EUROPEAN PAPERS ON THE NEW WELFARE

Longevity, Systemic Models and Business Risk

14. Conclusions

Regardless of value points of reference, which in life tends to see the good and the positive, longevity, i.e. the extension of effective life expectancy , may be considered ‘good news’ for humanity who can and will be able to benefit therefrom.
No rational person would opt for the ‘Botswana alternative’ with its 30 years of life expectancy at birth. Actually, “old age is not so bad when you consider the alternatives”, as M. Chevalier said.
Moreover, it may be (is) good news also for insurance companies as private economic operators on a free market called upon by their shareholders to create value in a form which is sustainable over time: where there is risk, there is an opportunity to create value. The correlation between ‘good news for the world/good news for the companies’ is the logical confirmation of the social role played by insurance companies and is bound to increase the importance of insurance operators.
When longevity tends towards the infinite, the demographic risk component fades out and the cover of needs becomes a pure saving process even before income is generated: we might say that at that stage the fourth pillar of accumulation becomes dominant.
The demand side still shows a marked and clear cut preference for liquid assets since the implicit risk assessment — and consequently the willingness to pay — on the part of potential customers is very different from that (much more limited) carried out by insurance players and their planners.
Undoubtedly, companies play a social role (as do other financial intermediaries) in directing demand downwards by means of the tools used in a developed business relationship. The systematic nature and size of the longevity risk make it unmanageable for all players if they do not act jointly. In any case, this risk cannot be renounced: it has been taken on in a very mechanical manner for decades rather than been selected: it would be a mistaske to go from one extreme to the other.
Consequently, ‘sharing’ will be the general watch word for everyone, and where there is sharing there must also be collaboration between players with different institutional roles and competition aimed at selecting the best representatives of each group.
An example is provided by the financial world, which shows that risks can be managed not only through diversification but also by distributing them among different people in the most suitable way, for example according to their natural liabilities in addition to different market concepts.
Hence, sharing is the watch word which holds good for everyone. for insurance companies, which must distribute the risk burden among various management tools and develop more sophisticated tools/products: substantial capability and social accountability must go hand in hand. for individuals, who need to plan their lives by distributing the burden of supporting the resource accumulation process among all four pillars. for public pension systems, which need to distribute the risk they manage in the fairest possible way among generations. finally, for the State which since it cannot take on the full risk, needs to encourage, regulate and monitor the evolution of the system or act as the player of last resort using the tax system as a final option, without limiting individual liberties.
The stakes are very high, including and above all from the ethical point of view. If longevity becomes a globally relevant and socially unmanageable risk, the pressure to contain health care expenditure for older age groups — which de facto means a reduction of life expectancy — could become irresistible and for the first time in history, longevity would cease being a goal for mankind, possibly changing the ultimate meaning of social-economic development.


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