Longevity, Systemic Models and Business Risk

“It is better to have a permanent income than to be fascinating.” Oscar Wilde.
“Specialization may be a great temptation for the scientist. For the philosopher it is the mortal sin.” K.R. Popper.

1. Introduction

It is certainly the case that in recent years, conference programmes, the contents pages of magazines and the daily, weekly national and international press have been crammed full of items on the issue of social security in general, and more particularly those aspects relating to complementary social security.
Despite this the issue of payment of retirement pensions, i.e. the final stage of the welfare system of which the accumulation stage is a mere, though essential tool, has undeniably been relegated to the back burner of public debate, possibly owing to priorities in time. Now it is time to create a reservoir of welfare resources, and in the future — not necessarily the near future in Italy’s case — their distribution to the pensioners of tomorrow will have to be dealt with.
Even from a scientific viewpoint, certain schools of thought1 have only recently provided interesting contributions, not only based on an (albeit valuable) mathematical-actuarial approach, but rather on a wide multidisciplinary approach (from macroeconomics to finance) which is vital in tackling a phenomenon affecting human life, i.e. an event which is par excellence at the centre of everybody’s interest.
When it comes to business behaviour, available surveys on important issues related to management and ‘key’ risks suggest that the issue is not at the centre of attention of corporate managers, and even less do they suggest that there is widespread strong structural and organisational preparation for tackling the phenomenon at all levels of the insurance industry.
For example, mention should be made of the recent Tillinghast survey (2004) on the subject of risk management, which showed a multifaceted situation in which the attention paid to demographic aspects was increasing but still insufficient.
Whereas 84% of those interviewed stated that they tend to develop demographic risk measures, 69% try to include that risk in the overall Enterprise Risk Management process and only 39% declared that they were satisfied with the tools at their disposal for the management of that risk.
This may seem surprising for economic players such as life insurance companies, which for at least a couple of centuries have monitored, assessed and summarised human life — or rather the length and quality of its evolution. Clearly, together with its numerous repercussions — from the ageing of the population structure at any moment in history to the consequences for the labour market and pension systems, to the dynamics of family life — the progressive extension of human life itself is an essential element which cannot be neglected: it is really ‘the greatest of challenges’, a kind of final fulfilment of the historical function of life insurance the institutional role that insurance companies may be called upon to play in that context.
As to the role and institutional function of insurance companies, one should be explicit: we are dealing with activities and tasks that can and should be carried out not because of some kind of ‘hunting preserves’ preset by law but because of specific characteristics linked to their intrinsic nature as insurance companies.
The above remarks are all the more correct and relevant given that the increase in longevity is a widespread, well known, systematic and theoretically irreversible phenomenon for the advanced western world.

Andrea Battista: Managing Director of Duomo Assicurazioni, Cattolica Group.
Reference is made in particular to the research directed by the Wharton school of Philadelphia and for Italy Cerp in Turin.

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