The insurance industry makes a larger contribution to economic growth in the United States compared to Europe.
In the US, total insurance premiums represent over 10% of GDP, versus 8.5% on average for EU countries. Non-life insurance premiums as a percentage of GDP are also higher in the US compared to EU nations. There is potential for the insurance industry to play a greater role in powering economic growth if its underdeveloped state in Europe is addressed.
Chapter 1[definition and nature of insurance]aaykhan
The document defines insurance as a cooperative method for spreading risk over a group of individuals exposed to the same risks. It discusses key terms like risk, chance of loss, peril, hazard, loss, and the roles of the insurer and insured. The definition section examines insurance as both a functional and contractual concept that allows individuals to receive payment in the event of a specified loss or contingency in exchange for regular premium payments.
study of consumer buying behviour towords various schemes of HDFC mutual fundkhushbu chauhan
This document is a project report submitted to BRCM College of Business Administration for a BBA program. It examines the buying behavior of investors towards various schemes of HDFC Mutual Fund. The report includes an introduction to mutual funds, HDFC Mutual Fund's company profile, the research methodology used in the study, data analysis, and a conclusion. The introduction provides an overview of mutual funds including their concept, benefits, risks, history, types, and SEBI regulations. The company profile section gives background on HDFC Mutual Fund, its vision, and product offerings. The research methodology outlines the study's objectives, design, population, sampling, data collection tools, and limitations.
1-INSURANCE COMPANY OPERATIONS
The most important insurance company operations consist of the following:
Ratemaking
Underwriting
Production
Claim settlement
Reinsurance
Insurers also engage in other operations, such as accounting, legal services, loss control, and information systems.
2-RATING AND RATEMAKING
Ratemaking refers to the pricing of insurance and the calculation of insurance premiums .
A rate is the price per unit of insurance.
An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.
The person who determines rates and premiums is known as an actuary . An actuary is a highly skilled mathematician who is involved in all phases of insurance company operations, including planning, pricing, and research.
3-UNDERWRITING
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance . The underwriter is the person who decides to accept or reject an application.
Statement of Underwriting Policy:Underwriting starts with a clear statement of underwriting policy.
An insurer must establish an underwriting policy that is consistent with company objectives.
4-PRODUCTION
The term production refers to the sales and marketing activities of insurers. Agents who sell insurance are frequently referred to as producers .
Life insurers have an agency or sales department. This department is responsible for recruiting and training new agents and for the supervision of general agents, branch office managers, and local agents.
Property and casualty insurers have marketing departments. To assist agents in the field, special agents may also be appointed.
A special agent is a highly specialized technician who provides local agents in the field with technical help and assistance with their marketing problems.
5-CLAIMS SETTLEMENT
Every insurance company has a claims division or department for adjusting claims. This section of the chapter examines the basic objectives in adjusting claims, the different types of claim adjustors, and the various steps in the claim-settlement process.
Basic Objectives in Claims Settlement:
Verification of a covered loss
Fair and prompt payment of claims
Personal assistance to the insured
6-REINSURANCE
Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance .
The primary insurer that initially writes the insurance is called the ceding company .
The insurer that acceptspart or all of the insurance from the ceding com pany is called the reinsurer .
The amount of insurance retained by the ceding company for its own account is called the retention limit or net retention .
The amount of insurance ceded to the reinsurer is known as the cession
The document discusses the essentials of a contract under Indian law. It defines a contract and explains that a valid contract requires agreement and consideration between two parties. It classifies contracts into different types such as express and implied, executed and executory, unilateral and bilateral, and valid, void, voidable and illegal based on how they are formed and executed. Key points covered include definitions of contract, elements of a valid contract, and classifications of contracts according to formation, execution and enforceability.
This document discusses the key principles of insurance. It defines insurance as a form of risk management that involves the equitable transfer of risk from one entity to another in exchange for payment. The main entities in an insurance agreement are the insurer, who sells the insurance, and the insured, who buys the insurance policy. Premiums are the amounts charged for a certain level of insurance coverage. Several acts govern insurance in India. The document also discusses insurable risks, types of insurance, fundamental insurance principles like indemnity and insurable interest, and circumstances under which an insurer must return paid premiums.
The document defines an insurance contract as a legal agreement between two parties where an insurer agrees to indemnify or reimburse an insured for financial losses from covered risks. It lists the key parties and requirements for a valid insurance contract, including insurable interest, offer/acceptance, consideration, and utmost good faith. The summary also outlines some common documents involved in the insurance process from proposal to policy and some standard clauses included in insurance contracts.
The report is all about the consumer perception towards mutual fund in delhi NCR region.
The data analysis is on the the basis questionnaire which helps to get the proper result.
various tools are being used for research.
This document discusses negotiable instruments under Indian law. It defines negotiable instruments as promissory notes, bills of exchange, or cheques that are freely transferable. It outlines the key characteristics of negotiable instruments, including that they provide title to the holder, allow the holder to sue in their own name, and come with legal presumptions around consideration and transfer dates. The document also describes the formal requirements and parties for different types of negotiable instruments like promissory notes, bills of exchange, and cheques. Finally, it discusses how negotiable instruments can be dishonored through non-acceptance or non-payment, and the process for notifying parties of dishonor.
