WEALTH

Multiplying investment and retirement knowledge
#23
THE FIRST
WEALTH
MORE PEOPLE ARE LIVING INTO
OLD AGE, OWING TO DRAMATIC
IMPROVEMENTS IN GLOBAL
HEALTH – BUT WHAT IS
THE COST?
MICRO
Non-communicable diseases weaken
us with chronic illnesses over many
decades – and then they kill
MACRO
China will face a challenge in finding
a balance between rising levels of
consumption and life-cycle deficit
META
Film director and producer Francis
Ford Coppola is the most famous
vintner in California’s Napa Valley

CHART ART
COMMUNICABLE DISEASES
NON-COMMUNICABLE DISEASES
MALE
FEMALE
MALE
FEMALE
2012
2000 2000
MAKING OF THE COVER
PROJECT M cover art is created
using special software that
transforms raw data, images
and figures into aesthetic
clusters, using special rules
and parameters.
For this issue, the program
was fed information showing
causes of death in the
Southeast Asian and Western
Pacific regions, estimates for
2000–2012 and projections
for 2015–2030.
This has been broken down
into communicable and
non-communicable diseases,
as they affect males
and females.
2012
2015
Communicable diseases
(left) are decreasing in
the region, for both males
and females, while
non-communicable diseases
(right), like cardiovascular
diseases, diabetes
and cancers, show
a sharp increase.
2015
2030
2030
FEMALE
2000 2012 2015 2030
COMMUNICABLE 28.03% 18.56% 18.26 12.94%
NON-COMMUNICABLE 62.97% 73.42% 74.17% 79.76%
INJURIES 9.00% 8.02% 7.57% 7.30%
MALE
2000 2012 2015 2030
COMMUNICABLE 25.84% 17.03% 16.41% 10.67%
NON-COMMUNICABLE 62.24% 71.98% 72.12% 78.91%
INJURIES 11.92% 10.99% 11.47% 10.42%
Source: World Health Organization, Global Health Observatory data repository

OPENING BELL
BRIGITTE MIKSA
Head of International Pensions
CHANGING DYNAMICS
“The first wealth is health,” claimed American poet
Ralph Waldo Emerson. It is a sentiment that many in the rapidly
growing economic region of Asia can share
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CONVERSATION
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also available online. Visit
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on Twitter for more
updates and news
Despite increasing riches, many people are
realizing that wealth is a poor substitute for
good health. Increasingly, as Asia develops, it is
adopting the disease profile of the West.
Sickness and death by communicable diseases,
such as cholera and typhoid, are giving
way to those caused by non-communicable
diseases (NCDs), such as cancers, heart disease
and diabetes.
This is partially a good-news story. The
diseases and pestilences that killed people at
an early age are being subdued, which is
allowing Asians to enjoy the benefits of a ripe
older age. But as societies in the region grow
older, their populations are increasingly
succumbing to the chronic diseases that
cause so much pain, suffering and death in
the developed world.
The shame of it is that much of this is
preventable. Unhealthy diets, lack of physical
exercise, tobacco use and harmful drinking,
all greatly increase the risk of NCDs. The
Western world is still grappling with how to
combat this growing plague, but for Asia the
matter is assuming ever greater urgency. The
region is aging at the fastest rate in history
and, consequently, undergoing the fastest
epidemiological transition as well.
This will place healthcare systems still
grappling with the implementation of social
care under increasing pressure. Urgency,
flexibility and creativity will be required to
tackle NCDs, so that in the next decades
billions of people can benefit through longer,
higher-quality lives.
Insurance will also play an important role
in this. The growing Asian middle class, which
will be the key driver of global consumption
in the future, will see health insurance as an
important purchase, along with consumer
goods and education. But for it to meet the
needs of clients in Asia, insurance will need to
develop new models and new delivery methods,
some of which we explore in this edition.
Yours sincerely,
Brigitte Miksa, September 2016
Allianz • 3

CONTENTS
FOCUS
(Issues in depth)
THE FIRST WEALTH
06 –11
The first wealth
Asia today is undergoing the most rapid
health transformations seen in history
22–25
Patients without borders
Medical tourism offers savings, but the business
is falling short of expectiations
12 –13
Learning from behavioral economics
Nudging diabetes patients towards
healthy behavior is a complex challenge
26–27
How to choose a diet
Personalized aging can determine which lifestyle
helps ward off critical health conditions
14–16
The greatest gift
How private insurance supports Asia’s
aspiration for universal healthcare
28–30
Asia’s high-stakes fight against smog and heat
Polluted air and heatwaves are killing millions, and
Asia could suffer the most unless it acts fast
17–19
Weighing up the global cost
Non-communicable diseases weaken us
with chronic illnesses over decades
31–33
Hitting the sweet spot
The upward mobility of the Asian middle class
has the power to change the global economy
20–21
Health insurance based on
trust and motorbikes
In Indonesia, digital health coverage is
being delivered by word of mouth
34–35
Something to smile about
Thailand has created a health care system that
delivers a good standard of medical
coverage for its inhabitants, regardless of income
THOUGHT LEADERS IN THIS ISSUE
Curtis Schroeder
on the international
healthcare industry
Page 22
Chris Murray
advises policymakers to invest
more in prevention
Page 42
Alicia García-Herrero
talks about the new economy
that is emerging in China
Page 49
Wang Feng
asks how long the surplus in
the Chinese economy will last
Page 52
4 • Allianz

CONTENTS
MICRO
(Local knowledge)
MACRO
(Global opportunities)
36–39
Plugging the leaks of time
Societies need to lend greater support to
geroscience’s struggle against age-related diseases
49–51
China sheds its skin
A dramatically different economy is emerging
in China, but it still faces old challenges
40–41
One step ahead in the pensions game
Kingfisher, the UK retail giant, has achieved the
impossible, making pensions fun and interesting
52–53
The end of abundance
Current economic troubles may only be
the beginning for China
42– 44
A mixed blessing
With increasing life expectancy, longer periods
of poor health are a costly risk
54–56
Blindsided by history
History never repeats, but it sure can rhyme,
says Barry Eichengreen
45
Q&A
Eduardo P. Banzon on how the rise of NCDs in Asia is
closely intertwined with rapid aging
57–59
How to kick-start investments
in infrastructure
We need to address the big issues
46–48
Hitting the economic reboot button
China is restructuring its industries to move up
the value chain – but pain lies ahead
60–61
The productivity puzzle
Is the current slump an aberration, or
is it permanent?
META
(The outsider’s view)
62
Apocalypse wow: Coppola directs wine
Francis Ford Coppola is the most
famous vintner in the Napa Valley
59
Masthead
Allianz • 5

FOCUS
Issues in depth
6 • Allianz
China
Commodity
City (CCC),
in Yiwu, China,
is known as
the largest smallcommodity
wholesale
market in the world

FOCUS
THE FIRST
WEALTH
Asia today is undergoing the most rapid
health transformations seen in history
Allianz • 7

FOCUS
It is all happening so quickly. Three generations ago,
Asians tended to die early of infections or parasites
such as malaria or tuberculosis, in childbirth, or – at
high rates – in early childhood. Today, they are increasingly
living to a ripe old age and dying from heart disease,
diabetes, chronic respiratory problems or cancer – all long
considered rich-world problems.
This should come as no surprise, says Eduardo Banzon,
senior health specialist with the Asian Development Bank.
“These diseases are associated with increased prosperity
and longevity. As Asia is becoming richer, the health
patterns of Western countries are being repeated here.”
It is a demographic truism that as countries develop
and become wealthier, they urbanize, and as they urbanize
people live longer and fertility rates fall. When the number
of elderly increases relative to the young, diseases linked
to insufficient nutrition and infection give way to the
degenerative problems of old age.
This is what is happening in Asia. After decades of
economic development and improving healthcare, deaths
from communicable diseases (infectious diseases
transmitted by direct contact) and maternal and prenatal
conditions in the countries to the right of Pakistan on a
Mercator map have fallen, while those caused by noncommunicable
diseases (NCDs) have risen sharply.
This is known as epidemiological transition, and Asia’s
direction is clearly seen in data from the World Health
Organization. Only one-fifth of all deaths in Asia and the
Western Pacific region are now caused by infectious
CAUSES OF DEATH IN ASIA-PACIFIC REGION, PROJECTED TO 2030
As mortality rates from communicable diseases decrease, owing to economic
development and better healthcare, rates for non-communicable diseases increase
Female
Male
100% 100%
90% 90%
% of deaths in Asia-Pacific region
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
% of deaths in Asia-Pacific region
0% 0%
2000 2012 2015 2030 2000 2012 2015 2030
Communicable Non-communicable Injuries
8 • Allianz
Founded
in 1982,
the vast
market spans
over four million
square meters and
employs over 200,000
people

Commodity City is made
up of three market
clusters: International
Trade Mart,
Huangyuan
Market and
Binwang
Market
FOCUS
diseases, including HIV/AIDS and vaccine-preventable
diseases such as polio, measles and dengue. The largest
share of deaths – over 60% – come from NCDs, which is
expected to increase to 71% by 2030.
CHANGING HEALTH PATTERNS
Today, some 900 million people in the Asia-Pacific region
still have little or no access to healthcare. As governments
continue to roll out immunization, tackle poor sanitation
and issues such as food contamination, and improve
maternal and child health services, deaths caused by
communicable diseases will fall.
For example, in Southeast Asia, an area of 11 countries
containing a quarter of humanity, mortality among
children under the age of five has dropped 75% since 1970,
according to the UN 2015 World Population Prospects.
In Eastern Asia, which includes China, a drop of 90% has
occurred. However, the deaths of another million
children a year in the region could be prevented through
timely jabs in the arms.
Control programs, such as those targeted at
tuberculosis, will also make a difference. The Asia-Pacific
region has the highest tuberculosis burden in the world,
with 5 million cases of the disease recorded every year, and
claiming the lives of 800,000 people annually. The WHO
estimates that annual deaths could drop in Asia by almost
50% by 2030.
But in parallel, cancers are expected to increase
rapidly, cardiovascular diseases to rise by more than 40%,
and diabetes by 60% (see Oktay Atay on pages 12–13).
These diseases are a result not only of population aging but
– as in developed countries, says Eduardo Banzon – also of
lifestyle choices.
FIZZY DRINKS, BURGERS AND PIZZA
In the coming decades, the Asian middle class will be the
key driver of global consumption for goods such as cars,
clothing, housing and technology, as well as services such
as education and health insurance (see article on
consumption patterns on pages 31–33). As people become
wealthier, their dietary options also widen and they
consume excessive salt and more calories from cholesterol
and saturated fats.
In China, the burgeoning middle class are eating more
foods derived from livestock and wheat. Imported foreign
foods are a powerful status symbol, but this comes at a
price. Results of a three-decade survey recently released by
the European Society for Cardiology highlighted the
consequences of a preference for fizzy drinks, burgers and
pizza, combined with a lack of physical activity in the
eastern province of Shandong: in 2014, 17% of boys
Allianz • 9

FOCUS
The main purpose of
Commodity City is its
function as a wholesale
market for business
people from all over the
world
younger than 19 were obese and 9% of girls – up from under
1% for both genders in 1985.
Such shifting consumption patterns increase the risks
of cardiovascular disease and strokes. These – plus cancer
and cerebrovascular and chronic diseases – could be
reduced by changes in diet and decreases in what the WHO
describes as the “tobacco-use epidemic” in the region.
ASTOUNDING SPEED
While Asia is following the disease patterns of the
industrialized West, where it differs is the speed of
transition. As has been highlighted in PROJECT M, Asia is
going through the fastest demographic shift ever recorded.
Currently, South Korea is the world’s fastest-aging country,
but it is heading a closely bunched pack that includes
Bangladesh, China, Singapore, Thailand and Vietnam.
Many Asian countries now have more working-aged
people and fewer dependents than at any point in history.
According to a recent report, Shaping the Future (United
Nations, 2016), 68% of people are of working age and only
32% dependents. This offers a unique make-or-break
opportunity for rapid economic growth, but it also means,
notes Eduardo Banzon, that demographic change that took
up to 150 years in Europe and North America may take only
five decades in many Asia-Pacific countries.
This has important implications for healthcare
systems. As this change takes place, the parallel shift in the
causes of ill health is also occurring. “The problem
emerging now is that countries are not yet rich enough to
manage the aging of the population in the same way that
the Europeans have done,” he adds.
To be clear, the rise of NCDs in Asia is a sign of success
as it is evidence that people are now living long enough to
die of diseases that typically hit in old age. But, even as
Asian countries prepare to meet rising rates of NCDs, many
face unfinished business: the rates of communicable
10 • Allianz

Over 100,000 vendors at
the market represent
factories from all
over China and sell
to both local and
international
customers
More than 400,000
different kinds of
products are for sale,
65% of which are
exported to over 215
countries and regions
diseases remain high. In India, for example, two-fifths of
children under five are malnourished even as obesity rates
are exploding.
This presents health systems with a double burden,
says Irina A. Nikolic, senior health specialist in the World
Bank Group Global Health Practice (pages 17–19): how
to maintain and further the gains made against
communicable diseases while addressing NCDs. Systems
in the West have had generations to adapt to a gradual rise
in NCDs. Those in Asia need to juggle an effective approach
to both in a far shorter time frame.
While some Asian countries, such as Japan and
Singapore, have healthcare systems that are among the
most advanced in the world, others – such as Indonesia –
are only now extending basic health services to all citizens.
Threadbare health systems will struggle with the rise of
NCDs, but others designed to address acute care needs that
come with communicable diseases will also need
fundamental adjustments, as chronic NCDs can require
decades of care and medication.
Such considerations should influence policymakers
in each country in prioritizing resources to deal with
the current and future burden of disease. Where they
can take inspiration from is in recent triumphs in
tackling communicable diseases. If systems can adjust to
tackling NCDs with the same vigor, then in the next
decades billions of people could indeed benefit from
a better quality of life, for longer.
Allianz • 11

The
choice is
yours –
can you
resist?
LEARNING
FROM BEHAVIORAL
ECONOMICS
Nudging diabetes patients towards
healthy behavior is a complex challenge
and a key interest for insurers

