The rapid decline in TFR and consequential depopulation in the near future is becoming a concern for every economy in the world. Historically, untamed population growth has caused the economies to grow constantly throughout known history. For the first time in world history, the human population is expected to decline naturally, which will present unprecedented challenges as well as opportunities for humanity. The way current industries and processes work will change as a response to this changing reality of market dynamics. Such changes suggest that there is more than just a population problem; an economic and financial challenge awaits, and it is bound to change business models across numerous industries, especially in insurance.

Predictable risk pools, steady claimants, and positive actuarial estimates are essential for any business operating in insurance. These factors are further complicated, as the balance of older and younger working individuals becomes heavily stocked with retirees. Most negatively portray depopulation. As the population ages, there are fewer premium-paying customers, higher delays in annuity payouts, and increased claims of health and lifetime care insurance. Insurers need to change their existing strategies, product offerings, and technological frameworks to ensure relevance and sustainability in an era of demographic decline.

This white paper will try to deep-dive into the implications of depopulation on the global economy, focusing on the workforce and dependency ratio and the insurance sector as its corollary.

Declining Fertility and Aging Populations

Around the globe, fertility rates continue to drop over the decades, and the circumstances of advanced economies depict a poor picture as their Total Fertility Rate sinks well below the 2.1 needed to replace the existing population in the next generation. Studies have shown that two-thirds of the global population now live in countries with total fertility rates below replacement level. While other regions like Sub-Saharan Africa have a higher fertility rate in comparison to the rest, Europeans, North Americans, Chinese, and the Japanese are running into severe population decline. For example, the Chinese population has been declining for the last 3 years in a row.

This phenomenon seems to be already impacting the first-wave economies such as Western Europe, North America and East Asia, which are now facing population shrinkage, slowed economic growth, and scarcity of workers. However, second-wave economies, like India and Southeast Asia, are still reaping the benefits of high population growth, but will eventually experience the struggle faced in developed economies by mid-century.

A key phenomenon resulting from the decreased fertility rates is the aging population. Forecasts estimate that the number of elderly adults will be responsible for 25% of consumption by 2050, compared to 12% in 1997. That comes with profound alterations in the dynamics of economic activity, labor markets, and social welfare systems, with an increased proportion of aged people.

Economic Consequences of Depopulation

The elderly population is growing, which is a cause of great economic concern. The dependency ratio is the ratio of dependents who do not work to a working person. This problem is expected to get significantly worse. In 1997, the global support ratio was 9.4 workers per retired individual. This is expected to fall to 3.9 in 2050 globally. However, some areas like Japan and Western Europe may suffer even more, reaching a support ratio of 2:1.

With not enough young people entering the workforce, without heavy funding for automation, AI, and reskilling the upper echelons of the workforce, productivity will drop significantly, and as a result, much of the industry will suffer from a lack of workers. Countries will have to adjust current policies regarding immigration, retirement funding, and civic activity. Countries that do not adopt these policies are going to have a problem with slowly decreasing GDP growth, which leads to less money being spent and increases a shift towards greater spending on health care and pensions.

Economic and Workforce Implications

Fewer workers in a working age bracket spell bad news for a country’s economic productivity. Without a significant boost in productivity, businesses will be unable to keep up with growth as the workforce continues to decline. This tendency can lead to negative outcomes for public finances because a dwindling number of taxpayers will be available to support an increasing retiree population. Countries coping with these demographic changes must either increase participation in the labor market, especially by women and older workers, or utilize new technologies to help get the productivity levels needed to support the economy.

Addressing these economic challenges has been met with various approaches. Countries like Japan and Germany have started implementing workforce retention policies built around delayed retirement and reskilling older workers. In addition, the use of automation and AI for productivity increases has been changing the economic output possibilities with shrinking numbers of available workers. Such approaches, though, require behavioral change and large funding.

Life & Health Insurance

The insurance industry is deeply affected by shifting demographic trends. As fertility rates decline and populations age, the traditional insurance model—built on large pools of younger policyholders subsidizing older policyholders—becomes unsustainable.

One of the most pressing challenges is the shrinking policyholder base. With fewer young people purchasing life and health insurance policies, insurers will face difficulties maintaining premium growth. At the same time, longevity risk—where policyholders live longer than expected—will increase annuity payouts, straining insurer reserves.

Health insurance providers will also see rising claims, as aging populations drive up the prevalence of chronic conditions such as diabetes, cardiovascular disease, and neurodegenerative disorders. Insurers will need to adjust their pricing models and risk assessments to account for this demographic shift.

General Insurance

The insurance industry as a whole will be impacted. Take, for example, auto insurance. Demand is likely to drop as the population ages and older individuals begin to drive less. The implementation of self-driving cars also lowers the need for traditional risk models. Claim rates for homeowners' insurance may rise as older constituents spend less on maintaining their properties and, in turn, file more damage claims.

Older individuals are also more susceptible to becoming victims of cybercrime and financial fraud. As the age of digital transactions increases, insurance companies may need to consider designing new products, such as cybersecurity insurance, specifically for the elderly who are more likely to fall prey to such scams.

As an InsurTech solutions provider, AccelTree Software is well-positioned to help insurers navigate the challenges posed by depopulation. The company focuses on integrating digital transformation, automation, and AI-driven solutions to enhance the efficiency and adaptability of insurance operations.

• AI-Powered Risk Assessment & Underwriting: AccelTree’s AI-driven underwriting tools can help insurers assess longevity risk and adapt pricing models dynamically, ensuring sustainable profitability.
• Embedded Insurance Models: By partnering with fintech companies, healthcare providers, and e-commerce platforms, AccelTree enables seamless insurance distribution, expanding reach among both younger and aging demographics.
• WhatsApp-Based Policy Management: Given the increasing preference for digital interactions, AccelTree’s solutions include WhatsApp-based policy issuance and claim processing, catering to both tech-savvy and elderly users.
• AI Fraud Detection & Cybersecurity: With aging populations more susceptible to fraud, AccelTree’s AI-driven fraud detection tools help insurers safeguard senior policyholders from cyber threats and fraudulent claims.
• Digital Document Management & Automation: AccelTree enhances efficiency and reduces operational costs for insurers adapting to an aging customer base through automated claims processing and digital KYC tools.

The ongoing depopulation is transforming the insurance industry in previously unimaginable ways. Insurers that are reckless and do not respond proactively put their financial position in jeopardy, whilst those who take on new technologies, novel ways of serving and engaging customers, and digitalized product innovations will inevitably succeed. With AccelTree Software, cutting-edge InsurTech software solutions enable insurers to remain nimble and responsive to demographic changes. Insurers in a depopulating world will need an uncanny degree of foresight, agile responding, and incessant innovative zeal.