Chapter 1[definition and nature of insurance]aaykhan
The document defines insurance as a cooperative method for spreading risk over a group of individuals exposed to the same risks. It discusses key terms like risk, chance of loss, peril, hazard, loss, and the roles of the insurer and insured. The definition section examines insurance as both a functional and contractual concept that allows individuals to receive payment in the event of a specified loss or contingency in exchange for regular premium payments.
study of consumer buying behviour towords various schemes of HDFC mutual fundkhushbu chauhan
This document is a project report submitted to BRCM College of Business Administration for a BBA program. It examines the buying behavior of investors towards various schemes of HDFC Mutual Fund. The report includes an introduction to mutual funds, HDFC Mutual Fund's company profile, the research methodology used in the study, data analysis, and a conclusion. The introduction provides an overview of mutual funds including their concept, benefits, risks, history, types, and SEBI regulations. The company profile section gives background on HDFC Mutual Fund, its vision, and product offerings. The research methodology outlines the study's objectives, design, population, sampling, data collection tools, and limitations.
1-INSURANCE COMPANY OPERATIONS
The most important insurance company operations consist of the following:
Ratemaking
Underwriting
Production
Claim settlement
Reinsurance
Insurers also engage in other operations, such as accounting, legal services, loss control, and information systems.
2-RATING AND RATEMAKING
Ratemaking refers to the pricing of insurance and the calculation of insurance premiums .
A rate is the price per unit of insurance.
An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.
The person who determines rates and premiums is known as an actuary . An actuary is a highly skilled mathematician who is involved in all phases of insurance company operations, including planning, pricing, and research.
3-UNDERWRITING
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance . The underwriter is the person who decides to accept or reject an application.
Statement of Underwriting Policy:Underwriting starts with a clear statement of underwriting policy.
An insurer must establish an underwriting policy that is consistent with company objectives.
4-PRODUCTION
The term production refers to the sales and marketing activities of insurers. Agents who sell insurance are frequently referred to as producers .
Life insurers have an agency or sales department. This department is responsible for recruiting and training new agents and for the supervision of general agents, branch office managers, and local agents.
Property and casualty insurers have marketing departments. To assist agents in the field, special agents may also be appointed.
A special agent is a highly specialized technician who provides local agents in the field with technical help and assistance with their marketing problems.
5-CLAIMS SETTLEMENT
Every insurance company has a claims division or department for adjusting claims. This section of the chapter examines the basic objectives in adjusting claims, the different types of claim adjustors, and the various steps in the claim-settlement process.
Basic Objectives in Claims Settlement:
Verification of a covered loss
Fair and prompt payment of claims
Personal assistance to the insured
6-REINSURANCE
Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance .
The primary insurer that initially writes the insurance is called the ceding company .
The insurer that acceptspart or all of the insurance from the ceding com pany is called the reinsurer .
The amount of insurance retained by the ceding company for its own account is called the retention limit or net retention .
The amount of insurance ceded to the reinsurer is known as the cession
The document discusses the essentials of a contract under Indian law. It defines a contract and explains that a valid contract requires agreement and consideration between two parties. It classifies contracts into different types such as express and implied, executed and executory, unilateral and bilateral, and valid, void, voidable and illegal based on how they are formed and executed. Key points covered include definitions of contract, elements of a valid contract, and classifications of contracts according to formation, execution and enforceability.
This document discusses the key principles of insurance. It defines insurance as a form of risk management that involves the equitable transfer of risk from one entity to another in exchange for payment. The main entities in an insurance agreement are the insurer, who sells the insurance, and the insured, who buys the insurance policy. Premiums are the amounts charged for a certain level of insurance coverage. Several acts govern insurance in India. The document also discusses insurable risks, types of insurance, fundamental insurance principles like indemnity and insurable interest, and circumstances under which an insurer must return paid premiums.
The document defines an insurance contract as a legal agreement between two parties where an insurer agrees to indemnify or reimburse an insured for financial losses from covered risks. It lists the key parties and requirements for a valid insurance contract, including insurable interest, offer/acceptance, consideration, and utmost good faith. The summary also outlines some common documents involved in the insurance process from proposal to policy and some standard clauses included in insurance contracts.
The report is all about the consumer perception towards mutual fund in delhi NCR region.
The data analysis is on the the basis questionnaire which helps to get the proper result.
various tools are being used for research.
This document discusses negotiable instruments under Indian law. It defines negotiable instruments as promissory notes, bills of exchange, or cheques that are freely transferable. It outlines the key characteristics of negotiable instruments, including that they provide title to the holder, allow the holder to sue in their own name, and come with legal presumptions around consideration and transfer dates. The document also describes the formal requirements and parties for different types of negotiable instruments like promissory notes, bills of exchange, and cheques. Finally, it discusses how negotiable instruments can be dishonored through non-acceptance or non-payment, and the process for notifying parties of dishonor.
Fire insurance protects people from financial losses caused by fires. It involves sharing fire-related losses incurred by some through contributions to a common fund by all who are exposed to fire risk. Fire insurance pays for losses that are unexpected and occur due to chance. It aims to restore the insured's financial position prior to the loss through the principle of indemnity.