FOCUS
By Oktay Atay and Christian Gressner
Fruit or fudge, white rice or brown? And
if yes, how much? What sounds like a
simple choice is actually a complex
decision influenced by nutritional habits
formed in childhood, environmental factors
and associations such as the music playing
over dinner and the size of the plate.
Add to this our body’s tendency to store
surplus calories in fat in case the next
meal doesn’t materialize, and urbanized
lifestyles with little physical exercise, and
the foundations for increasing obesity
figures are laid. Obesity often leads to
diabetes, which is growing at an
alarming rate, even when numbers are
corrected for aging (as diabetes is
more prevalent among older citizens).
Roughly 415 million adults
worldwide suffer from diabetes,
especially type 2, according to the
International Diabetes Federation
(IDF). The IDF expects this to rise to
642 million by 2040. Diabetes has
caused roughly five million deaths
and an estimated cost of $673–$1,197
billion in global healthcare spending
in 2015, the Federation reports. The
majority of patients live in low- and
middle-income countries.
The issue is a particular challenge to
Asian nations, where more than 60% of the
people with diabetes live, almost half of
them in China and India. Type 2 diabetes is
estimated to rise by more than 150% between
2000 and 2035 in South Asia, Paul Zimmet
(Monash University) and colleagues write in
Diabetes Care. This poses “huge social and
economic problems to most nations in [the
Western Pacific Region] and could impede
national and, indeed, global development,”
they report.
GROWING IN THE WEST
Diabetes is rapidly becoming a key challenge
in Turkey as well. By 2035, the nation at the
nexus between Asia and Europe is set to arrive
among the top ten diabetes countries,
according to the IDF.
But the good news is that, as much as
diabetes is caused by behavior, it can also be
avoided by it – despite the fact that genes
play their role, too. Fruit, vegetables, nuts
and whole-grain products have been shown
to reduce the chances of contracting
diabetes by 30–50%. Sugary drinks, white
rice and white bread, on the other hand, play
into the hands of what Germans call
Zuckerkrankheit (sugar disease).
Healthier eating habits could significantly
lower societies’ health care costs, yet changing
behavior is easier said than done, as behavioral
economists have found out (see PROJECT M
#10). This is no reason to sit idle, however,
particularly for insurers.
With health care costs on the rise (see page
42) and diabetes patients’ claims exceeding
premiums by as much as factor four, the
insurance industry risks pricing itself out of
OKTAY ATAY
A medical doctor by
training, Oktay Atay is
head of health claims,
health provision and
provider network
management with
Allianz Turkey
CHRISTIAN
GRESSNER
is an editor with
PROJECT M
the market if it passes health’s financial burden on to clients. Smart
solutions combining behavioral incentives and disease prevention with
a more rigorous cost control are needed.
Allianz Turkey is therefore launching a pilot project early next year. In
cooperation with attending physicians, it combines apps to monitor
blood sugar levels and other relevant parameters with personal coaching
to help 500 diabetes patients improve their disease management and
lifestyles. Once the pilot has run successfully in Turkey, it can be offered
in countries around the globe – with only minor adjustments.
SENSIBLE COST CONTAINMENT
Ideally, approaches like these align clients’ desire to remain healthy
with insurers’ need to be profitable, by reducing complications as well
as costs by roughly one fifth. Ultimately, insurers need to transform
themselves from claims managers to trusted partners in maintaining
clients' health at an affordable price as technological innovation such as
genetics (see page 26) will continue to increase the cost of health care.
As insurers, we are well advised to understand and price such
innovation sensibly. If this is not done, it can become a cost risk to both
the insurer and the insured.
Sensible cost containment does not end there. Allianz Turkey is also
seeking to steer customers to high-quality, yet low-cost hospitals for
follow-up examinations and laboratory testing, by covering the full
amount instead of just 80% at higher cost institutions. The choice,
however, remains with the patient.
Frankly, these are all straightforward, commonsensical steps. It
is nothing more and nothing less than putting clients and patients
at the center of health insurance.
Allianz • 13

FOCUS
THE
GREATEST
GIFT
Volker Stüven explains why
private insurance will play an
important role in better
health outcomes for all Asians
By Volker Stüven
After an absence of 10 years, polio again
hit Indonesia in 2005. It was the
biggest epidemic the country had ever
suffered, leaving 225 children paralyzed.
When traced, the outbreak source was a village
in West Java where the first infected children
lived within 200 meters of a government
medical clinic.
Although their homes were close to the
center, the children had not been vaccinated.
This was not surprising, as coverage rates were
low. Indeed, 125 million people – more than
half the population – then lacked any type of
public or private health cover. Only a rapid
three-month inoculation campaign of 24
million children stopped the epidemic.
Despite such incidents, health throughout
Asia, regardless of income and location,
is improving. Most governments now recognize
access to healthcare as a right and are
investing in it. Some, such as Thailand, began
implementing universal health systems in the
early 1970s; others, like the Philippines (2004)
and Vietnam (2005), are more recent.
14 • Allianz

Most governments
in Asia are now
investing in universal
healthcare systems
FOCUS

FOCUS
For its part, Indonesia launched the world’s
largest single-payer healthcare insurance
program in 2014. The aim of the program is
to provide healthcare to all 247 million citizens
by 2019 at an annual cost of $15 billion – about
$60 per head.
THE GOVERNMENT DILEMMA
What is driving improvements is the economic
development of low- to middle-income countries.
The World Bank estimates that healthcare
expenditure rose in East Asia (the countries
stretching from China to Papua New Guinea)
from 3.3 to 5.3% of GDP between 1995 and 2014.
Although still only half the expenditure of the
European Union and less than a third of North
America, this will continue to rise.
The reason is the further expansion of
social security programs, as well as individual
spending. According to the OECD, as Asia
becomes more prosperous, the middle class
will balloon from 525 million in 2009 to 3.2
billion by 2030. As the middle class becomes
more affluent, it will want better healthcare,
particularly to address the multiple diseases
that accompany rising life expectancies. It is
then, when chronic, old-age-related conditions
hit families and friends, that people realize the
greatest gift we all have is good health.
This poses a problem: while Western
countries have had up to 100 years to create
broad healthcare safety nets for citizens, Asia
has only a few short decades to use its
demographic bounty before it becomes old (see
PROJECT M #21, “A title no country wants”).
Governments still in the process to deliver
basic medical services may not be able to
afford to devote limited public funds to the
construction of costly healthcare services
along Western lines. As the Indonesian polio
outbreak highlighted, even when healthcare is
within reach, people may not access it. Reasons
range from overcrowding to insufficient
resources; some public schemes do not cover
informal workers. Limited coverage and copayments
mean people cannot always afford
necessary medical services.
The scheme in the Philippines, for example,
does not cover drugs: patients must choose
between paying out-of-pocket expenses and
going without. Not infrequently, such costs
can have severe consequences. People use
savings, sell assets such as their homes, or
borrow to meet medical bills. If the illness hits
the head of the family, it usually means loss of
income. All of this can push families into longterm
financial distress. Limited government
funds are better spent providing
comprehensive basic universal healthcare
services for all citizens. To address out-ofpocket
expenses, government schemes have to
balance the need for indemnity covers against
the available funds by focusing on delivering
core medical requirements at responsible
quality standards. The target should always be
to improve the health status of the population
and prevent people from falling into poverty
through illness.
VOLKER STÜVEN
is the regional head of
Health Business at Allianz
Asia Pacific (AZAP) based
in Singapore. In his
previous positions, he
was general manager of
Allianz Life & Pension in
Turkey (2012-2014).
Volker studied economics
and holds a PhD from the
Kiel Institute of World
Economics
GREATER AFFORDABILITY
The healthcare demands of citizens over and above a basic layer of
healthcare can be met through private insurance. Up to now, private
health insurance has played a minor role in most Asian markets, with
governments providing varying degrees of public healthcare.
Yet experience in countries around the world shows, that as the
middle class increases its buying power, people are prepared to use the
risk-pooling mechanism that insurance provides to protect themselves
and their families against potentially high healthcare costs, and secure
broader and better coverage. This process is already taking place, for
example, in Malaysia and Thailand. Both countries have developed a
well-regarded healthcare infrastructure supported by public financing.
Both countries are also seeing continual strong growth in private health
insurance and an expanding private healthcare sector.
This trend will see private insurance uptake continue to grow in
Asia. Growing numbers of people will seek higher quality healthcare
with ready access in preference to facing long waiting lists at public
facilities. They will want insurance solutions and services to protect
themselves and support their well-being throughout their longer lives.
And they will seek to insure themselves against out-of-pocket expenses
that can arise from special critical illnesses where treatments can
devastate even prosperous, middle-class families.
MULTI-PILLAR HEALTH COVERAGE
The development of private health insurance is complementary with the
aspiration for universal healthcare. A multi-pillar approach with a
voluntary private health insurance component can provide strong
support to the development of a public layer that is well-regulated and
adapted to local needs. Asian governments are realizing this and are
encouraging greater use of private health insurance through market
liberalization. As populations grow wealthier, and become more aware
of the risk pooling benefits of insurance, uptake will increase even in the
mass-affluent segment.
16 • Allianz

FOCUS
WEIGHING UP THE
GLOBAL COST
“That which does not kill us, makes us stronger,” is a
platitude often used in times of stress, but it’s simply
untrue when it comes to non-communicable diseases.
They weaken us with chronic and sometimes concurrent
illnesses over many decades, then they kill
Mortality rates relating to non-communicable
diseases (NCDs) are rising worldwide. So are
morbidity rates – that is, the incidence of
disease. Most of this relates to four disease groups:
cardiovascular and chronic respiratory diseases, cancer
and diabetes. These diseases cause disability, suffering and
loss of opportunity for many millions worldwide.
Once seen as diseases of the rich world, a result of diet,
sedentary lives and aging societies, today NCDs are on
the rise in developing and middle-income countries –
significantly so in Asia. When the region was widely
impoverished, people were too busy eking out a living to
become obese; cigarettes and alcohol were expensive and
lifespans short. Rising living standards, along with the
broader availability of medication and vaccines, mean that
communicable diseases are being reduced. Yet, while far
fewer Asians are dying of infectious diseases, growing
numbers are living long enough to develop chronic NCDs.
By 2008, NCDs had become the world’s most common
cause of death, says Irina A. Nikolic, senior health specialist
in the World Bank Group Global Health Practice. Lead
author of Why NCDs Matter (2011), Nikolic says they
accounted for 36 million deaths, or 63% of the global total,
with 78% occurring in developing and middle-income
countries. Some 16 million of these deaths were premature,
with the vast majority again occurring in developing and
middle-income countries.
Since then, the trends have continued. While some highincome
countries have reduced death rates related to
cardiovascular disease, NCDs are becoming an ever larger
portion of the global burden of disease. “By 2030, they could
account for three-quarters of the disease burden in middleincome
countries, up from two-thirds in 2011 and
approaching the level of high-income countries.”
In developing countries, NCDs will increase more
rapidly, approaching the levels of middle-income countries
today. Meanwhile, some countries will still be contending
with significant rates of the communicable diseases that
ravage the poor, such as malaria, typhoid and diarrhea.
“These countries will be facing a double burden of
disease,” comments Nikolic. “Tuberculosis and water-borne
infections are still prominent in Southeast Asia, for
example, even as the level of NCDs is growing rapidly.”
ECONOMIC BURDEN OF DISEASE
Further, compared to higher-income counterparts, many
developing countries face high NCD levels at earlier stages
of economic development. People are contracting them at a
younger age, likely to suffer ill effects for longer and to die
more prematurely from them. This has consequences both
for individuals and entire societies.
The World Economic Forum estimates that over the
next 20 years, NCDs will cost more than $46 trillion,
representing 48% of global GDP in 2010. The costs
Allianz • 17

NCDs used to be
thought of as
diseases of the
rich world. Now
they’re on the
rise in developing
and middleincome
countries

FOCUS
include far more than the direct medical ones. They hit
economies through reduced labor productivity and
absenteeism, which affects company competitiveness and
national growth. They strain health systems and, if the
breadwinner is stricken, this can result in lost earnings or
even jobs, pushing families into poverty. Family members
may be forced to give up employment or forgo education to
take care of the ill person.
For example, there are more than nine million
Indonesian adults suffering from diabetes. According to a
report by McKinsey, this costs the Indonesian health system
$1.6 billion a year – 40% of government spending on NCDs
overall. If no effective action is taken by 2020, there could be
a total of 1.2 million new cases and an overall $66 billion
GDP loss attributable to diabetes alone.
NO MEDIA SPOTLIGHT
Such figures make NCDs one of our greatest global heath
challenges, but they rarely generate big headlines.
Pandemic outbreaks, new infections like the Zika virus or
the growing resistance to antimicrobial drugs, grab the
media spotlight. While heart disease may not rouse the
same reporting passion, says Nikolic, what is lost by lack of
coverage is the magnitude of the challenge.
“We argued, and it is the case still, that decision-makers
need to put more priority on addressing NCDs, particularly
in developing countries where their rapid increase will
pose dramatic challenges to economies, health systems,
families and individuals.”
Many health systems in developing countries are
woefully ill-prepared for the challenge, as they are
designed for acute rather than chronic problems. As
noted, diabetes is rapidly increasing in Indonesia, yet
only half of sufferers are diagnosed as equipment is lacking
in many public health centers. Jim Yong Kim, president
of the World Bank, has noted that analysis of universal
health coverage systems in 24 countries shows coverage
and implementation are weakest for NCDs.
Nikolic argues that mounting evidence indicates
how millions of deaths can be averted and economic losses
reduced by billions of dollars. “There are concrete measures
that can reduce the costs and suffering linked to NCDs,” she
says, “and as NCDs have often received less focus, solutions
can be effective and inexpensive.”
WEIGHTY PROBLEM
A 2012 World Health Organization report estimated the
cost for population-based measures to reduce tobacco and
harmful alcohol use, as well as unhealthy diet and physical
inactivity, at $2 billion per year for all developing and
middle-income countries – less than $0.40 per person.
Yet while the solutions may be effective and
inexpensive, the difficulty is that implementation runs
into a complex overlap between food-industry practices,
political priorities and established mind-sets and
behaviors, says Nikolic. “Even rich countries are finding
this hard to change.”
Obesity, a key modifiable risk factor in NCDs, is
becoming a weighty burden worldwide. Almost a third of
the world’s population is overweight or obese. This has an
impact on global GDP of $2.1 trillion, rivalling smoking
and armed violence, war and terrorism, according
to McKinsey.
Public Health England has estimated that if obesity
were reduced to 1993 levels, the National Health Service
would save £1.2 billion a year ($1.6 trillion) by 2034, not
including the large cost of treating associated diseases. Yet
despite all the interventions and analysis, waistlines will
continue to expand, with 36% of men and 33% of women
predicted to be obese in 2030 (up from one in five today).
A COMPREHENSIVE APPROACH
If a wealthy nation like the United Kingdom, with a wellfunded
health care system, has difficulties tackling NCDs,
what chance do cash-strapped developing nations have?
“The mistake is to see it predominantly as a health challenge,”
responds Nikolic. “What is required is a comprehensive
approach that makes NCDs everyone’s business.”
The greatest impact, she explains, can be achieved with
healthy public policies that promote prevention and control
throughout the life cycle, while strategically adapting
health systems and societies. In developing countries,
existing communicable disease management channels
and community worker schemes should be used to
complement expensive hospital-based care. Linked to this
should be a comprehensive approach that includes
education and agriculture, as well as other sectors that
target NCD risk factors and promote a healthy lifestyle.
This will not be easy, concludes Nikolic. But if it is not
attempted, NCDs could spiral out of control, significantly
increase out-of-pocket costs for patients and undermine
the sustainability of public health systems. “However, if we
get it right, reducing diseases and deaths from noncommunicable
diseases will be one of best value
investments we can make to increase the health and wellbeing
of people.”
Allianz • 19

