The world is prepared for risk as South Africa faces retirement quandaries
Since the end of World War II and the Great Depression of the 1930s and 1940s, the world has never been through as much change as it is currently going through. Recent events have made it clear that since 2000, these changes are affecting society signific
It seems as if there is an awareness of these risks. A survey by Swiss insurance company Swiss RE shows that the public and large companies are ready to shoulder the financial burden personally.
The survey was commissioned by Swiss Re on the occasion of its 150 year anniversary where the company spoke with nearly 22 000 members of the public across 19 markets on five continents, aged 15 and above. Swiss RE reports that the purpose of the survey was to encourage awareness of the risks that society faces as well as finding practical solutions towards working towards resolving these risks.
South Africa misses the mark in terms of retirement
While retirement reform seems to be a hot topic in the local market, it seems as if we are not an isolated case. The survey found that 70% of respondents are prepared to take personal responsibility for their own retirement costs as the contribution from companies will not allow them to retire comfortably.
This also indicates that there is not much faith that respective governments will be able to look after their citizens in their golden years. There is also a tendency for international retirees to not look towards their children for dependency during retirement.
This is where the South African market is unique. Results from the 2013 Old Mutual Retirement Monitor shows that 37% of pensioners will rely on the financial assistance of other family members. There is also a significant portion of the population who are confident that government will be able to provide for them during retirement.
A further key finding of the survey is that self-reliance is seen as key to coping with the risks of the future where 29% of respondents said that they would prefer to pay into a non-state pension plan to make ends meet during retirement while 19% said that they would be retiring later. Twenty two percent reported that they would be forced to cut back on spending once retired with only 13% confident that they can rely on the state.
Frail care also seems to be an avenue which could possibly provide insurers with an opportunity for diversification. On funding long-term care for elderly relatives, roughly a third to a half of respondents across all markets and age groups say they would take out insurance to help cover the cost. But large numbers, on average 43%, expect government to pay for universal healthcare. A further 35% say healthcare for the poor should be publicly funded.
Taking steps to address risks
Swiss RE points out that respondents were asked what concerns them most and most brought up issues which included ageing, climate change, natural disasters, energy and food supplies. The survey adds that almost everyone is worried about prospects for the economy and that concerns about global warming and natural disasters are widespread.
The fact that respondents are more aware of these risks is good news for insurers and more specifically brokers as it presents them with a prime opportunity to generate new business as people are willing to take action to address them, even if this is going to hit their own pocket. Many also feel that government policy does not fully address the risks faced today and by future generations.
Swiss RE's Group Chief Risk Officer David Cole says, "These findings show that individuals are willing to take as much responsibility as their leaders. The findings are a call for better co-operation between government and the private sector. It's vital to systematically prepare for the future and make societies more resilient. That’s where Swiss Re also plays a key role with its risk expertise.”
Climate change worries
The FAnews recently did a newsletter where we focused on climate change and the effects it will have not only on society, but on the financial services industry. This seems to be the biggest international concern with 84% of the survey’s respondents believing that climate change will be responsible for more natural disasters in the future, and nearly 80% fear damage from an earthquake, flood or other natural disaster within the next 20 years.
The majority of survey respondents feel threatened by the risk climate change poses to their community with 58% feeling that climate change will contribute to natural disasters to a great extent or to some extent in the future. This should sound off significant warning bells within the insurance industry.
A key question that insurers need to ask is whether it can afford to suffer the devastating effects of natural disasters on a regular basis? Reports show that the total estimated cost of damage caused by Hurricane Sandy, which hit the US in 2012, reached $50 billion (but this could have ranged between $30billion and $50 billion.) This came seven years after Hurricane Katrina hit the southern states of the USA in 2005 causing $81-billion damage.
The frequency of these events are increasing significantly. Prior to Katrina, the most devastating hurricane to hit the US was the Okeechobee hurricane which occurred in 1928. Since Katrina, the USA had to deal with Hurricane Ike and Sandy, both of which caused significant damage.
Naturally, one would expect the governments of affected countries to foot a portion of the bill with regards to recovery and rebuilding efforts following such events. However this mindset is changing with 77% of the respondents to Swiss RE’s survey believing that government would leave them with the bill for any damages.
Editor’s Thoughts:
Although South Africa is largely unaffected by catastrophic weather events, global warming has proven that weather conditions are becoming increasingly unstable and hard to predict. It will therefore be prudent for the local financial services industry to prepare itself to deal with future events which may be caused by global warming. But the fact that the South African market is far apart from the international markets when it comes to retirement is alarming and needs to be addressed.
The local market is going through significant reforms. However, will these reforms be enough to bring the local market on par with its international counterparts? And will the reforms that government is proposing improve, or cause confusion in the industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts[email protected].