This document discusses key principles of insurance, including insurable interest, subject matter of insurance, assignment of policies, utmost good faith, proximate cause, indemnity, subrogation, and contribution. It defines these terms and explains concepts like when insurable interest must exist, exceptions to free assignment of policies, the duration of utmost good faith, factors limiting indemnity, and conditions required for contribution between insurers.
Nature & scope of insurance and leading insuranceRahulNirol
This document provides an overview of insurance in India. It begins with definitions of insurance and explanations for why insurance exists. It outlines the primary and secondary functions of insurance. It also details the nature and scope of insurance coverage in India. The document lists the leading insurance companies in India for both life and non-life insurance and provides some key details about the largest players, including LIC and Bajaj Allianz. It concludes with a section highlighting claim settlement ratios for the top 15 life insurance companies in India.
This document provides an overview of the Indian financial system. It discusses key components such as financial institutions, financial markets, and financial instruments. It notes that the financial system comprises a variety of intermediaries and markets that transform savings into investments. It also outlines some functions of the financial system like facilitating payments, pooling funds, and managing risk. The document further describes different types of financial institutions, markets, and instruments as well as financial services in India. It concludes by identifying some weaknesses of the Indian financial system.
A study on investors’ awareness level on mutual fund & promotion of sip planProjects Kart
Here are the key tables from the document:
Table 2.1 - Shows total net asset in U.S. Dollars for mutual funds globally from 1980 to 2018.
Table 2.4 - Provides the latest AUM (assets under management) and ranking for top mutual funds in India.
Table 3.1 - Provides a snapshot of different types of mutual fund schemes.
Table 3.2 - Outlines the tax rules for mutual fund investors in India.
Table 3.3 - Defines the statistical measure R-squared.
Table 3.4 - Shows the returns that can be generated through SIP (Systematic Investment Plan) over different time periods.
Table 3.5 - Describ
Insurance FUNDAMENTALS/PRINCIPLES OF GENERAL INSURANCEAijaz Sawar
This document discusses several key principles of general insurance, including:
1) The principle of utmost good faith requires both parties in an insurance contract to disclose all material facts truthfully. This is different from standard commercial contracts where only facts asked about need be disclosed.
2) A material fact is any information that could influence an insurer's decision about accepting a risk or determining the premium. Examples include a building's construction type or a driver's accident history.
3) The insured must disclose all material facts about the subject of the insurance, like storage of flammable goods in a building for fire insurance. Failure to disclose material facts can void an insurance contract.
The Markowitz Model assists investors in selecting efficient portfolios by analyzing possible combinations of securities. It helps reduce risk through diversification by choosing securities whose price movements are not perfectly correlated. The model determines the efficient set of portfolios and allows investors to select the optimal portfolio based on their preferred risk-return tradeoff. Markowitz introduced diversification and showed holding multiple lower-risk securities can reduce overall portfolio risk compared to a single higher-risk security. The model calculates expected returns, variances, and correlations between securities to determine the minimum risk portfolio for a given level of return.
Hybrid securities combine elements from multiple markets into a single security. They are constructed from "building blocks" of elemental markets like interest rates, foreign exchange, commodities, and equities. The creation of a hybrid security involves analyzing investor objectives, available elemental markets, derivative products, and regulatory considerations to develop a new product that balances these factors. Hybrid securities provide investors and issuers ways to access new opportunities, deal with constraints, and transfer risks between markets.
briefly decsription on insurance sector and customers perception towards insurance and exide life insurance in odisha...
it will help in marketing as well as finance student those who comes from BBA,MBA, and also management studies...
This document provides an analysis of mutual funds with a focus on SBI Mutual Fund. It begins with an introduction to mutual funds and the industry profile. It then discusses the company profile of SBI Mutual Fund, including its board of directors and product portfolio. The document also covers new fund offers from SBI and the author's work experience. It aims to compare various mutual funds through analysis of metrics like returns, risk profile, portfolio, and NAV details. Primary data was collected through interviews to understand investor preferences and behavior. The analysis seeks to identify the most popular fund houses and investment avenues.
This document discusses capital structure and financial markets, specifically the primary market. It defines the primary market as the market for new issuers, where companies can directly issue shares, bonds, or other securities to raise capital. The document outlines the key participants and processes in the primary market in Nepal, including requirements for disclosure, underwriting, and issue procedures that must follow the Company Act and SEBON guidelines. Overall, the primary market provides an important channel for companies and governments to raise funds for investment and growth.
This document discusses insurable interest, which refers to an interest in an item or event that, if lost or damaged, would result in financial loss to the insured party. It provides definitions of insurable interest from various sources and outlines some key points:
- Insurable interest must exist at the time a policy is taken out for life and fire insurance, but only at the time of loss for marine insurance.
- Close relatives, owners, and those with contractual relationships like creditors/debtors typically have insurable interest in lives. Owners and those with pecuniary interests have insurable interest in property.