FOCUS
HEALTH INSURANCE BASED
ON TRUST AND MOTORBIKES
In Indonesia, digital health coverage is being
delivered by word of mouth – and on the back of a bike
When faced with the nightmare snarl that is Jakarta traffic,
where a two-kilometer trip becomes a 40-minute endurance
test, many people reluctantly hail an ojek. These motorcycle
taxis daringly wend through the gridlock, which by some measure
is among the worst worldwide, to quickly deliver time-pressed
passengers to their destination.
The problem is that ojek drivers can be a scruffy bunch mounted on
clapped-out rides that often lack both insurance and helmets to cover
passengers for the perils involved. That the drivers fiercely haggle over
the charge only adds to the reluctance many have about using them.
Enter GO-JEK, a startup that revolutionized the industry when it
burst onto the market in force in 2015. A few taps on a smartphone
summons a young, green-uniformed rider to your location. Journey
charges are pre-calculated, payment is made electronically and a
helmet and disposable respiratory mask are provided. Both driver and
passenger are insured for accidents occurring during the ride.
Depending on the distance, costs can be higher than an ojek, but the
efficiency, simplicity and safety has won the public over and made GO-
JEK the fastest-growing and most visible startup in Indonesia. The
company, which partners with more than
200,000 drivers in 14 cities, including the
tourist destination of Bali, now offers services
such as couriers, restaurant food delivery,
online tickets and grocery shopping. You can
even order masseurs, hairdressers and
cleaners straight to your door.
TRUST IS THE PRODUCT
Nadiem Makarim, CEO and founder, explains
how it works. “People in Jakarta spend up to
four hours a day in traffic,” he says. “GO-JEK
doesn’t solve congestion, but it does provide a
compelling alternative. People can use the
efficiency of GO-JEK to get to destinations, or
better spend their time by having services
delivered directly to them.”
Makarim, a graduate of Harvard Business
School, says that the main selling point is
Indonesia’s hottest
start-up – logistics
is the key to everything
20 • Allianz

FOCUS
» IF WE OFFER A PRODUCT
THAT THE DRIVERS ARE CONFIDENT
IN BUYING, THEN WE BECOME
PART OF GO-JEK’S TRUST ECOSYSTEM «
TODD SWIHART
trust. The digital service connects the most
reliable drivers directly to customers, and
branding clearly identifies them. Drivers all
wear a similar uniform of green jackets and
helmets, while a robust android headset
connects them to the GO-JEK platform. “We
are actually seeing both demand and supply
growing at the same time,” Makarim notes.
“A lot of GO-JEK transportation users – we
think the majority – are women who would
never previously have thought of using an ojek
because of the trust issue.”
The professionalization of the industry has
appealed to many drivers who have enlisted at
mass recruiting sessions. The attraction is the
efficient use of time. Instead of spending 75% of
their 12-14 hour working day waiting on street
corners, the service allows them to identify
where customers are and go directly to them.
Drivers have greater flexibility concerning the
hours they work, and the additional highvalue-add
delivery services further help
increase business.
“I work the graveyard shift in a hotel in
Jakarta, and during the day, I work as a GO-JEK
Driver. My GO-JEK income is higher than my
job at the hotel,” says Nizar Amin, who started
with GO-JEK in mid-2015.
WITH BENEFITS
Another advantage is the benefits that go with
the job. With the June launch of an innovative
health insurance solution, drivers and their
families can now opt to take advantage of a
flat-rate health protection. “The insurance
product is designed and tailored to the needs
of GO-JEK drivers. It offers inpatient and
outpatient benefits,” says Joachim Wessling,
president director of Allianz Life Indonesia.
The inpatient benefits cover the cost of
hospital rooms, consultation visits by general
practitioners, and specialists and surgeries.
Getting the green light:
GO-JEK is diversifying into
multiple industries
Outpatient benefits include the doctor’s consultation, prescribed
medicine, diagnostic tests, physiotherapy and basic immunization.
“We have covered GO-JEK employees since 2015,” explains Todd
Swihart, managing director of Allianz Health & Corporate Solutions in
Indonesia. “The company is socially minded, so once they were
established, they asked if we could provide a cost-effective health
insurance for the drivers and their families as well.”
Swihart explains that, unlike in western nations where pension
benefits often distinguish preferred employers, it is health benefits that
attract employees in Indonesia. Compared with neighboring Malaysia
and Thailand, Indonesia spends relatively little on health.
It has, for example, one of the lowest hospital beds-to-population
ratios in the region (0.9 to 1,000 people), though the country made a step
forward when it launched Badan Penyelenggara Jaminan Sosial (BPJS), a
national health scheme, in 2015. Under BPJS, by 2019, all citizens will
have access to a wide range of public health services. BPJS aims to cover
treatment for flu and dental treatment as well as open-heart surgery,
dialysis and chemotherapy.
While BPJS offers comprehensive benefits, many still prefer private
health insurance. Allianz has established a network of doctors and
hospitals to keep premiums down and ensure clients are quickly seen.
The daily premiums are paid automatically from the driver’s GO-JEK
accounts; backend registrations and identification card production are
triggered automatically by the app.
While the future of insurance in a country like Indonesia is
undoubtedly digital, the question for companies is how to reach the
mass audience without a massive marketing spend. The answer,
Swihart notes, is to partner with GO-JEK. “If we offer a product that the
drivers are confident in buying, then we become part of GO-JEK’s trust
and digital ecosystem. Word will spread and we could eventually reach
out to Indonesia’s huge and growing middle-class.”
Allianz • 21

22 • Allianz

FOCUS
PATIENTS
WITHOUT
BORDERS
Medical tourism offers tremendous savings
to insurers and patients, but the business is
falling well short of great expectations
New nose? Heart bypass?
Relax by the pool?
Medical tourism is on
the rise in Asia
The Australian woman in the lobby bar of Bangkok’s
five-star Hotel Muse is upfront about her reasons
for visiting. “We’re here for the shopping,” she
says, over her second happy hour cocktail. “For shopping
and dental work.”
Her 28-year-old daughter has a condition that is turning
her teeth translucent and brittle. Corrective work in
Brisbane would cost AUD10,000 ($7,200). That amount, she
figured, could be better spent on two business class tickets
to Bangkok and five days’ accommodation, plus dental
treatment in a nearby clinic that is on a par with any back
home. “We’ll still have change left over,” she says with a
laugh, “and that may include the shopping.”
This is international medical tourism in a snapshot.
The business is driven by a combination of rising healthcare
costs in developed countries, cheap flights and crossborder
medical training. Over the past two decades,
Thailand has become a thriving destination for procedures
ranging from tummy tucks to heart bypasses and gender
reassignments, with foreign visitors attracted by the high
standard of the private healthcare industry, easy visa entry
and affordable prices.
Curtis Schroeder, former CEO of Bumrungrad
International, the largest private hospital in Southeast
Asia, believes the industry is entering a new phase. “The
market has matured, the carnival barkers are gone and the
business has entered round two,” he says in the office
Allianz • 23

FOCUS
of InterMedika, his international healthcare consultancy in
downtown Bangkok.
With the Internet becoming ever more prevalent and
insurance premiums and co-payments increasing,
Schroeder expects that patients will want more control
over healthcare providers. “We may soon see something
like TripAdvisor for healthcare,” he reflects. “Patients are
picking up more of the bill, so inexpensive, quality, foreign
alternatives are likely to become more important to them.”
PLASTIC SURGERY WITH A HOLIDAY
Bumrungrad is the poster child of medical tourism. It looks
like a five-star hotel and has services to match. There are 21
VIP suites, a Japanese restaurant, a McDonald’s, and a
queue of people buying snacks from Starbucks. The hospital
facilities include 19 operating rooms equipped for general
surgery and surgical specialties, and 1,200 surgeons and
dentists, of whom more than 200 are US board certified.
Cost and quality are the key selling points for
Bumrungrad, and for rivals such as Samitivej, Phyathai
International and Bangkok Hospital. At Bumrungrad, a
package for coronary artery bypass graft surgery costs
$19,000. In the United States, an uninsured patient will be
set back $80,000 at least for the same.
Yet the success of Bumrungrad was accidental.
Schroeder and his team re-opened the 12-storey hospital in
late 1996, with 580 beds and a $60 million debt on their
books. Then the 1997 Asian financial crisis hit. The Thai
baht plummeted, “doubling our debt and halving our
potential market overnight,” recalls Schroeder.
During the crisis, squeezed middle-class Thais
switched to the cheaper state-funded healthcare system.
Underused private facilities, like Bumrungrad, went into
survival mode and offered surplus capacity to foreigners
from the region seeking medical and surgical treatments
as a cost-effective alternative to providers at home.
Consequently, Schroeder bristles slightly at the notion
of “medical tourism,” noting the term can be misleading.
“People who come for serious medical care don’t ask how
close we are to the beaches. They come for quality
procedures conducted at a fair price in an environment
with good infrastructure.”
CREATIVE ACCOUNTING
The Thai industry really boomed after 9/11. Tightening visa
conditions in Europe and the United States meant people
from Arab countries preferred to take the seven-hour flight
east to Bangkok. Today, Bumrungrad has an Islamic prayer
room, a certified halal kitchen and more than 150
interpreters, many of them Arabic for the benefit of Gulf
Muslim patients, now one of its most important markets.
Altogether, Bumrungrad serves 1.1 million patients a year,
including 520,000 who visit from other nations. In 2013, it
generated $477 million in revenue. However, reliable data
on global medical tourism is difficult to come by and the
numbers are often overblown.
In 2008, Deloitte projected that annual patient outflows
from the US would be 10 million by 2012 and worth $21
billion a year to developing countries. It was a brave
prediction, considering most Americans do not even own
valid passports. The figures were revised down one year
later. Only 1.6 million Americans would be seeking
healthcare outside the US in 2012.
“Such projections invariably overestimate demand,”
says Johanna Hanefeld, senior lecturer in health policy and
systems at the London School of Hygiene and Tropical
Medicine. In 2010, only 167,000 medical tourists attended
Thai hospitals, according to research she conducted with
Thinakorn Noree and Richard Smith – far less than Deloitte
and the Thai government expected. The Thai Ministry of
Commerce estimated, for example, that in 2006, 1.2 million
medical tourists accessed health services in Thailand.
Malaysia is often touted as another medical tourism
success story. The country welcomed more than 850,000
global medical tourists and took in $230 million of revenue
last year, according to the Malaysian Ministry of Health.
Hanefeld has good reason to treat such predictions with a
skeptical eye.
The issue is how numbers are counted. For example,
almost 30 million tourists visited Thailand in 2015. The
group coming primarily for medical treatment was only a
fraction. But Thailand counts every interaction with the
healthcare system, from the consultation to the x-ray or CT
scan, as well as the operation, as separate interactions. By
this count, one person can have up to 20 treatments per
visit. Such “creative accountancy” greatly inflates medical
tourist numbers.
Hanefeld believes that “medical tourism remains on a
much smaller scale in Thailand than is promoted, so its
effect on the domestic health system is limited.” She also
believes it is unlikely that a global medical tourism market
in Thailand, or indeed elsewhere, will develop soon along
the line the boosters claim. “Most people want to be treated
locally or at least in their home region when they’re sick,”
she explains. There are also serious issues such as differing
national judicial systems that mean there is little chance
for compensation should malpractice suits arise, unless
patients are prepared for a legal battle in the host country.
Continuity of care can also be missing when the patient
finally returns home.
Based on the success of Bumrungrad and its rivals,
Schroeder believes the value proposition for medical
24 • Allianz

FOCUS
tourism exists, but has not been developed fully. He points
out that in the late 1990s, 9% of Bumrungrad revenues
came from overseas: this is now at 56%. “Medical tourism is
real, so the opportunity is there,” he says. And while he
admits that national figures are possibly inflated, he
asserts that, “until 2010, when I left the hospital, our
international numbers were counted as either one
outpatient visit or one admission.”
NOT TO BE DETERRED
Malaysia, India and South Korea have long since followed
Thailand’s lead, while Cambodia is billing itself as the lowcost,
high-quality dental care destination. According to the
World Health Organization, there are 50 countries
throughout the world involved in medical tourism, with
India, Singapore and Thailand in the lead and comprising
90% of the fragmented Asian medical tourism market.
Steve Conway, the Singapore-based regional general
manager with Allianz Worldwide Care, a provider of
international health insurance, says that insurance
companies could drive this. “Insurance premiums
currently increase from 6–15% per year. Opportunities
in medical tourism are one way for insurers to keep costs
at bay.”
One tale he cites to illustrate this is of a Shanghai client
who needed anterior cruciate ligament treatment. The
local hospital wanted $58,000, but the reasonable cost at
location assessed it at $40,000, which left the client facing
out-of-pocket costs of $18,000. Alternatively, a Bangkok
center offered two business-class tickets, surgery and
ten days’ accommodation all for $18,000, which the
insurance company would completely cover. “You can
imagine which way he went,” says Conway. “It was a winwin
for all involved.”
Conway notes that many of the medical tourists in
Southeast Asia come from developing countries within the
Asian region, where economies have created wealth but
high-quality health infrastructure is lagging. Indonesians
are said to spend $11.5 billion a year on healthcare abroad,
much of it in Malaysia, which adheres to halal restrictions
such as avoiding pork derivatives in medicine. Meanwhile,
the Laos, Cambodians and Vietnamese prefer Thailand,
while the Chinese go to Singapore or Thailand for care that
is not readily available at home.
Cultural similarity is an important consideration, says
Conway, but the big headline is a flight to quality, as people
seek access to medication, care and cutting-edge
technology. “While tourists from the West may be after
cosmetic surgery,” he comments, “for patients from China,
medical tourism can be a high-quality solution – and this
is unlikely to change any time soon.”
TURKISH TRANSFERS
Far west of Thailand, Turkey is seen as an up-andcoming
country for medical tourism. The Health
Ministry is hoping to increase visitor numbers to
2 million by 2023. Many of the patients come from
lraq and Libya, but expatriates returning from
Germany also make a sizeable section of the
business.
Allianz Turkey is seeking to improve cross-country
medical insurance. “Many Turkish guest workers in
Germany spend their holidays back home. Merging
our contracts with those of Allianz Germany could
reduce the cost both for them and us when tourists
seek treatment in Turkey,” says Oktay Atay, head of
health claims, health provision and provider network
management with Allianz Turkey.
MEDICAL INSURANCE WHILE IN THAILAND
Allianz Global Assistance (AGA) is seeking regulatory
approval to insure non-Thai patients against
unexpected complications such as hematoma, and
internal and external infections while being treated
in Thailand. Estimating 900,000 medical tourists
annually, AGA Thailand CEO Steve Watkins hopes to
win close to 500,000 of them as clients over the
mid- to long-term.
Allianz • 25

