Addressing the Challenge of Global Ageing—Funding Issues

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Addressing the Challenge of Global Ageing—Funding Issues and Insurance Solutions
and insurance solutions as well as working beyond formal retirement ages, will need to
be strenghtened markedly. And this is precisely where insurers have a much bigger role
to play going forward. They are in a unique position to enhance Pillar III savings by a
transfer of longevity risk, the risk of pensioners outliving their savings, as well as the
assumption of a sizeable part of associated asset risks. Insurers also have the skills and
experience to design (innovative) products specifically catering to those who opt to work
beyond the formal retirement age.
The current environment makes this crucial contribution from the insurance industry both
socially more desirable and economically more challenging: in the wake of the financial
crisis, the fiscal positions of rich-world governments have deteriorated dramatically
within just a few years, leaving even less room for coping with the inevitable long-term
challenges of spiralling public pension and healthcare expenditures. At the same time,
employers are confronted with the prospect of protracted subdued economic growth in
their core markets. As a consequence, they face an uninspiring outlook for revenue and
profitability while the pension obligations to their (former) employees continue to grow.
These developments are set to accelerate governments’ and employers’ gradual withdrawal
from their traditional role as major and predictable sources of retirement income. Helping
to fill this gap is not simply a business opportunity for the insurance industry. It arguably
is also its most relevant long-term contribution to economic and social stability. A simple
example: a key social benefit of annuities is that those who have bought them are much
less likely to fall back on state benefits or suffer the fate of old age poverty.
Having said this, insurers face unprecedented challenges in their quest to capture these
business opportunities and to meet the accompanying social obligations: returns on
investments, a core pillar of life insurers’ business model, have reached record-lows.
Government efforts to boost ailing economies and prop up struggling banks have left
interest rates at rock-bottom levels, making it challenging for insurers to help strengthen
the third pillar of retirement.
Against this multi-faceted and intriguing backdrop, The Geneva Association has initiated
a comprehensive research effort focusing on the future of retirement systems and
insurers’ contribution to their long-term sustainability. This effort builds on The Geneva
Association’s multi-decade record of researching into and publishing on the subject
matter.
With the following collection of 14 articles from leading industry professionals and
Geneva Association researchers, we intend to make a meaningful contribution to a debate
which has assumed heightened urgency and significance in the wake of the financial crisis,
and sharply reduced fiscal latitude. This volume’s collection of articles provides a concise
yet authoritative overview of all aspects relevant to the phenomenon of global ageing, the
resulting funding issues as well as challenges and opportunities for the insurance industry.
We first set out the analytical foundations of the current ageing debate before pointing
out specific insurance-based solutions and the prerequisites that need to be in place for
these solutions to realise their full potential. The final part of the report looks at specific
effects of greying populations on key stakeholders such as governments, employers and
individuals.
The chapter from Richard Jackson, Senior Fellow, Center for Strategic and International
Studies, sets the scene. He describes the dramatic dimensions of the ongoing demographic
transformation, with the elderly (aged 60 and over) projected to account for about 40