- Insurable interest prevents gambling by requiring the insured party to have actual risk of financial loss
This document discusses various equity valuation models and concepts. It begins by explaining that common stock represents ownership in a company, with ownership implying control over the company through electing directors. It then discusses the dividend discount model for valuing stocks, including formulas for single-period, multi-period, and perpetual growth models. It also discusses using price multiples like P/E ratios and compares growth companies to growth stocks.
Comparative analysis of insurance market in india on hdfc-life-1-1Flex
This document is a project report submitted by Vivek Kumar to SavitriBai Phule Pune University for the degree of Master of Business Administration. The report is about life insurance and taxation in India, with a focus on HDFC Standard Life Insurance. It includes approval letters for the internship and project, a certificate confirming the original work, and declarations. It also provides acknowledgements, preface, index, and executive summary sections.
Hi guys! I have uploaded the power point presentation for Principles of Insurance, If any one has queries in regards to this topic, you can comment below,
Thanks!
Sanmeet.
The document discusses underwriting, which is an agreement where underwriters take on the risk of purchasing securities from an issuer in the event that the public demand is insufficient. It describes different types of underwriting arrangements and the roles and responsibilities of underwriters. It also outlines the eligibility criteria, registration process, operational guidelines, and record keeping requirements for underwriters according to SEBI regulations in India. As an example, it summarizes that Alibaba's 2014 IPO raised over $20 billion with six major banks serving as equal lead underwriters.
The document summarizes William Sharpe's single index model from 1963, which simplified Harry Markowitz's earlier portfolio selection model. The single index model assumes that only one macroeconomic factor, represented by a market index like the S&P 500, influences the systematic risk of stock returns. It expresses the return of a security as the sum of its expected excess return, its sensitivity to market movements, and random error. This allows estimating portfolio variance and minimum variance portfolios based only on market risk rather than the full covariance matrix.
This document discusses the role of the financial sector in economic performance. It begins by examining an economy without a financial sector, where each household must be self-financing. This leads to inefficient allocation of savings and suboptimal investment outcomes. The introduction of a financial sector that allows households to purchase financial claims from one another can improve both the quantity and quality of investment, increasing overall income and standards of living. Well-regulated financial markets and institutions are argued to further enhance economic performance by mobilizing and allocating resources more efficiently across households and over time.
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.'
What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
These questions are discussed in the new paper by Marek Dabrowski: "Fiscal Sustainability: Conceptual, Institutional, and Policy Issues".
The publication is a part of CASE Working Papers series.
Fire insurance protects people from financial losses caused by fires. It involves sharing fire-related losses incurred by some through contributions to a common fund by all who are exposed to fire risk. Fire insurance pays for losses that are unexpected and occur due to chance. It aims to restore the insured's financial position prior to the loss through the principle of indemnity.
This document discusses key principles of insurance, including insurable interest, subject matter of insurance, assignment of policies, utmost good faith, proximate cause, indemnity, subrogation, and contribution. It defines these terms and explains concepts like when insurable interest must exist, exceptions to free assignment of policies, the duration of utmost good faith, factors limiting indemnity, and conditions required for contribution between insurers.
Nature & scope of insurance and leading insuranceRahulNirol
This document provides an overview of insurance in India. It begins with definitions of insurance and explanations for why insurance exists. It outlines the primary and secondary functions of insurance. It also details the nature and scope of insurance coverage in India. The document lists the leading insurance companies in India for both life and non-life insurance and provides some key details about the largest players, including LIC and Bajaj Allianz. It concludes with a section highlighting claim settlement ratios for the top 15 life insurance companies in India.
This document provides an overview of the Indian financial system. It discusses key components such as financial institutions, financial markets, and financial instruments. It notes that the financial system comprises a variety of intermediaries and markets that transform savings into investments. It also outlines some functions of the financial system like facilitating payments, pooling funds, and managing risk. The document further describes different types of financial institutions, markets, and instruments as well as financial services in India. It concludes by identifying some weaknesses of the Indian financial system.
A study on investors’ awareness level on mutual fund & promotion of sip planProjects Kart
Here are the key tables from the document:
Table 2.1 - Shows total net asset in U.S. Dollars for mutual funds globally from 1980 to 2018.
Table 2.4 - Provides the latest AUM (assets under management) and ranking for top mutual funds in India.
Table 3.1 - Provides a snapshot of different types of mutual fund schemes.
Table 3.2 - Outlines the tax rules for mutual fund investors in India.
Table 3.3 - Defines the statistical measure R-squared.
Table 3.4 - Shows the returns that can be generated through SIP (Systematic Investment Plan) over different time periods.
Table 3.5 - Describ
Insurance FUNDAMENTALS/PRINCIPLES OF GENERAL INSURANCEAijaz Sawar
This document discusses several key principles of general insurance, including:
1) The principle of utmost good faith requires both parties in an insurance contract to disclose all material facts truthfully. This is different from standard commercial contracts where only facts asked about need be disclosed.
2) A material fact is any information that could influence an insurer's decision about accepting a risk or determining the premium. Examples include a building's construction type or a driver's accident history.
3) The insured must disclose all material facts about the subject of the insurance, like storage of flammable goods in a building for fire insurance. Failure to disclose material facts can void an insurance contract.