One man’s meat ...
Gene variants
determine how
your body
responds to
different types
of food
HOW TO CHOOSE A DIET
Personalized aging can determine which
lifestyle helps ward off critical health conditions
Finding out whether one is susceptible to cancer,
Alzheimer’s or diabetes is just a bit of spit and less
than $200 away. Or so say genetic testing companies
such as 23andMe, Promethease and others, which provide
details about health risks based on gene variants. Results
can be viewed online a few weeks later – if you dare.
The DNA tests have sparked controversy: critics say they
might be too inaccurate to support health decisions.
In 2013, the US Food and Drug Administration (FDA)
banned 23andMe from marketing its tests in the US,
claiming that the company had introduced its Saliva
Collection Kit and Personal Genome Service (PGS) without
marketing approval, thus violating the Federal Food,
Drug and Cosmetic Act. Backed by Alphabet Inc., the
company launched its health-related genetic tests in the
UK and Canada instead while focusing its US offer on
ancestry testing.
The practice is not confined to the US. Asia Genomics
offers their clients in Singapore, Malaysia and Vietnam
DNA test screening for cancer, reproductive issues and
cardiology, as well as genetic counselling. GenomeAsia
100K, an initiative hosted at Nanyang Technological
University Singapore (NTU), intends to sequence 100,000
individuals from more than a dozen Asian countries from
India to Japan to better understand the biology of disease
in Asian populations, as previous studies were limited to
people of European descent.
NTU president Bertil Andersson expects the initiative to
lead to better healthcare discoveries for Asian patients.
“With almost all current personal genomic efforts
concentrating on populations in the Western world, the
new consortium will benefit the Asian population as it
sheds light on the genetic fabric of Asians,” he said at the
announcement of the iniative.
LET’S MAKE IT PERSONAL
While such transparency can seem threatening, it can also
bring significant health benefits. Many prevalent modern
diseases are lifestyle dependent; no two individuals
experience aging in exactly the same way.
26 • Allianz

FOCUS
“For those with a risk of getting Alzheimer’s disease, there
are measures to reduce the risk,” says Pinchas Cohen, dean
of the USC Leonard Davis School of Gerontology. “Other
behavior patterns help reduce the risk of diabetes or cancer.
Choosing preventative measures to avoid personal highrisk
diseases is the most important step in “personalized
aging,” a term coined by Cohen.
» OUR NEXT CHALLENGE IS EMPOWERING
PEOPLE TO USE THEIR GENETIC DATA
TO PROMOTE THEIR HEALTH AND HAPPINESS «
PINCHAS COHEN, DEAN OF THE
USC DAVIS SCHOOL OF GERONTOLOGY
Health and nutritional advice abounds but is often
conflicting. People need personalized advice that involves
a limited number of things to do, explains Cohen.
The concept of personalized aging is spreading as
scientists increasingly understand genetic variations, the
interaction between genes and the environment, and their
correlation with specific diseases. Personal genomics has
advanced over the last decade, allowing medical
professionals to analyze individual’s genomes by means of
single-nucleotide polymorphism (SNP) analysis chips and
partial or full genome sequencing.
Accessing genotypes makes it easier to identify the gene
variants associated with the risk of getting certain diseases.
For example, variations within the gene called Apo-E
determine the risk for Alzheimer’s disease. This risk can
differ by a factor of 10 from one variant to another.
Other genes act as health pointers: a melanoma-risk gene
variant might make you rethink your sunscreen regime,
another gene variant helps determine the usefulness of a
daily aspirin, or a glass of red wine.
Once the individual risk is understood, various
interventions are available, says Cohen. “We can sequence
individual genomes quickly and relatively cheaply. Our
next challenge is empowering people to use their genetic
data to promote their own health and happiness.”
YOU ARE WHAT YOU EAT
Helping people select the best diet for them, according to
their genetics and other biomarkers, such as blood lipid or
cholesterol levels, comes top of the list. This remains an
area of active research but emerging data indicates that a
low protein diet might help people with a high risk of cancer
and that certain gene variants determine the
responsiveness to a low carb diet.
Then comes exercise. Genetic variants determine
whether certain people benefit more from high-aerobic
exercise, such as running, or from low-impact workouts,
such as weight lifting. Research is ongoing. “We are still at
the stage where we can only tell people that physical
activity is good,” says Cohen.
Who knows how the practicalities of this will unfold.
Clearly, healthcare professionals will need to pass on
medical advice to individuals to stop them from making
inappropriate decisions about their health, Cohen suggests.
Already over a million people in the US have voluntarily
had their genes analyzed. Not everyone chooses to delve
deeply into their genome but the opportunity to do so and
guarantee healthy aging is beckoning.
Allianz • 27

China’s expanding
deserts threaten
environmental,
economic and
political stability
ASIA’S HIGH-STAKES FIGHT
AGAINST SMOG AND HEAT
Polluted air and heatwaves are killing millions, and Asia could suffer
the most in a hotter, dirtier future unless it acts fast
Primary sources
of pollutants in
Beijing are exhaust
fumes, coal burning and
dust storms

FOCUS
Outdoor air pollution, which kills an estimated 3
million people every year, has grown by 8% a year
globally. Unless nations take action, the global
death toll is expected to double by 2050 as urban
populations increase and car numbers grow – yet the topic
rarely makes the mainstream media headlines.
Of all the world’s regions, Asia is uniquely exposed.
According to the World Health Organization (WHO),
98% of urban areas in low- and middle-income countries
with populations of more than 100,000 do not meet its air
quality standards. Fast-growing cities in Southeast Asia,
the Western Pacific and the Middle East are the worst
affected, with many showing pollution levels at up to 10
times WHO limits.
Rapid urbanization as well as population and economic
growth across the region is creating pollution from oilfueled
traffic congestion, coal burning for heat and power,
smoke from solid fuel cookers, and a range of pollutants
from inefficient agricultural processes. A changing climate
threatens to make matters worse still.
Hotter towns and cities will generate more
ozone-related pollution from traffic and other
fossil fuel emissions sources. When it’s hotter,
rainfall and wind patterns can also change,
causing particulates to stay suspended in the
air longer.
DEADLY SMOG
Then there’s the vicious circle in which hotter
conditions cause those with access to air
conditioning to use it more, pushing more
pollutants into the air from coal-fired power plants. A
hotter climate could also spark more forest fires,
contributing to region-wide, health-threatening smogs,
such as the 2015 Southeast Asian haze caused by illegal
slash-and-burn practices that affected eight countries.
A hotter climate in Asia will have impact beyond poorer
air quality. As temperatures rise, so do hospital admissions
for respiratory and cardiovascular illnesses. This is an
experience all too familiar lately in Southeast Asia and the
Indian subcontinent, where heatwaves have killed
thousands and put severe pressure on health services.
There are also economic impacts to hotter conditions.
The region’s extensive manufacturing and agriculture
sectors mean its workers face exposure not just to polluted
air but also to the physiological effects of heat.
“There is a lot of evidence to suggest that temperature
extremes impact productivity,” says Joshua Graff Zivin
at the University of California in San Diego’s Global
Health Institute. “There are negative impacts for people
who work in exposed sectors like manufacturing,
» THERE NEEDS TO
BE A TRANSITION
AWAY FROM
BURNING LOW
QUALITY FUELS,
AND MOVING UP
THE ENERGY
LADDER TO
NATURAL GAS «
agriculture and construction. People lose a couple of hours
out of a workweek. Most people don’t realize that the vast
majority of manufacturing is taking place in cheap tin
construction sheds with process heat, lots of activity,
very little cooling and exposure to the outside air from
giant open truck bays.”
MANAGING RISKS
Success in tackling these issues has been hitherto
disappointingly limited and patchy in Asia. It might be
expected, for example, that as the region industrialized
and became wealthier, air pollution would reverse, with
stronger measures put into place to limit the worst effects.
Yet this has been far from the case. Although China has
until recently been the most striking example, where more
than 350 cities do not meet WHO’s air quality standards,
India might now lay claim to the dubious reputation of
being the worst nation for air quality: four Indian cities
occupy the global top 10 for sub-PM2.5 pollution. Other
countries in the region, including Pakistan
and Indonesia, are struggling to tackle the
issue.
There are signs of progress, however. In
April, health, climate and weather experts
from across the region gathered in Colombo,
Sri Lanka, for the first Climate Services Forum
for Health, to help better understand and
manage the risks from heatwaves.
Meanwhile, China has begun to make
significant progress in cleaning up its air, and
more measures are in the pipeline, says Junjie
Zhang, from the University of California in San Diego’s
School of Global Policy and Strategy, who has worked on a
range of climate and air quality related research projects.
“For China, the situation is getting better overall.”
STRONGER ENFORCEMENT
Slower economic growth and a move to a less resourceintensive
economy is part of the reason for improving
trends in China. But policy is also having an impact.
The central government is taking the issue seriously;
it has begun enforcing existing rules more strongly
and will be adding more. Modest air pollution fees are
already in force and new environmental taxes look likely,
says Zhang.
“China’s new minister of environmental protection is
focused on enforcement and this is the key for China, where
there has been poor enforcement at a local level. If a city
does not comply with environmental standards, leaders of
the local government would be called to the ministry and
reprimanded. Local governments are under pressure.
Allianz • 29

FOCUS
Compliance has improved and it has become harder to
cheat on air pollution data.”
Others can look to China for guidance on how to
improve, adds Zhang. “India has the worst air pollution in
the world and is at an earlier stage of development, but it
can learn from China.”
The prospect of fewer new coal-fired power stations
across the region than expected, an increase in energy
efficiency and renewable power generation look as though
they could have the potential to meaningfully
reduce the expected rate of growth in
particulate-generating electricity sources. The
rapid uptake of automation may also offer
significant scope to mitigate the effects of poor
air quality and heat stress on workers. Ever
cleaner low- and no-tailpipe emissions
vehicles offer another promising trend.
TALENT WILL FLEE SMOG
A move away from other sources of particulates is urgent,
says Matthew E. Kahn, a professor of economics at the UCLA
Institute of the Environment and Sustainability, and author
of the book Climatopolis. “Particulate matter exposure is
deadly,” he explains. “There needs to be a transition away
from burning low-quality fuels such as wood, dung and
coal, and moving up the energy ladder to natural gas. This
requires major investments in infrastructure.”
» INDIA HAS THE
WORST AIR
POLLUTION IN THE
WORLD «
Turkey’s wider adoption of natural gas highlights the
benefits of such a transition, he says, resulting, for example,
in a significant decrease in the rate of infant mortality.
Asian nations that fail to reverse these trends and to tackle
the effects of a warmer climate will suffer a range of bad
long-term health and economic outcomes.
The most polluted cities and regions will see talent
migrate to places where air quality is better and where the
infrastructure and institutions exist to mitigate the more
extreme air quality and heat problems,
explains Kahn.
“Richer cities have an edge in adapting to
climate change. Singapore, for example, faces
relatively little risk from climate change.
Indoor productive activity is protected from
the heat, due to air conditioning, and much
other natural disaster risk.”
The regions that pursue low-end, poorly regulated
manufacturing, on the other hand, will suffer the most
from these negative trends, says Kahn.
The mobility of talent makes addressing these issues
urgent for every city and region, agrees Zhang. “Air
pollution has already incentivized many rich people to
move countries. The costs of this are tangible. Where
people go, the business goes and so the money goes. This
has a long-term impact. You need a good environment to
attract and keep talent.”
30 • Allianz
Heavy pollution
of Indonesian rivers
from household
waste and industry
threatens the health of
millions of people

Who’s the
fairest? The
Shanghai Disney
Resort is the
company’s first
on mainland
China
HITTING THE
SWEET SPOT
The upward mobility of the Asian middle class
has the power to change the global economy and
bring about vital local societal changes
From Alice in Wonderland to Mickey
Mouse: all the favorites were there to
welcome visitors to the sprawling new
$5.5 billion Shanghai Disney Resort when it
opened in June 2016. Tickets for the first weeks
at the company’s largest ever theme park, the
first on mainland China, were sold out.
Just two weeks earlier, China’s richest man,
Wang Jianlin, had cut the ribbon on the
impressive $3 billion Wanda City in Nanchang,
home to a host of rides, shows, hotels, shopping
outlets and a huge aquarium. Another 15
entertainment parks will open before
2020, Wang says, and they will be joined by
dozens of others built by Chinese firms and
international names like Universal Studios
Allianz • 31

FOCUS
and DreamWorks. Theme parks are just one of the many battlegrounds
in the global fight for the attention – and money – of the fastest growing
consumer group in the world: the Asian middle class. From 525 million
in 2009, the number of Asians earning between $10 and $100 a day –
seen as the “global middle class” threshold – will increase to just over
3.2 billion in 2030, says the OECD. By then, Asia will be home to twothirds
of the world’s middle-class population. This growth could reduce
global trade imbalances, and bring better healthcare, education and
equality to countries in the region. Leading this shift is China, where
middle-class expansion is well underway. A 2013 study by McKinsey
suggests that by 2022, more than 75% of China’s urban consumers will
earn between $9,000 and $34,000 a year: in 2000 it was a mere 4%.
China is in the midst of a “growth sweet spot,” after per-capita
income reached the $6,000-a-year mark in 2008, believes Ernst & Young.
“History has shown that this level of income tends to trigger an
acceleration in domestic private consumption,” it says in Hitting the
Sweet Spot: The growth of the middle class in emerging markets. While
other developing Asian countries are yet to reach this state, they are
heading in a similar direction. Natalie Chun, an economist at the
Development Indicators and Policy Research Division of the Asian
Development Bank, pinpoints Thailand as being on the right track.
Vietnam also has a young population and a per-capita disposable
income set to rise by 150% to $3,400 per year by 2020.
But what of Asia’s second monster market, India? While it, too,
boasts favorable demographics, medium-term prospects remain
mixed. So far, India has struggled to increase the size of its middle class.
It grew from 1% of the population in 2001 to 3% in 2011 – “small by any
measure,” concluded a Pew Research study.
The evolution of
leisure: China’s
middle class is a
huge reservoir of
consumers able
to spend beyond
their primary
needs
“I believe it still struggles from infrastructural
issues,” adds Chun. “The differences across
states are so large, and policies are less
clear and coordinated compared to China.”
Nevertheless, Ernst and Young believes India is
primed to hit its sweet spot in the 2020s, with
475 million people belonging to the middle
class in 2030.
ONLINE AND SWITCHED ON
Over the last century, many countries have
seen their populations reaching levels of
disposable income that enable them to buy
more than the bare essentials. But widespread
Internet access is now making a difference
in this process. When the middle class
came to prominence in America or Japan, it
wasn’t possible to see Facebook adverts or
go shopping on Amazon. This change has
resulted in a huge spike in demand for
“western” products: in 2004, General Motors
32 • Allianz

