1 / 17

IIS 44th Annual Seminar The Life Insurance Market’s Response to Aging: Mega or Mini ?

IIS 44th Annual Seminar The Life Insurance Market’s Response to Aging: Mega or Mini ?. Gustavo Ferro Universidad Argentina de la Empresa (UADE) and CONICET ( gferro@uade.edu.ar ) Taipei (Taiwan), July 16th, 2008. Introduction. Aging implies more savings for retirement, worldwide

hamish-warren
Télécharger la présentation

IIS 44th Annual Seminar The Life Insurance Market’s Response to Aging: Mega or Mini ?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. IIS 44th Annual SeminarThe Life Insurance Market’s Response to Aging: Mega or Mini? Gustavo Ferro Universidad Argentina de la Empresa (UADE) and CONICET (gferro@uade.edu.ar) Taipei (Taiwan), July 16th, 2008

  2. Introduction • Aging implies more savings for retirement, worldwide • In a competitive and complex environment: • What piece of the retirement market will be provided by insurers? • Can we expect a “Mega” or “Mini” response of the industry? • Keeping in mind that “Insurance is sold, not bought”, who are the relevant counterparts? • We propose some answers to these questions in this presentation

  3. Outline of this “policy paper” • Introduction • Aging • Demand-side • Supply-side • Regulation • Proposals • Conclusions

  4. Aging Average life expectancy at birth 90 85 80 World: 75.1 82.1 75 75.6 74.0 70 World: 65.4 65 63.4 60 55 2000-2005 Forecast 2045-2050 More developed regions Less developed regions Source: Jousten (2007) on World Population Prospects: The 2004 Revision Highlights, United Nations 2005

  5. Demand-side, current state • From Pay-As-You-Go Defined-Benefit systems towards Fully-Funded Defined-Contribution schemes. • Variety of reforms • In 2006, assets of pension funds in OECD countries accounted for US$ 24.6 trillion (72.5% of the GDP) • Few annuities are voluntarily purchased

  6. Demand-side, looking ahead • The accumulation phase of pension funds will soon be followed by a decumulation phase • Tax provisions could influence non-optimal options that are currently selected by retirees, such as: • Lump sum, Phased withdrawals • “Rules of thumb” for investing and withdrawing • Why not annuititize? – relevant discussion issues • Adverse selection • Perception of “expensive” premiums • Bequest motive • Precaution savings for long-term care

  7. Supply-side: Money Worth Ratios MWR on nominal (immediate single payment) annuities – Male, 65 MWR using public bond rate MWR using corporate bond rate Australia Canada US UK Switzerland General population Annuitant population Source: Mackenzie (2002)

  8. Supply-side facts • Only an annuity provides longevity insurance • However, MWRs reveal adverse selection and few countries have developed annuity markets • There are market and regulatory responses and innovative “prototypes” of annuity contracts • Factors that could yield an extended market include: • Better mortality data and regulated mortality tables • Public sector involving in their development • Mandatory annuitization at some age • Innovative contracts

  9. Regulation • Based on market failure perspective • Intended “to protect people who cannot easily protect themselves” • Prudential regulation and opposite risks • Mandatory annuitization? • Tax provisions could induce annuitization

  10. Proposals for insurance industry • Departing from an analogy of the three pillars for pensions of the World Bank • Multi-Tier Insurance Package for the Pensioners’ Saving Decumulation Phase (MIP) Third Tier Second Tier Annuitization by an “Annuiplus” purchase Phased Withdrawalin sub accounts (“Lockboxes”) First Tier Allowed Lump-Sum Decumulation Voluntary Mandatory

  11. MIP concept in detail

  12. Hypothetical example Calculations for illustrative MIP-Bundles (basis: US mortality and MWRs) Lump sum + Immediate Annuiquest Total cost Lump sumat 65 ($15,000) Death insurance at 65 ($10,000) Immediate annuity, from 65 ($9,562 p.a.) Lump sum + Deferred Annuiquest Total cost Lump sumat 65 ($15,000) Death insurance at 65 ($10,000 p.a.) Deferred annuity, from 70 ($9,562 p.a.) Phased withdrawal Costs in thousands US$ Costs in thousands US$

  13. Conclusions • The “Mini” scenario (reactive response) implies risk of little business and low margins • (One) “Mega” Scenario is proposed to raise the industry’s awareness among politicians, regulators, international organizations and pensioners • It tries to cover demand-side needs and to be appealing to politicians, regulators and international organizations looking for financial stability

  14. Thank you for your attention gferro@uade.edu.ar

  15. Appendix 1: Aging

  16. Appendix 2: Money Worth Ratios

  17. Appendix 3: An hypothetical example

More Related