The Markowitz Model assists investors in selecting efficient portfolios by analyzing possible combinations of securities. It helps reduce risk through diversification by choosing securities whose price movements are not perfectly correlated. The model determines the efficient set of portfolios and allows investors to select the optimal portfolio based on their preferred risk-return tradeoff. Markowitz introduced diversification and showed holding multiple lower-risk securities can reduce overall portfolio risk compared to a single higher-risk security. The model calculates expected returns, variances, and correlations between securities to determine the minimum risk portfolio for a given level of return.
Hybrid securities combine elements from multiple markets into a single security. They are constructed from "building blocks" of elemental markets like interest rates, foreign exchange, commodities, and equities. The creation of a hybrid security involves analyzing investor objectives, available elemental markets, derivative products, and regulatory considerations to develop a new product that balances these factors. Hybrid securities provide investors and issuers ways to access new opportunities, deal with constraints, and transfer risks between markets.
briefly decsription on insurance sector and customers perception towards insurance and exide life insurance in odisha...
it will help in marketing as well as finance student those who comes from BBA,MBA, and also management studies...
This document provides an analysis of mutual funds with a focus on SBI Mutual Fund. It begins with an introduction to mutual funds and the industry profile. It then discusses the company profile of SBI Mutual Fund, including its board of directors and product portfolio. The document also covers new fund offers from SBI and the author's work experience. It aims to compare various mutual funds through analysis of metrics like returns, risk profile, portfolio, and NAV details. Primary data was collected through interviews to understand investor preferences and behavior. The analysis seeks to identify the most popular fund houses and investment avenues.
This document discusses capital structure and financial markets, specifically the primary market. It defines the primary market as the market for new issuers, where companies can directly issue shares, bonds, or other securities to raise capital. The document outlines the key participants and processes in the primary market in Nepal, including requirements for disclosure, underwriting, and issue procedures that must follow the Company Act and SEBON guidelines. Overall, the primary market provides an important channel for companies and governments to raise funds for investment and growth.
This document discusses insurable interest, which refers to an interest in an item or event that, if lost or damaged, would result in financial loss to the insured party. It provides definitions of insurable interest from various sources and outlines some key points:
- Insurable interest must exist at the time a policy is taken out for life and fire insurance, but only at the time of loss for marine insurance.
- Close relatives, owners, and those with contractual relationships like creditors/debtors typically have insurable interest in lives. Owners and those with pecuniary interests have insurable interest in property.
- Insurable interest prevents gambling by requiring the insured party to have actual risk of financial loss
This document discusses various equity valuation models and concepts. It begins by explaining that common stock represents ownership in a company, with ownership implying control over the company through electing directors. It then discusses the dividend discount model for valuing stocks, including formulas for single-period, multi-period, and perpetual growth models. It also discusses using price multiples like P/E ratios and compares growth companies to growth stocks.
Comparative analysis of insurance market in india on hdfc-life-1-1Flex
This document is a project report submitted by Vivek Kumar to SavitriBai Phule Pune University for the degree of Master of Business Administration. The report is about life insurance and taxation in India, with a focus on HDFC Standard Life Insurance. It includes approval letters for the internship and project, a certificate confirming the original work, and declarations. It also provides acknowledgements, preface, index, and executive summary sections.
Hi guys! I have uploaded the power point presentation for Principles of Insurance, If any one has queries in regards to this topic, you can comment below,
Thanks!
Sanmeet.
The document discusses underwriting, which is an agreement where underwriters take on the risk of purchasing securities from an issuer in the event that the public demand is insufficient. It describes different types of underwriting arrangements and the roles and responsibilities of underwriters. It also outlines the eligibility criteria, registration process, operational guidelines, and record keeping requirements for underwriters according to SEBI regulations in India. As an example, it summarizes that Alibaba's 2014 IPO raised over $20 billion with six major banks serving as equal lead underwriters.
The document summarizes William Sharpe's single index model from 1963, which simplified Harry Markowitz's earlier portfolio selection model. The single index model assumes that only one macroeconomic factor, represented by a market index like the S&P 500, influences the systematic risk of stock returns. It expresses the return of a security as the sum of its expected excess return, its sensitivity to market movements, and random error. This allows estimating portfolio variance and minimum variance portfolios based only on market risk rather than the full covariance matrix.
This document discusses the role of the financial sector in economic performance. It begins by examining an economy without a financial sector, where each household must be self-financing. This leads to inefficient allocation of savings and suboptimal investment outcomes. The introduction of a financial sector that allows households to purchase financial claims from one another can improve both the quantity and quality of investment, increasing overall income and standards of living. Well-regulated financial markets and institutions are argued to further enhance economic performance by mobilizing and allocating resources more efficiently across households and over time.
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.'
What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
These questions are discussed in the new paper by Marek Dabrowski: "Fiscal Sustainability: Conceptual, Institutional, and Policy Issues".
The publication is a part of CASE Working Papers series.
Financing for Development: Progress and Prospects 2018Dr Lendy Spires
This document is a report from the Inter-agency Task Force on Financing for Development that assesses progress in implementing the financing strategies agreed upon in the Addis Ababa Action Agenda and progress towards achieving the Sustainable Development Goals. The report finds that while some progress has been made, significant gaps remain. It provides recommendations to address risks, close implementation gaps, and ensure adequate financing for sustainable development. Key recommendations include reorienting policies and investment towards long-term sustainable development objectives, exploring different financing options and capital structures for SDG investments, improving domestic resource mobilization, and strengthening international cooperation and policy coherence.