FOCUS
sold one car in China for every 10 in the United States, but by 2009 this
had reached parity. Last year, Apple reported that for the first time it had
sold more iPhones in China than in the US. Asia may still be known as
the world’s low-cost manufacturing center, but companies are
increasingly seeing it as a dynamic, rapidly growing consumer market.
Beyond material aspirations, the growing Asian middle class is also
changing its eating and drinking habits – with mixed results. After a
number of domestic food scandals in recent years, affluent Chinese
consumers are increasingly willing to not only eat more Western-style
food, but to pay to import it. According to a study by the Australian
Bureau of Agricultural and Resource Economics and Sciences, the
country’s meat imports are expected to grow by a staggering 3,500%
to $150 billion a year by 2050.
In a bid to meet this demand – and as a sign of its global reach – the
Chinese company Shuanghui International acquired Smithfields Food,
one of America’s flagship food companies and the world’s biggest pork
producer, for $4.7 billion in 2014. Western fast-food chains are also
profiting: Domino’s, the largest pizza delivery company, now sells more
pizzas in India than anywhere else outside the United States.
But what’s good for business isn’t necessarily good for the health of
Asia’s young consumers. Diabetes is “growing alarmingly” in India,
according to the International Diabetes
Federation, and obesity is reaching “epidemic
proportions among India’s middle-class
children and adolescents, as young people
choose Western fast food over traditional
cuisine,” it says.
BETTER FOR SOCIETY AND FOR GROWTH
But a growing middle class isn’t all rampant
consumerism. Greater prosperity can also
bring progress to many parts of society.
“The middle class tends to invest more in
education and healthcare,” says Chun. “It can
also create change in terms of the political
climate and prevalent attitudes and values.
Women’s roles will change as increasing
numbers receive better education and seek
more professional work. Ultimately, these
changes have a positive feedback effect on
local economies, which helps generate
further growth.”
Allianz • 33

Thailand’s impressive
record of health stands
out compared to
countries with similar
income levels
SOMETHING TO
SMILE ABOUT
Thailand has successfully created a
healthcare system that delivers a good
standard of medical coverage for all its
inhabitants, regardless of their income
Doctors strap medical gear onto motorbikes and
ride ramshackle roads to deliver basic health
services to hill tribes in remote Vietnam.
Meanwhile, robots are used for minimal invasive prostate
surgery in Singapore. Such are the extremes of healthcare
in Asia, which embraces wealthy countries such as Brunei
and Japan, and Myanmar and Nepal, some of the poorest.
Is there a model which low- to middle-income countries
in the region could follow, as they seek to provide universal
healthcare? Although investment in health services is
increasing, the Thai system is often singled out for praise
34 • Allianz

FOCUS
by experts. Typical is Eduardo Banzon, senior health
specialist with the Asian Development Bank, who believes
the country provides a good model for delivering universal
health at low cost.
In over 40 years of commitment, Thailand has markedly
improved life expectancies for males and females, he notes.
“What’s more, infant mortality has dropped sharply from
68 per 1,000 live births in 1970, to below 10 in 2006.”
When compared to countries with similar income
levels, Thailand’s achievements stand out. There has
also been a dramatic decline in under-five mortality
through a reduction of respiratory infections, heart failure,
communicable and parasitic diseases and diarrhea. Child
immunization rates for diphtheria, tetanus and whooping
cough even exceed the rates in some Western European
countries. All of this has been achieved at relatively low cost
in terms of health expenditure per capita and percentage of
GDP devoted to health (6.5% in 2014).
“I think Thailand can be proud of its successes,” says
Suthana Setawanna, the director of healthcare services in
Thailand. “The country has an impressive record of health,
particularly in fighting diseases associated with poverty.
We have achieved a good standard of sustainable medical
coverage for all and in levelling differences between the
rich and poor.”
He continues, “The system has transformed dramatically.
And judging by the surveys, people are quite aware of how
special it is. It typically receives 90% or more satisfaction
rate.”
DENTAL WORK IN THE LAND OF SMILES
In Thailand, improving healthcare has been a priority
ever since 1961, when the National Economic and Social
Development Plan was launched. Based around the notion of a
right to a healthy life, successive five-year plans saw facilities
continually upgraded and expanded into rural areas.
Initiatives such as establishing nurses and midwifery
colleges, combined with hometown placement, limited
the drain of skills to Bangkok. Compulsory placement
programs see young doctors serve up to three years
in remote areas to limit the concentration of professionals
in Bangkok.
It was, however, the election of Prime Minister
Shinawatra in 2001 that finally saw the system become
accessible to all. Under the slogan of “30 baht treats all”
($0.85), the system switched from subsidized healthcare to
a guaranteed access to a set of services, including free
prescription drugs, outpatient care and hospitalization, as
well as expensive services, such as radiotherapy and
surgery. Importantly for a country known as “the land of
smiles,” the system also covers basic dental work.
The 30 baht referred to the co-payment amount that
patients paid for every doctor’s visit or hospital admission,
but financing comes from progressive taxation. Those who
can pay usually opt for higher quality services, or have
private insurance for access to the well-developed private
medical sector.
One consequence has been a decline in out-of-pocket
expenses, which, according to the World Health
Organization, reduced the number of non-poor households
impoverished by ruinous health bills. In 1994, 45% of the
total health expenditure of the country came from
households. By 2010, this had fallen to 15%, lower than the
OECD average of 17.9%. The launch of the scheme in 2002
also changed the lives of the poor as healthcare was
extended to the 18.5 million people previously uninsured,
out of a total population of 62 million.
Yet the Thai system faces challenges. “There are issues
concerning financing, workload and efficiency,” says
Suporn Patcharatakul. A doctor who worked in the public
system before being appointed as vice president of the
Medical Department at Allianz Ayudhya Assurance in 2013,
Patcharatakul speaks at first hand of conditions on the
hospital wards.
“There is mounting frustration amongst medical staff
at the workload they are shouldering, as well as the far
lower pay in the public sector,” he comments. “These always
exist in any system, but the differences in Thailand have
starkly increased over the years.”
Numbers bear him out. As access has improved, people
have used the services more often. Total annual outpatient
visits increased from 111.9 million in 2003 to 153.4 million
in 2010, while admissions increased from 4.3 million to 5.6
million for a population that only increased slightly, which
is placing stress on the system.
Financing is a perennial issue. Costs have risen since
the scheme's inception. With the co-payment scrapped in
2006, the Thailand government is shouldering more of the
costs compared to other middle-income countries. The
government spend on healthcare has trebled since 1995
from 1.5% as a share of GDP.
“Rising costs could threaten the efficiency of the system
in the future, especially if budget cuts come in,” agrees
Setawanna. “However the increasing escalation of costs is
also due an increase in the chronic diseases associated
with an aging population.”
The country now needs to readjust its successful
system, he believes, to help handle costly non-communicable
diseases at the community level rather than in hospitals.
“This, along with disease prevention and better health
promotion, will be important for Thailand to keep its health
system sustainable.”
Allianz • 35

MICRO
Local knowledge
PLUGGING THE
LEAKS OF TIME
To fend off the rising cost of aging, societies
need to lend greater support to geroscience’s
struggle against age-related diseases
DAVID STIPP
The author of The Youth
Pill and winner of the
American Aging
Association’s 2014
Excellence in Journalism
Award, David Stipp has
written about science,
medicine, the
environment and biotech
since 1982. He led
Fortune’s science and
medical coverage from
1995 to 2005 as a senior
writer, and from 1982 to
1995 covered science and
medicine as a staff
reporter at the Wall
Street Journal
By David Stipp
You might call it Murphy’s law of aging:
anything that can go wrong inside you
will do so if you live long enough. Yet
no one experiences the full force of the law, of
course, since one malady is often enough to
lead to the system’s breakdown.
Still, the law’s effects are increasingly
familiar as ever more of us reach the
biodegrading time of life. In fact, noncommunicable
diseases now pose a greater
health burden, in terms of healthy life years
lost, than communicable diseases in most
countries outside of Africa.
Unfortunately, the conventional strategy
in medicine, treating one disease at a time,
isn’t meeting this challenge very well. One
reason is that the ills of aging tend to be
intractable and progressive, and by the time
symptoms appear, they have often caused
irreversible damage. Treatments frequently
yield little gain despite racking up large
medical bills. And even if one ailment can be
held at bay, Murphy’s law guarantees that it
won’t be long before others strike.
Worse, diseases such as macular
degeneration, heart failure, strokes, arthritis
and Alzheimer’s disease often leave their
victims in a costly, disabled state long before
they die. As a New England Journal of Medicine
article on global health trends put it, “What
ails most [elderly] persons is not necessarily
what kills them.” Disability caused by noncommunicable
diseases now accounts for
more than 40% of lost healthy years in the US,
Europe and other parts of the developed world,
according to the World Health Organization.
This burden is increasing rapidly. By 2050, 21%
of the world’s population, about 2 billion
people, will be 60 or older, more than triple the
number in 2000, according to the UN report
World Population Ageing: 1950–2050. Today, the
oldest nation, Japan, has a median age of 46; by
mid-century, half of the people in a number of
countries, including Spain, Italy, South Korea
and Japan, are expected to be over 50.
Meanwhile, older populations in less developed
regions will have quadrupled. In China, an
estimated 437 million people will be 60
or older.
ONE DISEASE AT A TIME DOES NOT WORK
Ominously, life expectancy gains in the US are
already adding more years of disabling disease
than healthy years to people’s lives, says Dana
Goldman, a University of Southern California
health economist. That’s not surprising in
light of the study he coauthored in 2013:
Substantial Health and Economic Returns From
Delayed Aging May Warrant a New Focus For
Medical Research. The study showed that the
one-disease-at-a-time strategy is likely to face
diminishing returns – that is, smaller gains in
longevity – even if in coming years it greatly
reduces the incidence of the two leading
causes of death in the developed world, heart
disease and cancer.
Indeed, the strategy increasingly resembles
the little Dutch boy of popular legend: instead
of saving the day by plugging a dike leak
with his finger, he’s overwhelmed as one
leak after another springs out. That’s Murphy’s
law at work.
36 • Allianz

HOLDING BACK
Who wants
to live forever?
Or anyway for
a very long time
Allianz • 37

MICRO
» IT’S THE
BEGINNING OF THE
END OF THE
BEGINNING «
RICHARD A. MILLER
Yet it doesn’t have to be this way. Broad-acting
preventive medicines could dramatically
increase the period of life spent in good health
– our healthspan. This ray of hope reflects
progress in the science of aging, or geroscience.
We now possess reams of data about how
healthy lifestyles can lower risks of age-related
diseases. Geroscientists have also discovered
that altering certain genes can significantly
slow time’s toll in animals to enhance
longevity and health in later life.
Interventions that slow the rate of aging
are now a realistic prospect. They would
represent a “superefficient” way to attack the
diseases of aging, says Goldman, because they
would delay all of the diseases at once to
extend the period of healthy life. His 2013 study
showed that preventive interventions that only
modestly delay aging could achieve much
greater reductions in disability and per capita
medical costs than the reactive approach. For
example, according to research by Goldman, a
drug that increased life expectancy at age 51
by only 2.2 years in 2030 could, by 2060, boost
the number of healthy, non-disabled older
Americans by more than 11 million.
To be sure, anti-aging interventions would
likely increase the number of elderly people
eligible for government entitlement programs,
increasing the programs’ total costs. But
Goldman’s study showed these costs could be
readily offset by slightly raising eligibility ages
for the programs to reflect the fact that older
people would be healthier and living longer.
HOW TO DELAY AGING
Laboratory findings that suggest aging can be
slowed date to 1935, when scientists discovered
that putting rats on very-low-calorie diets
extends their lifespans by a third or more.
Later studies showed that such calorie
restriction, or CR, can delay aging in many
species. Importantly, it also makes animals
healthier in their extended later years.
For decades, CR remained little more
than a lab curiosity. Its dietary regimen was
demanding and there was no definite proof it
worked in humans; its mechanism of action
was too obscure to suggest drugs that would
mimic its benefits. This situation began to
change in the 1990s, however, when scientists
discovered gene mutations in worms, flies
and mice that extend healthy lifespan much
as CR does. Analyzing what these mutations
do within cells has suggested that there’s a
latent, anti-aging capacity in the body
engendered by networks of interacting genes.
These networks can be switched on by CR and
by mutations in specific genes, most notably
those that govern growth early in life. Probing
the networks’ molecular constituents has
suggested that certain drugs might tap them
to slow aging.
In 2003, the U.S. National Institute on Aging
launched a program to test such drugs’ effects
on lifespan in mice. Six years later, it yielded an
unprecedented success: rapamycin, a
medicine used to prevent rejection of
transplanted organs, robustly extended life
expectancy in elderly mice by about a third.
Subsequent studies have shown that the drug
also reduces cancer, neurodegeneration and
other ills while improving liver, heart, kidney
and muscle function in mice. Rapamycin’s side
effects, such as increased blood sugar, may
rule it out as a possible anti-aging drug. But
other candidates include acarbose, a drug for
lowering blood sugar in diabetics, and another
diabetes drug, Metformin, which mimics key
effects of CR while increasing both healthspan
and lifespan in mice.
Rigorously validated anti-aging drugs
would still take many years to develop. Among
other hurdles, scientists must find
“biomarkers” to measure the rate of aging so
that candidate drugs can be tested in relatively
short clinical trials. Still, “it’s the beginning of
the end of the beginning,” in humanity’s long
quest to delay aging, says Richard A. Miller,
professor of pathology at the University of
Michigan. And while the modestly slowed
aging that geroscientists now feel is achievable
wouldn’t repeal the Murphy’s law of aging, it
would profoundly reduce its penalties.
38 • Allianz

HOLDING BACK
Geroscientists
are discovering
ways to slow
time’s toll to
enhance longevity
and healthspan
Allianz • 39

MICRO
ONE STEP
AHEAD IN
THE PENSIONS GAME
The UK home improvement retail giant has
achieved the impossible: using an app, it has
made pensions fun and interesting
Gamification: the
new way to get the
young saving for
their futures
Ros Altmann, a Baroness in the British House of Lords and a
pensions expert, was asked recently how to ensure that people
have enough cash for a comfortable retirement. Pension
saving should be made more “fun,” responded the former Minister of
State, Department for Work and Pensions, so people are encouraged to
save more for retirement. She suggested that, given their popularity,
apps and gamification are ways people could become more engaged.
Retail giant Kingfisher, which includes wellknown
home improvement brands, such as
Screwfix and B&Q in the UK and Brico Depot
in France, is already ahead of the game. In
2013, as part of a five-year communication
plan, the company launched a campaign to
automatically enroll 14,000 new members into
40 • Allianz

