The life insurance and pensions industry will see huge changes over the next ten years as it works to accommodate the retirement of the baby boomer generation, says State Street.

Wade McDonald, head of customer management and sales UKMEA at State Street, told Pensions Age that he believes the world's rapidly ageing population will force innovation and a plethora of new products in order to cope with these pressures, and predicted that in ten years, a third of insurance business revenue will be generated from products that as yet have not been developed.

"We know that the world's population is increasing, and more so we know that 450 million baby boomers are coming up to retirement age - if it they are going to be living 30 years past retirement age, that will create significant demand for new types of products."

He explained that we are to enter a move away from wealth accumulation, and into a de-accumulation phase. He said products that are made available will have to generate income and provide capital protection, themes which he believes are going to drive the shift towards dealing with the retirees.

"This is a huge opportunity for insurers. By 2020, we think two thirds of investible assets in the US, for example, will belong to retirees."

McDonald explained that key areas for new products will surround equity release and longevity solutions, such as the recently launched longevity swap in the UK. New solutions will need to be flexible and transparent in terms of how they are customised and tailored, and he said it is inevitable that these requirements will drive an increased use of derivatives.

"One of the biggest areas will be the linkage between healthcare and insurance products," he predicted. "There is a very exciting five to ten years to come. The baby boomers' time is going to create a thrust of innovation. There are also initiatives to save coming up - with Personal Accounts in the UK, pension reform around the world, and that there has been much said about the savings gap."

- Pensions Age June 2009

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