This document is a thesis that examines the relationship between financial integration, labor market structures, and economic growth in 13 European Union countries from 1980 to 2004. Specifically, it investigates how financial internationalization interacts with different labor market policies and institutions and the combined impact on economic growth rates. The thesis aims to shed light on the dynamics between financial markets and labor markets, and how differences in European labor markets affect this relationship and growth. It uses panel data analysis to test the impact of various measures of financial integration and labor market rigidities on real GDP per capita growth. The results provide insights into expectations for reforms in financial and labor markets and their combined effects on European economic performance.
This document summarizes demand-side findings from a report on estimating the demand for microinsurance in Ethiopia. It provides context on Ethiopia including key economic indicators, the financial sector, agricultural sector, and health sector. It describes the country's insurance regulatory framework and the current formal insurance market. Research findings on the risks faced by Ethiopian households, their risk coping strategies, and attitudes towards insurance are presented. The potential market for microinsurance is analyzed, with short-term opportunities identified in weather-index insurance, health insurance tied to cooperatives or MFIs, and credit life insurance through banks and MFIs. Longer-term opportunities may include standalone life and asset insurance products once distribution networks and financial literacy have expanded
This document is a report from the Inter-agency Task Force on Financing for Development summarizing the current state of financing for sustainable development. It finds financing gaps have increased to $4 trillion annually for developing countries. Progress on reducing poverty and hunger has stalled or reversed in some cases. Many developing economies face high debt burdens, exacerbating financing challenges. The report calls for $500 billion in additional annual investments in sustainable development and climate action through measures like development bank reforms, debt relief for vulnerable countries, and international financial system reforms to better support developing countries in achieving the SDGs. It will help inform discussions at the upcoming Fourth International Conference on Financing for Development.
This document provides a summary and analysis of employment and social developments in Europe in 2014. It finds that while growth has resumed, obstacles to job creation remain, including weak demand, crisis legacies, and recurrent issues. Youth, the long-term unemployed, and low-skilled workers face particular challenges benefiting from growth. Job polarization is ongoing, emphasizing the need for lifelong learning. Household incomes declined in the crisis but are recovering, though poverty risks remain, requiring training, quality jobs, and effective social policies. Social and labor market imbalances can negatively impact GDP growth both domestically and across borders. The crisis had lasting effects on welfare systems, labor market institutions, and society, but countries that invested in human capital
This document discusses pension trends in emerging markets, specifically the rise of defined contribution (DC) pension plans in Central and Eastern Europe and Asia. It notes that these regions have undertaken more extensive pension reforms than Western countries by establishing mandatory DC plans to improve portability and transparency. This will lead to rapid growth of pension assets but also poses challenges regarding financial education, plan design, regulation, and product development to ensure adequate retirement incomes.
The document discusses several key points regarding international trade after the 2008 economic crisis:
1) Many countries introduced various trade-restrictive measures in response to the crisis, such as tariff increases, tighter standards, import licensing, and "buy local" policies.
2) Areas for new trade rulemaking include liberalizing investment and services through free trade agreements as well as developing rules on government procurement and intellectual property rights.
3) The rise of bilateral and regional free trade agreements has led to a multi-layered international trading system with over 170 agreements currently in force worldwide.
The document examines post-crisis challenges to maintaining an open trading system and opportunities for developing rules and liberalizing new areas of
Traditionally, the pension systems of most Western European countries were textbook examples for the dominance of public pay-as-you-go pensions. This has changed.
This document discusses the Capital Markets Union (CMU) initiative by the European Commission to help small and medium enterprises (SMEs) access capital markets. It aims to reduce reliance on bank financing and integrate capital markets across Europe. As part of this effort, the document focuses on reestablishing securitization markets through the introduction of "Simple, Transparent and Standardized" (STS) securitization criteria. This will help diversify funding sources for SMEs in a way that regains investor confidence following the financial crisis. The document provides an overview of securitization and how the forthcoming STS framework could benefit SME financing.
This document provides a methodology for developing scenarios to assess the potential impact of financial technologies (FinTech) on traditional French banks by 2030. It outlines a scenario planning process involving:
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Cognitive Market Research provides detailed analysis of Credit Insurance Market in our recently published report titled, "Credit Insurance Market 2020" The market study focuses on industry dynamics including driving factors to provide the key elements fueling the current market growth. The report also identifies restraints and opportunities to identify high growth segments involved in the Credit Insurance market. Key industrial factors such as macroeconomic and microeconomic factors are studied in detail with help of PESTEL analysis in order to have a holistic view of factors impacting Credit Insurance market growth across the globe. Market growth is forecasted with the help of complex algorithms such as regression analysis, sentiment analysis of end-users, etc.