MICRO
its pension savings plan and then educate its
entire 36,000-strong UK workforce about
pension savings. The project uses a mix of
channels to get the message out, but it was the
Bolt to the Finish mobile app that really sparked
interest amongst young employees.
“From the beginning, we wanted to have a
strategy that would be fun and engaging so as
to actually draw people in,” explains Dermot
Courtier, head of group pensions. There were
three different groups targeted: eligible job
holders who were automatically enrolled
under new legislation, non-eligible jobholders
who fell outside the salary and age requirements,
and entitled workers.
“Just sending out a blanket letter to
everybody wouldn’t really bring the importance
of pensions to life,” says Courtier, “So we
developed the Bolt family to make pensions
more appealing and more personable to
members. We’ve used them in everything from
educational videos to websites and even
refrigerator magnets.”
LESSONS LEARNED
Courtier said the Bolts have been kept alive
because employees have identified with
the family as retirement messages. Among the
characters is Tommy Bolt, the eligible
jobholder, Deirdre Bolt, the non-eligible
jobholder, and Sanjay Bolt, the
entitled worker. The characters
and other imagery draw on
products central to the company’s
fortune, such as nuts and bolts,
screws and tape measures, so as
to engage with members in a fun
way while educating them.
The app, which can be
downloaded from Apple and
Google, is the first of its kind to
be used in the pensions field.
What inspired the company was the
composition of the workforce. Some 25% of the
Kingfisher workforce is under 25, which is also
the age group of the biggest gamers. Courtier
says the app is primarily geared towards these
younger workers as they are equipped with
smartphones and tablets.
During the game, users play as a member
of the Bolt family and overcome obstacles to
» THE YOUNGER
BOLTS CAN AFFORD
MORE MISTAKES
AND STILL
BUILD SIZEABLE
SAVINGS «
BANAFSHEH
GHAFOORI
collect as many gold coins as they can before a nut (symbolizing
retirement) catches them up. Upon completion, they are ranked on a
leaderboard and then directed towards the pension trustee website,
where more educational material about saving is hosted.
COMPLEXITY MADE SIMPLE
A core part of the communications, says Banafsheh Ghafoori, pensions
technical and communications manager, was to encourage members to
increase their contributions from the minimum auto-enrollment rates.
Kingfisher hopes employees with a working life of 40 years will retire on
the equivalent of two thirds of their final salary (including the state
pension) using the default option. Saving more, of course, would provide
a greater buffer against potential financial hardships. To illustrate the
point about savings, just as in the real world, the oldest Bolt character
has the shortest time to collect coins.
It is important to explain to youngsters starting work about the
benefits concerning the pensions and the retirement scheme, and
equally how they should be saving over the long term, says Ghafoori.
“Pensions are complex, so it also needs to be explained when they
should take the opportunity to increase contribution levels so as to have
a larger pension pot. In the game, the younger Bolts can afford more
mistakes and still build sizeable savings.”
Results have been impressive. Surveys have demonstrated improved
awareness, understanding and active engagement amongst the
workforce. Overall, 78% of players said that playing Bolt to the Finish
encouraged them to think about saving for their future; 78% told
someone else about the game or shared it and 67% played the game more
than 10 times. There was also a rise of 35% in web page views, indicating
longer-term educative engagement.
Clicks and downloads are one measurement, but more important
for the future of employees is action on savings. On this
metric, Kingfisher is also pleased. Research revealed that
44% of those surveyed said they intended to increase their
scheme contribution. Since the launch, the scheme has
seen an increase of 20% of employees choosing to contribute
to the maximum matching contributions of 8% by the
member and 14% by the company.
In terms of costs, Courtier says the app has been good
value for money, explaining that the current biggest
communication expense is the postal cost of sending out
hard copy material. Compared to this, especially given its
longevity, the app is on par with general communication
spends for medium-sized pension schemes.
The intelligent use of digital platforms has been noticed. Courtier
says that Kingfisher has not only been approached by other companies
asking to learn more about the Bolts, but has also been approached by
the UK Treasury itself.
“The most important lesson we can provide, is to keep it fun, simple
and engaging,” he reflects. “You have got to recognize that most people
do not understand long-term retirement planning and it takes time and
repetition for them to develop that knowledge.”
Allianz • 41

MICRO
A MIXED
BLESSING
With increasing life expectancy,
longer periods of poor health are
becoming a costly risk in old age
One of the greatest achievements in
human history is increasing life
expectancy. With every passing day,
we gain roughly six hours of life, making time
one of the few resources that grow as we spend it.
But like everything else in life, longer lives
come with a price tag. Despite scientists’
efforts to boost healthy aging, healthcare costs
seem set to rise. “Most of the progress now
being made is in reducing death rates, but the
prevalence of diseases associated with old age
is not going down,” Christopher Murray,
director of the Institute for Health Metrics and
Evaluation at the University of Washington,
told PROJECT M.
A physician and health economist by
training, Murray is uniquely positioned to
assess the world’s state of health. He cofounded
the Global Burden of Disease (GBD)
approach, an international scientific project
which, since 1990, has generated more than 10
billion data points from 188 countries to
capture death and disability from more than
300 diseases and injuries.
“Mental health, musculoskeletal and
neurological disorders account for the lion’s
share of disability,” he says. “Their prevalence
is stagnating at best and increasing in some
countries. Consequently, the lifetime cost, the
total health spending for someone who is
insured, will undoubtedly go up.” Where
dramatic improvements in global health are
occurring, they are primarily due to a decrease
in infectious diseases as a cause of death.
FOUR STEPS FORWARD, ONE BACK
Murray sees aging as a blessing with
drawbacks. “Aging is great news,” he says, but
what concerns him is that there is no
indication of compression of morbidity, the
idea that sick years could become condensed
into a short period at the end of longer lives.
“The fact that more people are living into
their 80s and 90s, an age where most have five
or 10 different health conditions, has
significant ramifications for individuals in
terms of their quality of life and in terms of
healthcare cost,” he concludes.
Take Japan, where life expectancy for men
has increased four years since 1990, according
to the GBD study. But only three of them will be
spent in good health; one quarter of the time
gained is spent in poor health.
Healthcare costs for those years spent in
poor health arrive on top of the need to
increase private retirement savings. “An
42 • Allianz

MICRO
Allianz • 43

MICRO
additional year in retirement requires
approximately 2.5-3.5% additional savings,”
says Richard Wolf, an economist with the
Allianz International Pensions unit. In other
words: A retirement pot of €100,000 needs to be
topped up to €103,000 to provide the same
income over the extended period of lifetime.
Murray’s advice to policymakers is to
invest more in prevention, “especially obesity,
which has enormous cost repercussions. If
policymakers could change obesity trends –
which are rising nearly everywhere – they
could have a big impact on future costs.”
Governments also have to change their mindset:
“Historically, they have been focused on
preventing death – rightly so. But to make
longer lives more affordable, we have to look
more at diseases that largely don’t kill, but
cause a tremendous amount of disability and
cost.”
GLOBAL BURDEN OF DISEASE
METHODOLOGY
The largest and most detailed analysis to quantify
levels, patterns and trends in death and ill health
around the world between 1990 and today, the
Global Burden of Disease (GBD) study quantifies
health loss from a vast variety of diseases to inform
health policymakers worldwide. The GBD regularly
updates estimates for premature death and
disability from more than 300 diseases and injuries,
in 188 countries, by age and sex and makes it
comparable.
44 • Allianz

MICRO FOCUS
DR. EDUARDO P. BANZON
SENIOR HEALTH SPECIALIST ASIAN
DEVELOPMENT BANK, FORMERLY
PRESIDENT AND CEO OF PHILIPPINE
HEALTH INSURANCE CORPORATION
(PHILHEALTH)
Asia is aging faster than Europe did – this is
closely intertwined with the rise of NCDs
Q&A
QUESTION Is the epidemiological
transformation happening
at an unprecedented rate in Asia?
How many countries in Asia
are close to realizing
universal health coverage?
Private providers seem to play a
far greater role in Asia than in
developed countries.
By 2050, Asia should be far
richer and certainly far older
than today. How do you imagine
healthcare being delivered then?
That is a strong vision.
ANSWER The change is fast, but as you would expect. The increase in deaths
relating to air pollution, for example, has been rapid, but if the equivalent data was
available I don't believe it would be different to when the Europeans began to
industrialize. It is just that we have more of an idea of what people are dying from
today. The main difference is that Asia is aging faster than Europe did and that is
complexly intertwined with the rise of NCDs.
Objectively measuring countries is part of the challenge we face. I cannot say a
particular country has reached a particular level of universal health coverage
(UHC). Japan, Singapore and South Korea are clearly in great positions. All I can
provide for the others is anecdotal evidence that, for example, Thailand is doing an
outstanding job in ensuring sick people are not impoverished, or that Sri Lanka is
making great advances with limited resources.
Many countries acknowledge private providers are part of life when we talk about
UHC. Governments are mobilizing a lot of revenue for healthcare funds but they
focus on purchasing and regulation to cover all citizens, not on service provision.
The insurance funds provide incentives to both the public and private sectors as
this allows for far greater flexibility and faster responses than when governments
operate health facilities on their own.
I believe if Asia experiences the growth projected, there will be many billions more
consumers driving the personalization and commoditization of medicine. The
result will be a networked, technologically-advanced care system, where a
pinprick can reveal much about your health. This could be monitored remotely, so
the elderly remain at home but are not a burden on families. Health workers
would function as a response team whenever an emergency arises.
It may sound far-fetched, but I am an optimist and it would get us away from the
stepladder type of referral healthcare systems that now exist.
45 Allianz • Allianz • 45

MICRO
HITTING THE ECONOMIC
REBOOT BUTTON
China is restructuring its industries to move up the value chain
and counteract overcapacity – but pain lies ahead
By Mahamoud Islam, Asia economist at Euler Hermes, and Greg Langley
With the world economy spluttering, economic indicators are
being constantly scanned for signs of trouble. One critical
light on one of the largest growth engines – China – has
been flickering red for some time.
Payment delays are also on the rise, with day sales outstanding
(DSO) at 88 days in 2015, 10 days more than in 2012, as an increasing
number of companies struggle to protect margins from late payments
by customers. DSO is a warning, not the cause of the economic problems.
It simply measures the health of firms according to their struggles to
collect cash for sales completed.
Looked at in the long term, China’s DSO has risen by 21 days
since 2007. This is partially explained by the development of Chinese
companies. As they have become more global, companies have adapted
to international payment standards. In 2007, Chinese companies were
paid two days later than the global average.
However, the concern is that in 2015, they waited more than 24 days
longer to be paid than the global average of 64 days. With this figure for
payment discipline expected to slacken
further in 2016, it indicates that Chinese
manufacturers are under increasing stress.
The consequence will be more corporate
bankruptcies, but this is not surprising:
Chinese companies are deep in the red and
non-state banks already reported a sharp rise
in loan defaults in the second half of 2015.
With such a blowout on payments, Euler
Hermes is forecasting a 20% jump in corporate
insolvencies for this year. Altogether, when
you add this to the actual increase from
2015, then the two-year rise in insolvencies is
expected to reach 50%.
46 • Allianz

What lies ahead
for the Chinese
economy?
Insolvencies are
rising and
affecting the
neighbors too
ways to avoid filing for bankruptcy, such as merging or expanding.
Fearing unrest caused by jobs losses, local governments frequently prop
up smaller companies in such industries as steel, concrete and shipping,
with cheap loans. The result is zombie companies that often stay open to
obtain more subsidies.
In real terms, this means that in 2015
and 2016, up to 7,000 companies may be
wiped out, with the sectors construction,
machinery and equipment, and mining
being particularly vulnerable. Technology
and electronics are also precarious, as they
experienced rapid DSO increases in 2015,
while primary industrial commodities are
still struggling against a prolonged global
price collapse.
However, the actual number of corporate
failures in China could be significantly higher.
As insolvency procedures are complicated and
expensive, Chinese enterprises find alternative
ACCOUNTS PAYABLE OUTSTANDING
China is not alone in its woes. Insolvencies are expected to rise this year
by over 15% in neighboring Hong Kong and Singapore, two transport
hubs highly exposed to the global slowdown in trade (exports represent
more than 150% of GDP). All three markets are being hit by the economic
slowdown, but in China the weaker projected growth of 6.5% in 2016 and
6.4% in 2017 is only part of the cause.
The European Union Chamber of Commerce in China recently
highlighted how overcapacity in Chinese industry, fueled by easy
loans and subsidies, is having an “ever more destructive” effect on both
China’s domestic and the global economy. The report, Overcapacity
in China by Roland Berger, shows how overcapacity has grown since
the government unveiled a stimulus package following the 2009
financial crisis.
This is provoking cut-throat competition within China, holding back
the country’s ability to reform, and causing rising trade tension with
other countries. For example, steel production is untethered from real
market conditions and China has more than doubled the combined
production of the next four leading producers. In 2015, China produced
more than half of global cement production.
Allianz • 47

MICRO
INSIGHTS
• It takes 91 days for Chinese firms to collect cash for sales – far more than the world average
• Up to 7,000 Chinese companies are predicted to fail from 2015 to the end of 2016
• Overcapacity results from the stimulus package introduced following the 2009 financial crisis
• Structural reform is moving the nation away from low-cost manufacturing
• Ambitious “One Belt, One Road” could see China become an engine of growth once again
The Chinese government has set about a structural
reform in industries so that the nation can move away
from low-cost manufacturing to an economy shaped by
services. As a result, the state’s strategic focus is no
longer on sectors which were subsidized in the past –
and the government no longer fears letting them go bust.
Speaking in March 2015, Premier Li Keqiang said
vested interests would be upset. “This is taking a knife to
one’s own flesh ... However painful it may be, we are
determined to keep going until our job is done.”
THE KNOCK-ON EFFECT
The DSO indicates companies are hurting. Many find themselves
stranded in an environment for which they are not equipped. High levels
of debt and the now relatively high wages in China mean that many are
no longer competitive without state subsidies, so they are now passing
on payment pressures to their own vast web of suppliers.
As the web of suppliers is complex, insolvencies in China risk
taking down entire supply chains, and the knock-on effect threatens
manufacturers in trade-sensitive “old dragon countries” like Hong Kong,
» THIS IS TAKING A
KNIFE TO ONE’S OWN
FLESH ... HOWEVER
PAINFUL IT MAY BE, WE
ARE DETERMINED TO
KEEP GOING UNTIL OUR
JOB IS DONE «
PREMIER LI KEQIANG
Singapore, South Korea and
Taiwan. Service companies
are already feeling the impact,
while disruption is also being
felt by suppliers of raw materials
in Malaysia, Latin America, the
Middle East, and Africa.
While structural reform
will reboot the Chinese economy
and help the country move up
the value creation chain, the red light of
DSO will not stop flickering until this
rebalancing is achieved. The ambitious “One
Belt, One Road” program, which foresees a
21st-century land and maritime Silk Road,
and other trade partnerships, such as the
ASEAN economic community – should they
come to fruition – could be the vehicles that
see China once again become an engine of
growth for the world.
48 • Allianz

Global opportunities
MACRO
CHINA SHEDS
ITS SKIN
As China transforms, a dramatically
different economy is emerging,
but it will still confront the same old
demographic challenges
Alicia García-Herrero starts with a
cautionary tale. Once, she wrote a
report on the global automobile
industry, predicting double-digit growth with
much of it driven, figuratively and actually, by
the Chinese. Looking at the data, this seemed
reasonable. Since 2009, China had been the
world’s largest new car market, and, while the
global downturn had hit manufacturers hard,
China’s voracious demand was a bright spot –
especially for foreign firms.
But sales didn’t eventuate the way she
assumed. Cars are replicable and the local
auto sector unexpectedly increased market
share by improving standards so as to sell cars
to the masses. So does China regularly
confound the expectations of even the
brightest minds.
García-Herrero, now chief economist for
Asia Pacific at Natixis (a French corporate and
investment bank), is a veteran China watcher,
regularly asked for her views on the
bewildering phenomenon that is this rapidly
developing country. “China is astounding
because of its sheer size and mind-boggling
numbers,” she expresses with wonderment.
A small woman, she is seated in a large
chair at the head of a massive table on level 72
of the International Commerce Centre. The
floor-to-ceiling windows capture a stunning
sweep of Hong Kong landscape that includes
Victoria Harbor and out beyond Lantau Island.
“From an economics point of view,
with the United States and Europe, you
know to an extent what you’ll get, but
China changes so rapidly and it is doing it
again right now. The new economy that is
emerging is far different from the old
manufacturing one of China Inc.”
Allianz • 49

