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In a world increasingly afflicted by bad diet and obesity, weight-loss drugs like Ozempic and Wegovy have a magical aura. In many western countries obesity rates are heading towards the US tally of 40 per cent. So the benefits to societies as well as individuals of reducing or even eliminating that prevalence is obvious: a healthier, happier population that is more productive and less of a drain on public health systems. Financial gains — for drugmakers and health providers alike — could be vast.
But wherever there are winners, there are losers. And for one part of the financial system — life insurance companies and their clients — the magic spell of rapid weight loss via so-called semaglutides could prove a hex.
Everything that is good about reduced obesity — lower incidence of cardiovascular disease, cancer and diabetes, and a neutralisation of the more than 40 per cent higher risk of mortality — could rattle the status quo of life insurance and pensions.
Some actuaries are starting to worry that the health upside for individuals could be so extreme that it upends insurers’ overall predictions about how long people will live — and thus how much money they will need to distribute to their clients before they die.
If that happens gradually, clients can expect insurers to cut future annuity rates, potentially exposing shortfalls in the value of individuals’ retirement pots. If it happens quickly, significantly extending the life expectancy of every obese sixtysomething client after they have bought an annuity, for example, the burden could fall on insurers themselves, eating into capital buffers.
So far, any impact on the insurance industry is largely theoretical. But the fast-growing numbers of people taking this kind of medication — 6 per cent of Americans at the last count, equivalent to nearly one in six obese people in the country — means that the topic is starting to crop up in company results calls with analysts.
UK insurer Legal & General was recently asked whether its assumptions about life expectancy would need to change as a result of weight-loss drugs. Finance director Jeff Davies said the group was “constantly monitoring” the issue, though he played down the likelihood that existing elderly clients with obesity would benefit materially from taking the medication. “The damage is done,” he said.
But what if that view is too sanguine? For some time actuaries have routinely been factoring in life expectancy increases of up to 1.5 per cent a year to account for more routine improvements in health and lifestyle. But it is not impossible to imagine a new scenario of sharper improvements.
One recent study by Lane Clark & Peacock suggested that the so-called hazard ratio, measuring the risk of death from any cause, shrank by 15 per cent over a four-year period for people with obesity who take a semaglutide versus a placebo. A separate three-year study in patients with pre-existing cardiovascular conditions found the likelihood of death, heart attack or stroke was 20 per cent lower.
It took decades for the last significant transformation of longevity — a sharp reduction in smoking rates — to take hold in many western societies (even if the Covid pandemic disrupted that long-term trend). Since the 1960s, life expectancy has increased 10-15 per cent to about 80 years in much of western Europe, for example. As my colleague John Burn-Murdoch has pointed out, a single drug innovation now promises to deliver a similarly dramatic improvement, but potentially over a period of months and years rather than the half-century that it took US smoking rates to fall from 42 per cent of adults to less than 12 per cent.
Of course, uncertainties remain. The long-term effects of semaglutides are not fully known. Some side-effects may be off-putting. And research results may not scale up to whole populations. Nonetheless, some experts are convinced the innovation could be comparable to a cure for a major cancer in terms of the potential impact on population longevity. “It’s exactly the kind of game-changing development that insurers are required to plan for,” said Stuart McDonald, a partner at specialist consultancy LCP.
For health insurers (and indeed public health systems), longer-term reductions in chronic disease treatment could more than offset a big jump in upfront treatment costs. But the opposite seems likely to apply to life and pension companies. For their boards and regulators — as well as the reinsurance companies to which they may lay off their longevity risk — staying sanguine may not be an option for much longer.
patrick.jenkins@ft.com