SME Insurance Market Report 2022
Report Link- https://www.cognitivemarketresearch.com/SME-Insurance-Market-Report
Cognitive Market Research provides detailed analysis of SME Insurance in our recently published report titled, "SME Insurance 2022" The market study focuses on industry dynamics including driving factors to provide the key elements fueling the current market growth. The report also identifies restraints and opportunities to identify high growth segments involved in the SME Insurance market. Key industrial factors such as macroeconomic and microeconomic factors are studied in detail with help of PESTEL analysis in order to have a holistic view of factors impacting SME Insurance market growth across the globe. Market growth is forecasted with the help of complex algorithms such as regression analysis, sentiment analysis of end-users, etc. #SMEInsuranceReport #SMEInsuranceMarket #SMEInsuranceMarketForecast #SMEInsuranceMarketStatus
SME Insurance Market Report 2022
Report Link- https://www.cognitivemarketresearch.com/SME-Insurance-Market-Report
Cognitive Market Research provides detailed analysis of SME Insurance in our recently published report titled, "SME Insurance 2022" The market study focuses on industry dynamics including driving factors to provide the key elements fueling the current market growth. The report also identifies restraints and opportunities to identify high growth segments involved in the SME Insurance market. Key industrial factors such as macroeconomic and microeconomic factors are studied in detail with help of PESTEL analysis in order to have a holistic view of factors impacting SME Insurance market growth across the globe. Market growth is forecasted with the help of complex algorithms such as regression analysis, sentiment analysis of end-users, etc. #SMEInsuranceReport #SMEInsuranceMarket #SMEInsuranceMarketForecast #SMEInsuranceMarketStatus #SMEInsuranceMarket2022
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- By product type, property insurance dominates the market in
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The contribution of the insurance industry to economic growth in italy and europe
1. THE CONTRIBUTION OF THE INSURANCE INDUSTRY
to economic growth in Italy and Europe
2. THE CONTRIBUTION OF THE INSURANCE INDUSTRY
to economic growth in Italy and Europe
3. This report has been written with the help of an Advisory Board composed by:
Advisory Board:
Jacob A. Frenkel (Vice-President A.I.G.)
Gerard de la Martinère (President, AXA and FFSA)
Rainer Masera (Managing Director and President of Italian Financial Institution Group, Lehman Brothers International)
The following groups took part in the research:
ANIA working group:
Dario Focarelli
Sergio Desantis
Carlo Savino
Paolo Zanghieri
Ambrosetti-The European House working group:
Paolo Borzatta
Stefano Bosisio
Alberto Camatini
Michel Greiche
Mauro Maraschi
Stefania Santamaria
Jan Schuppius
Leonardo Zannier
Thanks to:
Juan Badosa Pagés, (President, CESCE), Féliz Bonet Sánchez (Chief Investment Officer, Generali Group Spain), Piero Botto (CEO,
Unicredit Assicura) representing Roberto Nicastro (CEO, Unicredit Banca), Luigi Calvi (Member of the Credit and Finance Committee,
Assolombarda), Raffaele Capuano (Director General, COVIP), Valentina Carlini (Fiscal Affairs, Finance and Corporate Law Department,
Confindustria) representing Francesco Bellotti (President, SME Credit Comitee, Confindustria), Sir Brian Corby (former CEO, Prudential
UK, former President CBI), Gerardo Arósegui (CEO, Aviva Grupo Corporativo) representing Guillermo de la Dehesa (President, Aviva
Grupo Corporativo), Giancarlo Giannini (President and Director General, ISVAP), Pilar González de Frutos (President, UNESPA), Stephen
Haddrill (Director General, ABI), Thomas Hess (Chief Economist of the Unit Economic Research and Consulting, SWISS Re) representing
Roger W. Ferguson (President, SWISS Re), Bertrand Labilloy (Directeur des Affaires Economiques, Financières et Internationales, FFSA),
Roberto Marchan Martín (CFO, CESCE), Massimo Michaud (President and CEO, AXA Italia and Vicepresident ANIA), Monica Mondardini
(CEO, Generali Group Spain), Marcella Panucci (Director Fiscal Affairs, Finance and Corporate Law Department, Confindustria)
representing Francesco Bellotti (President, SME Credit Comitee, Confindustria), Stéphane Pénet (Directeur des marchés DABR, FFSA),
Sandro Salvati (former CEO, Alleanza Assicurazioni and Toro Assicurazioni), Elio Schettino (Director Fiscal Affairs, Finance and Corporate
Law Department, Confindustria) representing Francesco Bellotti (President, SME Credit Comitee, Confindustria), Giuseppe Schlitzer
(Director General, Head of Firms’Growth Project, Confindustria) representing Francesco Bellotti (President, SME Credit Comitee,
Confindustria), Irmfried Schwimann (Head of Unit Financial Services Banking and Insurance, European Commission – Directorate General
Competition), David Snyder (Vice President, AIA) representing Marc Racicot (President and CEO, AIA), Domingo Sugranyes Bickel (Vice
President, MAPFRE) representing José Manuel Martinez (President, MAPFRE S.A.), Elemer Terták (Director Financial Institutions,
European Commission – Directorate General Internal Market), Karel Van Hulle (Head of Unit – Insurance and Pensions, European
Commission – Directorate General Internal Market), Ignazio Visco (Vice Director General, Banca d’Italia), Steven Weisbart (Insurance
Information Institute) representing Robert P. Hartwig (President and Chief Economist, Insurance Information Institute), Claire Wilkinson
(Vice President, Global Issues, Insurance Information Institute) representing Robert P. Hartwig (President and Chief Economist, Insurance
Information Institute).