MACRO
Transforming to a
more sustainable
growth model should
mean brighter days
ahead for China
50 • Allianz

MACRO
García-Herrero has one of those CVs that make
you feel you’ve wasted your life. In addition to
her day job, she serves as senior research fellow
at the European think tank BRUEGEL, nonresident
fellow at Cornell’s emerging market
research center, and is adjunct professor at
City University, Hong Kong. Among her other
credits, she has had stints as chief economist
for Emerging Markets at Banco Bilbao Vizcaya
Argentaria (BBVA), at the Bank of International
Settlements (BIS), and as a member of the
Counsel to the Executive Board of the European
Central Bank, as well as at the International
Monetary Fund.
THE SKY IS NOT FALLING
For her, it is inevitable – barring massive social
unrest or war – that China will not only double
its economy by 2020 (over 2010 and in line with
Beijing’s ambitious goals), but that it will again
double it by 2050. This is despite the country’s
posting in 2015 its worst GDP growth (6.9%) in
25 years. But then she has little time for
Chicken Little hedge funds in London or New
York. The simplified market equation that
assesses Chinese growth of xx.x% (insert your
preferred number) as resulting in either
economic stability or chaos, dodges the hard
work and time required to analyze the
complexities of modern China.
“Deeper scrutiny shows Chinese policies
can preserve economic stability in the
transformation to a more sustainable economic
growth model,” she explains. “But that doesn’t
mean it’s all rosy, because the way China
has doubled its income in the past is no
longer available.”
The way she sees it is that 2016 will be
crucial for China. The country is shifting
growth away from investment to consumption,
and its industrial base from basic manufacturing
to a medium-high technology level. But this is
occurring at a time when one of the engines of
growth, urbanization, is losing strength.
Over the past three decades, China
witnessed the biggest movement of humanity
seen in such a short period. More than 500
million people left the countryside; China’s
cities, now home to more than half the
country’s 1.35 billion people, are still growing
by the population of Belgium (11.3 million)
every year. However, this movement is slowing: roughly 70% of those that
will move have done so already. While 300–400 million may still shift,
the structural growth provided by urbanization is weakening.
“What we can expect for the next five years for China is cloudier than
what we have seen in the last five,” she reflects. Growth in China will be
slower, and rightly so, because that is the price that must be paid for
higher consumption ratios. As policy makers try to rebalance demand,
they cannot afford to reproduce the high growth rates of the past
because of an aversion to inflation.
OUT TO 2050
On a purchasing power parity basis, China is already the world’s largest
economy (at $19.92 trillion) and García-Herrero doesn’t expect this to
change. By 2050, she believes China will be far richer, that it will still be
the largest economy, but that it will also be extremely old. “China will
age dramatically,” she notes. “The labor force will decrease rapidly from
2016 onwards. From then on, more people will retire than enter the
workforce. By 2040, its population is projected to be 1.4 billion and China
will have 420 million over the age of 60, the majority of them retired.”
Such adverse demographics (see pages 52–53) will reduce potential
growth, she argues. As today’s older workers retire, and society finds too
few younger ones to replace them, this will commence a vicious circle of
rising wages, declining demand and deteriorating saving rates that will
also bring potential growth down.
Whether the economic power that China accumulates by then will
be enough to fund its growing pension and healthcare costs is an open
question and one that the country is scrambling now to address. With
China unlikely to be still running a currency surplus, García-Herrero
believes it will be forced to borrow abroad to support its dependents,
which it should do easily as the renminbi will be firmly established as
an international currency.
But then, as she willingly concedes, pundits such as herself have
been wrong in the past even on their short-term calls. China is just that
sort of place.
CHINA’S SLOWING ECONOMY
GDP growth
16%
14%
12%
10%
8%
6%
4%
1992
2001
China joins
WTO, firing up
export-led
growth
1994
1996
Source: bloomberg.com
1998
2007
Boom times as
exports meet
property
investment surge
20 0 0
20 02
2009
Exports
plunge on
global
recession
20 0 4
20 06
20 08
2010
Infrastucture
investment
surge spurs
pickup
2010
2012
2014
2015
Market
wobbles and
debt overhang
cloud outlook
2016
Allianz • 51

MACRO
THE END OF
ABUNDANCE
Current economic troubles may only
be the beginning for China
as demographics begin to bite
By Wang Feng
China’s astounding economic boom has led to an
age of abundance, but this could end before the
eyes of today’s young generation. After three
decades of hyper growth, it may be no coincidence that
recent economic turmoil comes at the point when the
country is reaching the end of its demographic dividend.
The concept of economic life cycle describes patterns of
consumption and income that occur across age groups and
lead to a mismatch between material needs and the ability
to satisfy those needs through one’s labor. In all societies,
the young and the old consume more than they produce,
while working adults consume less than their labor income.
Data from national accounts and household surveys
show that most developed countries run a life-cycle deficit.
China, however, has generated a sizeable surplus, with
labor income far exceeding consumption throughout its
decades of rapid hyper growth. Between 2002 and 2007, this
surplus almost doubled to 3.47 trillion RMB. The economic
boom, as well as the frugal consumption and high saving
rate of older generations, contributed to this.
POPULATION CHANGES AFFECT SURPLUS
But as has been observed in other countries, changes in the
population can affect the life-cycle surplus. In China,
decades of rising longevity, and below-replacement fertility
exacerbated by the one-child policy, mean population aging
is now unfolding at a rapid, underappreciated pace.
As a significant part of China’s life-cycle surplus is due
to its favorable population age structure, aging will change
the dynamics of the economy. In 2012, for example, for
the first time, China reported a decline in its labor force
(those aged 15–59) by 3.45 million, as more workers exited
than entered the workforce, a trend expected to continue at
least until 2030.
Declining numbers of workers does not necessarily
mean a contracting economy. However, as growth over the
last three decades relied heavily on cheap young labor, the
decline of the workforce could see China lose out to
competitors in the international labor division. This would
mean stagnation or even negative growth that depresses
income. The alternative will be for China to upgrade its
52 • Allianz

MACRO
economic structure. This could result in rising
incomes and longer working years. But in either
case, population aging will lead to changes in
consumption, having an impact on the lifecycle
surplus.
WHEN WILL THE SURPLUS END?
WANG FENG
Professor at the
University of California,
As the population ages, China’s consumption
level is expected to rise significantly: social
welfare programs will expand, there will be
increases in public spending and a rise in the
individualistic culture. In fact, politicians and
economists count on China’s increasing
domestic consumption as a new engine of
Irvine, and at Fudan
The question is, if consumption changes, how
University in Shanghai,
future economic growth.
long will the surplus last? The answer depends Wang Feng is an expert
Reductions in China’s life-cycle surplus
on China’s social and
on economic growth, but the experiences of
between 2007–2009 hint that this is already
demographic change
societies such as Taiwan can shed light on
happening. The young Chinese, especially in
China’s future trajectory.
Although often at loggerheads with China, Taiwan
shares social and cultural background characteristics with
its giant neighbor. Taiwan’s well-documented life-cycle
experience between 1980 and 2000 also mirrors China’s.
Beginning in the 1960s, Taiwan transformed from an
undeveloped, agricultural island to a dynamic, capitalist
and export-driven economy with a strong middle class
emerging in the 1980s. These developments placed Taiwan
firmly in the club of Asian Tigers.
When comparing the labor income and consumption
cities, are earning more and spending more
than previous generations, but to an extent they are living
off the wealth generated by their parents and grandparents.
Their higher consumption rates mean they will not be able
to pass on wealth to their own children.
Our projections show, that China will face a challenge
in finding a balance between rising levels of consumption
and expanding life-cycle deficit. If consumption rises
similar to the historical experience of Taiwan, the life-cycle
surplus is expected to be erased before 2035 – bringing to
an end China’s age of abundance.
profiles of Taiwan to China, interesting parallels arise. Figure
1 shows that while the labor income age profile of Taiwan
changed little between 1980 and 2000, the level of
FIG. 1:
COMPARISON OF NTA NORMALIZED PROFILES
consumption rose, with larger increases recorded in the
1980 Taiwan Labor Income
1980 Taiwan Consumption
2000 Taiwan Labor Income
2000 Taiwan Consumption
young and old age years, reflecting rising expenditure and
2002 China Income
2002 China Consumption
healthcare costs. These changes are similar to China between
2002 and 2007 (Figure 2). While China’s labor income profile
is similar to Taiwan’s in 2000, China’s consumption profile in
1.2
1
0.8
the corresponding period was much lower.
In a 2014 paper, China’s age of abundance: When might it
run out?, my colleagues Yong Cai, Ding Li, Xiwei Wu, Ke Shen
and I examined the effect that population aging and
life-cycle economic profiles could have on future needs for
0.6
0.4
0.2
0
intergenerational transfers. Using the Taiwan experience as
a basis, we concluded that China’s life-cycle surplus could
Age
be erased before 2035. Our projections used different
FIG. 2:
consumption ratios relative to average prime working age
CHINA 2002/2007: LABOR INCOME AND CONSUMPTION
(30–49) labor income. A major source of China’s current
2002 Income
2002 Consumption
abundance has been extremely low consumption. In 2007, at
2007 Income
2007 Consumption
prime working age, an average person consumed less than
45% of the income generated from their labor. Should this
continue, it will counteract the effects of rapid aging, which
will reduce the size of life-cycle surplus, but not erase it. The
surplus would continue to the end of this century.
25,000
20,000
15,000
10,000
5,000
However, even a modest increase in consumption will
0
eat into the life-cycle surplus. Should China increase
consumption to 60%, a level still below Taiwan’s in 2000,
Age
there would be no surplus, even under the current favorable
Source: Author’s calculations based on data from China Household
population age structure.
Income Project 2002 and 2007.
Ratio average labor income
age 30–49
2002 RMB, inflation adjusted
0
0
10 10
10 10
20 20
20 20
30 30
30 30
40 40
40 40
50 50
50 50
60 60
60 60
70 70
70 70
80 80
80 80
90 90
90 90
Allianz • 53

MACRO
To Henry Ford, history was bunk, Karl Marx thought
it was tragedy repeated as farce, while German
Chancellor Konrad Adenauer considered it the
sum total of things to be avoided. For Barry Eichengreen,
however, history is a mirror that distorts as much as it
reflects.
“My argument is that history doesn’t teach lessons,
people teach lessons,” he explains. “The way history is
written, talked about and taught is influenced and shaped
by the context in which that history is written, talked about
and taught. The setting influences how history is framed
and organized.”
This is a central theme of his recent book, Hall of Mirrors:
The Great Depression, the Great Recession, and the Uses – and
Misuses – of History (2015), and Eichengreen clearly shows
its relevance to our current economic mess. When the
world economy went into a tailspin in 2008–2009, stunned
policymakers only had events from the Great Depression of
1929–1933 to refer to. As they sought to contain market
collapses, bank runs and soaring unemployment, they dug
back 80 years for guidance.
BLINDSIDED
BY HISTORY
History never repeats, but it sure can rhyme, as an
interview with economist Barry Eichengreen highlights
STRIKING PARALLELS
Eichengreen, an economic historian from the University of
California, Berkeley, believes that knowledge of events in
the 1930s has been a mixed blessing. Received wisdom
enabled modern policymakers and central bankers to
prevent the worst from recurring. However, they failed to
sufficiently grasp the parallels between then and now –
and the differences.
“The parallels are remarkable,” Eichengreen comments,
speaking with PROJECT M on the eve of the US Federal
Reserve’s decision in December 2015 to raise short-term
interest rates for the first time since the financial crisis.
In Hall of Mirrors, he deftly weaves together the stories of
the two slumps. Rich with anecdotes and an array of vivid,
often villainous, characters, he shows how the Great
Recession, like the Great Depression, occurred against the
backdrop of a sharp credit boom and a real-estate bubble.
Radical new technology (radio and electricity in the
1920s and the Internet more recently) inspired faith in
rising productivity. Similar to the “new era” of the 1920s,
The Great Moderation that lasted from the mid-1980s
54 • Allianz

MACRO
Modern
policymakers
missed the
dangers lurking in
the shadow
banking system
Allianz • 55

MACRO
to 2007 encouraged a belief in stability that lulled
complacent policymakers and regulators into ignoring the
dangers of dubious practices that set up a fragile and
unstable financial system.
“The other thing worth observing,” Eichengreen says,
“is that it is also remarkable that we weren’t more aware of
those parallels and their implications – that it could all end
horribly – while they were unfolding.”
What went wrong? “I think the big mistakes, the major
examples of wrong lessons, were the decisions made before
the recent crisis.” These included the failure to strengthen
financial regulation and deal with the derivatives problem;
the dismantling of Glass-Steagall in the United States; and
the enthusiasm for light-touch regulation.
HISTORY SURE CAN RHYME
Yet if mistakes were made before 2008, decisions made that
year show that if history does not repeat, it sure can rhyme.
While the Fed rescued the investment bank Bear Stearns,
much as the interwar Fed had done for the Central Republic
of Chicago, it balked at bailing out Lehman Brothers, just as
in 1933 it chose to make a statement by letting Henry Ford’s
Union Guardian Trust of Michigan go under.
“One might think that this history would have informed
decision-making,” Eichengreen writes. “In the heat of the
moment, it did not.” In the case of Guardian Trust, that
created long lines of depositors clamoring outside banks
across the United States, and sent the financial system into
free fall.
“Recent decision-makers were blindsided by history,”
he told PROJECT M. “History informed their decisions
of how to respond but it also blinded them to risks that
had no parallel.”
Eichengreen argues that the single most influential
analysis of the Depression was A Monetary History of the
United States, 1867–1960, written in 1963 by Nobel Prizewinning
economist Milton Friedman and Anna J. Schwartz.
Their 110-page chapter on the 1930s focused on the collapse
of the banking system that made the Depression “Great.”
For Eichengreen, policymakers interpreted Friedman
too literally. The problem of retail bank runs had been
solved, thanks to the 1930s innovation of deposit insurance,
so the panicked bank runs of the Great Depression could be
avoided. But by focusing on monetary supply and banking,
modern policymakers missed the dangers lurking in the
shadow banking system (hedge funds, money market
mutual funds and commercial paper issuers) until too late.
“There was no significant shadow banking in the
1930s, so Friedman and Schwartz didn’t emphasize it,” he
explains. When Lehman failed, money market funds
holding short-term notes suffered runs by frightened
shareholders. Large investors then made runs on the
money funds’ investment bank parents, leading to the
collapse of the securitization market. This caught
policymakers and central bankers totally off guard.
When the markets imploded, unlike in the 1930s,
governments realized they were on the brink of depression,
so they quickly intervened. They ramped up massive
programs of fiscal spending, and central banks flooded
markets with liquidity until a semblance of economic
normality returned. A catastrophic worldwide depression
was avoided, but is collegial backslapping justified?
Eichengreen doesn’t believe so, arguing that the
interventions were far less effective than they could have
been. Post-crisis recovery in the US has been disappointing
by any measure, while Europe experienced double-dip
recession and a series of renewed crises starting in 2010.
But because the recent crisis was less severe than the
Depression, at least in the US, bankers have also been able
to resist making radical reforms, leaving the world
vulnerable to new financial shocks. “Success,” he concludes,
“was also the mother of failure.”
What is needed, as Eichengreen summarized to
PROJECT M, is to require banks, especially big ones, to hold
significantly more capital. He also argues that the conflict
of interest of credit rating agencies – acting as advisor on
how to obtain Triple A ratings and also conferring them –
has to be resolved.
Shadow banking remains a threat. Risks have been
moved into clearinghouses, but concentrated rather than
eliminated. “Moving derivatives onto electronic exchanges
where they can clear as soon as they are done is what
is needed,” he states. “And if some derivatives are too
complicated, too complex, too exotic, too thinly created to
be moved onto exchanges, then it is a good argument for
regulating them out of existence.”
So, what of the future? Eichengreen eschews the notion
of “lesson” when it comes to history, but if the past holds a
parallel relevant for the Fed today, it comes not from the
1930s, but from 1929. That year, concerned about excess on
Wall Street, the Fed raised interest rates to deflate the
bubble. It succeeded beyond expectations, setting up
conditions for the Great Depression.
“If you are concerned about deleveraging, imbalances
and excessive risk taking in the financial sector, there
are instruments better suited for addressing those
risks,” he says. “That is regulation, what is called macroprudential
policies, where regulators clamp down on
margin purchases of securities on risky lending.
Raising interest rates increases the danger that the
economy will tank. It is what the Fed did in 1929 and what
the Fed should avoid today.”
56 • Allianz

