDP growth becomes more dependent on productivity improvements. This makes debt/GDP ratios harder to reduce through growth alone, potentially forcing difficult fiscal adjustments. While automation and technological advancement could boost productivity to offset population decline, experience suggests achieving sufficient productivity growth consistently is challenging.

Labor Market Transformations

An ageing, shrinking population dramatically alters labour market dynamics. While labour shortages may drive wage increases in certain sectors, they can also accelerate automation and reshape entire industries. Japan’s response to its demographic challenges provides valuable lessons, with its emphasis on robotics and technology reflecting adaptation rather than surrender to demographic destiny.

Consumption Patterns and Capital Markets

The traditional life-cycle theory of consumption suggests peak spending occurs in one’s 30s and 40s before declining in later years. However, emerging evidence indicates that aging societies develop different consumption patterns rather than simply reduced consumption. Healthcare, leisure, and personalized services become more prominent, while housing and transportation may decrease in importance.

For capital markets, the traditional view suggests an “asset meltdown” scenario as retirees liquidate investments. Yet the evidence for this remains mixed, with capital flows, policy interventions, and changing retirement patterns creating more complex outcomes than simple models predict.

Insurance Industry Implications

As an actuary, I see several potential implications for insurance markets in this demographically transformed landscape:

Long-Term Care Evolution

Increasing longevity combined with smaller families creates greater need for formal long-term care insurance, though significant challenges remain:

• Greater prevalence of LTC outside the US: As family sizes shrink, dependent ratios increase, and individuals live longer in retirement, Long Term Care (LTC) becomes an increasingly key product. LTC has had a difficult few decades in the US. It’s still fairly uncommon in emerging markets and even some developed markets. Early adopters in these markets can establish the brand, credibility, and experience to become a major player in this market as it grows.
• Hybrid Products: Traditional standalone LTC policies may give way to life/LTC or annuity/LTC hybrids that address the “use it or lose it” concern that has limited market acceptance.
• Home Care Focus: Products emphasizing aging-in-place technology and home care services rather than institutional care will likely gain prominence as consumer preferences shift.
• Public-Private Partnerships: The scale of the long-term care challenge may necessitate government involvement, with insurers potentially managing supplemental coverage above a public baseline.

Retirement Income Transformation

The traditional accumulation-to-decumulation retirement paradigm faces fundamental challenges:

• Flexible Drawdown Solutions: Products will need to accommodate phased retirement, part-time work, and variable income needs over potentially 30+ year retirement periods.
• Longevity Insurance: Advanced-age annuities that begin payments at 80 or 85 may become more prevalent as longevity risk pooling becomes essential for sustainable retirement planning.
• Integration with Healthcare: Retirement products that explicitly address healthcare cost uncertainty will become increasingly important, potentially with features that adjust income based on health status changes.

Investment and Risk Management Innovation

Traditional asset allocation approaches require rethinking:

• Extended Risk Horizons: Longer retirement periods necessitate maintaining higher equity allocations later in life, challenging conventional glidepath models.
• Real Asset Focus: Inflation protection becomes more critical with extended retirement periods, potentially increasing demand for real estate, infrastructure, and inflation-linked securities.
• Intergenerational Products: Multi-generational wealth transfer solutions that optimize across family units rather than individuals may emerge as family structures adapt to longevity.

Industry Structure Changes

Demographic shifts will reshape the insurance landscape structurally:

• Consolidation Pressure: Declining population in certain markets will reduce the absolute size of insurance pools, driving consolidation as fixed costs must be spread across smaller customer bases.
• Digital Transformation: Cost pressures will accelerate automation in underwriting, claims, and customer service, potentially turning insurance from a high-touch to a primarily digital industry.
• Scale vs. Specialisation: Large multinational insurers with the scale to invest in technology may have advantages, while specialized insurers focusing on specific demographic niches could also thrive.

Geographical Divergence

Insurance markets will increasingly bifurcate:

• Mature Markets: Rapidly aging countries will prioritize decumulation solutions, long-term care, and longevity protection.
• Growth Markets: Countries still experiencing demographic dividends will focus on protection, accumulation, and developing institutional capabilities.
• Cross-Border Opportunities: Insurers able to transfer knowledge between these divergent markets may develop competitive advantages through global learnings.

Addressing Behavioral Challenges

Demographic changes intensify existing behavioral biases:

• Longevity Underestimation: Products will need to address systematic underestimation of lifespan by consumers, potentially through novel framing of longevity risk.
• Cognitive Decline Protection: Financial products incorporating protection against diminished financial capacity in advanced age will become increasingly important.
• Family System Integration: Insurance solutions recognizing the role of family systems in later-life care and financial management will gain prominence.

Alternative Perspectives: Not All Decline

While I’ve outlined several challenges, it’s important to consider alternative viewpoints that paint a more optimistic picture of demographic change:

Productivity Growth as Compensation

As referenced earlier, technological advancement and artificial intelligence could potentially drive unprecedented productivity growth that more than offsets population decline. Countries like South Korea have maintained strong economic performance despite rapidly falling birth rates. The labor scarcity created by shrinking populations might accelerate automation and AI adoption, potentially unleashing productivity increases that our models currently underestimate.

Per Capita Prosperity vs. Total GDP

While total GDP might grow more slowly in shrinking populations, GDP per capita could still rise. Fewer people sharing national resources might lead to higher individual living standards, particularly if automation effectively addresses labour shortages. However, this doesn’t fully address debt sustainability issues – a challenge that might create incentives for moderate inflation to decrease the real value of accumulated public debt. Supply constraints from declining labour forces could contribute to such inflationary pressures.

It’s also worth questioning whether GDP per capita is even the right measure for societal wellbeing in aging societies. This metric excludes non-monetary aspects of wellbeing and non-remunerated work. An over-focus on GDP might misrepresent a future that includes many content retirees engaged in meaningful but economically unmeasured activities – from community service to artistic pursuits.

Environmental Benefits

A significant but often overlooked benefit of population stabilization or decline is reduced environmental pressure. Lower population could ease resource competition, reduce pollution, and potentially support more sustainable economic models. While climate change rightfully dominates environmental discussions, population stabilization represents one of the most effective (if slow-acting) approaches to reducing humanity’s ecological footprint.

The Japan Question

Japan’s experience with population decline provides a complex but instructive case study. Despite demographic headwinds, Japan has maintained relatively high living standards, low unemployment, and social stability. Their example suggests adaptation is possible, though not without trade-offs. Japan’s emphasis on automation, careful immigration, and social cohesion offers one path for other ageing societies.

Global vs. Local Asset Markets

While individual countries might mitigate asset price declines through global capital flows, the prospect of worldwide population aging raises questions about whether these balancing mechanisms will remain effective when most major economies face similar demographic trajectories simultaneously. This remains one of the great unanswered questions in demographic economics.

Adaptation Over Decline

Despite these challenges and opportunities, history teaches us that economies adapt. The 1950s comparison my colleague raised is instructive – economic structures reorganize around demographic realities. The key difference today is the direction of change: we’re entering an era where labor becomes more scarce rather than more plentiful.

This transition creates winners and losers. Countries and companies that successfully adapt to aging populations through technology, immigration, and institutional innovation will thrive. Those clinging to growth models predicated on expanding populations may struggle.

For actuaries and financial professionals, these demographic shifts demand fresh thinking about longevity risk, retirement adequacy, and intergenerational equity. Our traditional models built during an era of population growth require fundamental reconsideration.

The future may not be one of economic decline, but rather one of economic transformation – driven by demographic forces that are now firmly established and unlikely to reverse in the coming decades.

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