MACRO
Should public
assets be
consolidated
into a single
corporate entity?
HOW TO
KICK-START
INVESTMENTS IN
INFRASTRUCTURE
We need to address the big issues, from
rethinking accounting standards to creating
a global infrastructure asset class
By Michael Heise
Between the collapse of Lehman
Brothers and the start of quantitative
easing, eurozone insurers and pension
funds more than doubled their holdings of
domestic government bonds by a whopping
€690 billion. The investments in “safe” assets,
which exacerbated interest rate falls, followed
regulatory rather than economic logic.
De-risking, building capital reserves and
containing duration mismatch were the
objectives.
Allianz • 57

MACRO
Economic logic would have demanded a
different investment approach. Hoarding
government bonds condemns insurers and
pension funds to low returns, aggravating the
looming pension threat and depriving the
private economy of much-needed long-term
risk capital. If only governments were to use
this cheap financing to boost investments, for
example in infrastructure.
TRANSPARENCY IS KEY
Unfortunately, this is not happening. In the
eurozone between 2007 and 2014, public debt
increased by €3,200 billion and annual general
expenditures by €730 billion, while annual
gross investments decreased by €27 billion.
Before the crisis, more than 7% of all
expenditures were earmarked for investments;
today the share is only 5.5%.
The lamentable state of the eurozone
economy requires a boost to real investments
such as infrastructure. There is certainly
no lack of opportunities: climate change,
poverty and migration, digital revolution,
aging societies – to name a few. The common
denominator is better infrastructure that can
withstand extreme weather conditions, foster
growth and productivity, close the digital
divide, and serve the elderly. However, most
governments have underinvested in public
infrastructure for many years.
What is needed is a new mind-set and
framework to transform the flow of capital
into infrastructure. This is why radical ideas
should not be dismissed easily. One proposal is
a clever idea from Dag Detter and Stefan Fölster
in their book The Public Wealth of Nations. It
observes that while most states own assets
that easily exceed their public liabilities, these
assets are often poorly managed.
This situation arises for the reason that
governments lack a clear view of the true
value of public assets. While the financial
crisis forced countries to acquire a better
understanding of public debt structures and
contingent liabilities, they still underrate their
assets, especially on the sub-national level.
There is no comprehensive public balance
sheet with accounting rules comparable to the
private sector. But, as Detter and Fölster write,
“transparency is a key to better management.”
Every euro that can be earned by better
management of public assets is a euro less in
taxes or debt. Detter and Fölster’s solution
includes an integrated inventory of public
assets at all levels of government with
valuation at market prices. Furthermore,
to ensure effective management and a
comprehensive business plan for asset
development, assets should be transferred and
consolidated into a single corporate entity.
At the national level, this would mean, for
example, the creation of a national wealth
fund (NWF) that has the mandate to increase
public wealth by maximizing the return on
public assets. Asset management would be
shielded from short-term political influence,
and the time-proven tools and frameworks of
the private sector and professional governance
would be employed.
The idea may not sound revolutionary.
There are already many sovereign wealth
funds around. But applying this approach to
a wider range of public assets would mark
a decisive turn: public assets would no longer
be seen primarily as cost items – gobbling up
money for maintenance – but as wealth that
generates positive returns and revenues.
INVESTORS AS RISK ABSORBERS
What is elegant about the idea is that it
avoids the fruitless ideological debate about
privatization versus nationalization. The
emphasis is efficient management. However,
the barriers are large. Politicians are unlikely
to surrender influence to independent
managers, as public assets – from roads to
railroads – are often intertwined with political
and social objectives. Although the fund
approach does not hinder these objectives per
se, it would reveal associated costs. It is not
difficult to see then why some policymakers
might favor the opaque status quo.
This would be a pity because wealth funds
should boost investment in infrastructure.
First, the mandate would sharpen the focus
on needed infrastructure – because it is
the most valuable asset yielding the highest
returns. Second, a professional fund would be
more open to pooling with private partners,
giving the public-private partnerships (PPP)
concept a new lease of life.
MICHAEL HEISE
Chief economist of
Allianz SE and the
author of Emerging
from the Euro Debt
Crisis: Making the Single
Currency Work
58 • Allianz

MACRO
Wealth funds
would give the
public-private
partnerships
concept a new
lease of life
If implemented rigorously, the concept
would be the closest thing to a free lunch in
economics: better infrastructure driven by
increased investments, and financed not by
higher taxes or more debt but solely by
managing existing public assets more
efficiently. The idea is worth trying: it might
become the game-changer in infrastructure.
It would also open up investment
opportunities for long-term investors who
are held back by constraints ranging
from a complex regulatory landscape to
underdeveloped market structures. But
the most crucial problem is a scarcity of
suitable investment objects. Despite all the
talk about the necessity to rebuild and expand
infrastructure, the pipeline of projects is
more of a pipe dream.
To overcome these challenges, we need to
address the big issues, from rethinking
accounting standards to creating a tradable,
global infrastructure asset class. This also
means changing our thinking on “public”
infrastructure. The establishment of wealth
funds creating transparency and managing
public assets could be an important step.
This would release the potential of longterm
investors to act as risk absorbers. They
can foster financial stability by holding assets
through economic cycles; they can promote
growth by being long-term reliable financiers
for investments and innovations; and they can
help ensure social stability by shielding their
clients from financial risks associated with
old-age provisions. Public wealth managers
would be their natural partners in this.

MACRO
THE
PRODUCTIVITY
PUZZLE
Is the current slump in
productivity growth an aberration
or is it permanent?
Have we passed peak productivity?
According to The Conference Board’s
latest figures, the growth of total
factor productivity (TFP), which measures the
output of labor and capital, remained at
around zero for the third consecutive year,
compared with 1% growth from 1996–2006
and 0.5% from 2007–12.
At first glance, the answer might seem
obvious: these are the effects of the global
financial crisis, which disrupted credit
availability and slowed international trade.
“But the slump in TFP growth is widespread,
not limited to countries most directly affected
by the financial crisis,” says Donghyun Park,
principal economist at the Asian Development
Bank’s economics research and regional
cooperation department.
“This phenomenon is evident in advanced
countries like the USA and UK as well as in
emerging markets like China, Brazil and
Mexico. It is also evident in Latin America,
Southeast Europe and Central Asia.” Additional
theories include the argument that we are
simply enduring another turn on the path of
secular stagnation, or that the impulse provided
by the growth of emerging markets is waning.
Together with fellow economists Barry
Eichengreen, from the University of California,
Berkeley, and Kwanho Shin, from Korea
University, Park is the co-author of The Global
Productivity Slump: Common and Country-
Specific Factors, a working paper published
in 2015 by American research organization
the National Bureau of Economic Research.
Their investigations of historical data suggest
that the current stagnation is far from
unprecedented, identifying clusters of TFP
slumps in the early 1970s, the late 1980s to
early 1990s (both likely influenced by energy
crises), a third cluster in the second half of
the 1990s in the run-up to the Asian crisis, and
a final one in the mid-2000s, just prior to the
global financial crisis.
“That many of these episodes are grouped
at particular points in time is suggestive
of a role for global factors in TFP-growth
slowdowns,” says Park. “We have identified
TFP slumps in low-, middle- and high-income
countries alike. Evidently, no country, rich or
poor, and no period of time, are immune from
the risk of productivity slumps.”
INVESTING IN THE FUTURE?
Within individual countries, Park and his coauthors
point to several factors that they see
time and again during TFP crashes, with low
education levels, weak political systems and
unusually high investment rates the most
prominent. The latter suggests that countries
relying on brute-force capital accumulation
60 • Allianz

MACRO
DONGHYUN PARK
Principal economist at
the Economics and
Research Department
of the Asian
Development Bank
Productivity is
slowing around the
world – one of the
most disturbing
phenomena
affecting the global
economy
may do so at the expense of productivity, by
investing in low-productivity, low-return
projects. “This observation is also consistent
with worries that countries like China, relying
on investment for growth, may be substituting
capacity expansion for increases in efficiency,”
Park observes.
Indeed, stagnant productivity is currently
worrying for both China and Asia in general, as
productivity growth will have to play a larger
role, given the region’s rapid population aging.
Interestingly, the report says that countries
with higher old-age dependency ratios are less
likely to experience a productivity slump,
despite older workers being less productive
than younger ones. One possible explanation
is that higher old-age dependency pushes
countries to be more productive, says Park.
“With labor relatively scarce, countries are
forced to invest in innovative technologies and
equipment to improve the productivity of their
workforce. In other words, while a high old-age
dependency is clearly a negative factor for
economic growth, it can catalyze the shift to a
productivity-led growth paradigm. In that
sense, it may be a blessing in disguise.”
PLEASURE YOU CAN’T MEASURE
Technological innovation, in the form of
information and communication, produced a
quantum leap in global productivity between
the mid-1990s and mid-2000s. Now, it does not
seem to be quite so influential, although
productivity improvement in information and
communication is difficult to measure, says
Park. “Take mobile phones: we cannot even
begin to adequately measure the improvement
in productivity, as well as welfare, due to the
replacement of landline phones.”
The same can be said of the services
industry. As technology carries many countries
towards a sharing economy, the question
arises as to whether productivity remains the
right measure for improved resource usage?
“Productivity is ultimately all about how much
output we get out of a given resource. In that
sense, the shared economy can contribute to
higher productivity,” replies Park. He cites the
likes of accommodation platform Airbnb and
car-sharing app Uber, where ultimately, both
suppliers and consumers benefit.
IT’S POLITICS, STUPID
The Global Productivity Slump finds a strong
link between democracy and productivity
growth. Stronger, more contestable political
systems are less liable to witness a downturn:
they are better able to agree on policies that
maintain productivity growth. This is important
in countries with aging populations, as
authorities seek to strike a balance between
supporting business and welfare. Governments
must persuade voters of all ages that in the
absence of productivity growth, economic
growth will suffer. “And then everybody will
lose out,” says Park.
Ultimately, while choosing the right
policies can help prevent or arrest a slump,
there is no failsafe way of avoiding it. “The good
news,” says Park, “is that historically, there
aren’t just slowdowns, but also growth
accelerations and even recoveries.”
Allianz • 61

META
The outsider’s view
NAME
Francis Ford Coppola
BORN
1939
FILMS
38, including The Great
Gatsby (1974), American
Graffiti and The Virgin
Suicides (producer), and
Rumble Fish
ACADEMY AWARDS
8
WINE AWARDS
USA Wine Producer of
the Year award 2011
APOCALYPSE WOW: COPPOLA DIRECTS WINE
Film director and producer Francis Ford Coppola is
also the most famous vintner in California’s Napa Valley
His name is still more internationally famed for
cinema than wine, but the wealth of Francis Ford
Coppola derives more from his work as a vintner
than filmmaker. The legendary director of Apocalypse Now
and The Godfather trilogy is now the biggest single owner of
wineries in California, after first purchasing a portion of
the historic Inglenook estate in the Napa Valley in 1975.
Since then, it has been his passion not only to create
great wine, but to resurrect the renowned vineyards. The
estate was founded in 1879 by Gustave Niebaum, a Finnish
sea captain, and its cabernet wines played a prominent role
in helping define Napa as one of the great wine regions of
the world.
Christie’s rates Inglenook’s 1941 vintage alongside the
1945 Mouton-Rothschild and 1900 Margaux as “some of the
most celebrated, most valuable and longest-lived Cabernet-
Sauvignon-based wines in the world today.”
After purchasing the former home of Niebaum, Coppola
produced his first vintage in 1977, with his family stomping
out the grapes barefoot – a tradition that has continued at
the annual harvest party. The Rubicon and Cask cabernets
produced at Inglenook are considered among an
international elite, commanding upwards of $200 a bottle.
Even in the early years, Coppola said in an interview
for PROJECT M, “the dream of uniting Inglenook burned
within me.” That task proved to be a puzzle. The success of
the film Bram Stoker’s Dracula in the 1990s allowed him to
Francis and Eleanor
Coppola purchased
the Inglenook wine
estate in 1975 and
have spent over 40
years restoring
its heritage
significantly enlarge the estate and move to include
mass-market wines.
In 1995, Coppola brought back the remaining vineyards
and original chateau for $10 million. Flicking through press
clippings about Niebaum and Inglenook’s often turbulent
history, Coppola explains, “I always wanted to make one of
the world’s great wines, and I knew Inglenook had before,
and could again.”
Coppola put the final piece in place when he brought
the iconic Inglenook trademark in 2011. This allowed him
to sell his wines under the original name, completing a
36-year restoration of the estate.
Today, Coppola has almost $100 million invested in the
business. The grapes are entirely organically grown and the
wines have a reputation that perhaps even exceeds that of
Inglenook’s early years. On the commercial side, they are
not performing badly, either. The Coppola Diamond range
is one of the most widely sold wines in US restaurants.
For those who miss the connection between his life’s
two passions, Coppola happily explains that “winemaking
and filmmaking are two of California’s great art forms.”
62 • Allianz

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