4. Study commissioned by Associazione Nazionale fra le Imprese di Assicurazione (ANIA).
The opinions expressed are the authors’ and ANIA is not responsible for them.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
5. 4
TABLE OF CONTENTS
Premise: The purpose and subject of the research project ....................... 7
SECTION I
THE ROLE OF THE INSURANCE SYSTEM IN VALUE CREATION
IN ITALY AND EUROPE
I.1 The size of the insurance sector: international comparison .............. 9
I.2 Is the underdevelopment of the insurance industry grounds for concern? 11
I.2.1 How the frame of reference is changing: The “four challenges” of
our time............................................................................................ 11
I.2.2 The insurance industry and the evolution of risk.............................. 12
I.3 How the insurance industry can foster economic growth ........... 13
I.3.1 Thanks to its broad range of business services, the insurance
industry can help improve business transparency and financial
management..................................................................................... 15
I.3.2 Rewarding entrepreneurial aptitude, the insurance industry
encourages more investment and propensity to innovate, hence a
more dynamic market....................................................................... 15
I.3.3 Insurance can ease the pressure on the public system, offering
supplementary social protection ...................................................... 16
I.3.4 The insurance sector can help create liquidity and mobilise savings,
foster financial intermediation, raise and channel substantial financial
resources and facilitate firms’ access to capital................................ 16
I.3.5 The insurance industry helps foster a sensible risk stance on the
part of individuals and firms............................................................. 17
I.3.6 Insurance helps smooth consumption over people’s life cycle......... 17
SECTION II
THE INSURANCE INDUSTRY AND ITS VALUE FOR GROWTH
II.1 The outlook for the social security system................................... 20
II.1.1 The public pension system.............................................................. 22
II.1.2 Supplementary pension plans ......................................................... 24
II.2 Towards a new health care system ........................................... 27
II.2.1 Evolution of the National Health Service in Italy .............................. 27
II.2.2 Public and private health spending in Italy ...................................... 28
II.2.3 The outlook for health and long-term care expenditure................... 30
II.2.4 Towards a more efficient public-private equilibrium........................ 31
II.2.5 The possible role of private health insurance .................................. 32
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
6. 5
TABLE OF CONTENTS
II.3 The insurance industry, small and medium-sized enterprises and the
financial markets: new opportunities for value creation .................. 33
II.3.1 The evolution of the role of small and medium-sized enterprises in
the Italian and European economy .................................................. 33
II.3.2 Interaction between SMEs and the insurance industry in Italy ........ 34
II.3.3 SMEs, the banking system and access to credit.............................. 37
II.3.4 Evolution of the role of the insurance industry in the financial
markets ........................................................................................... 38
II.3.5 Constraints and incentives of the current prudential rules in Italy
and Europe: the Solvency II project................................................. 41
II.4 Natural disasters and terrorism: the key role of public-private partnership 41
II.4.1 Natural disasters and terrorist attacks............................................. 41
II.4.2 The Italian system of insuring against large-scale damage ............. 43
SECTION III
PROPOSALS TO ACTUATE THE POTENTIAL OF THE INSURANCE INDUSTRY
III.1 The pension system ............................................................. 45
III.1.1 Recommendations for European policy-makers............................. 45
III.1.2 Value creation impact simulations.................................................. 47
III.2 Health and long-term care ..................................................... 48
III.2.1 Recommendations for European policy-makers............................. 48
III.2.2 Value creation impact simulations.................................................. 50
III.3 SMEs and financial markets ................................................... 51
III.3.1 Recommendations for policy-makers in Italy and Europe .............. 51
III.3.2 Value creation impact simulations.................................................. 53
III.4 Natural disasters and terrorism ............................................... 55
III.4.1 Recommendations for European policy-makers............................. 55
III.4.2 Value creation impact simulations.................................................. 55
Conclusion: Recommendations and impacts: an integrated vision.............. 57
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
7. THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
8. 7
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
Premise: The purpose and subject of the research project
The context of discontinuity and drastic change affecting national economies in our
time requires Italy like other countries to engage in serious consideration of the chal-
lenges that lie ahead, to ensure an adequate welfare system in the long run together
with substantial and sustainable economic growth.
Sound understanding of the insurance industry and its potential is essential to the
proper design of policies to increase the growth rate and ensure the long-term devel-
opment of the national and European economic and financial system.
A key to fostering the systemic advance of Italy is certainly capitalising on the new
needs of society in many fields (welfare, health, assistance, income security during
and after one’s work career), where practicable transforming them from a cost to gov-
ernment into a growth opportunity for new markets. The insurance industry can act
upon some of these points, provided that we look thoroughly into the role of the State
and the function of services.
Broader and more intelligent recourse to insurance can contribute to the entire health
and welfare system, freeing public resources and managing private resources more
efficiently. A public-private partnership, for instance, could contribute significantly to
the more efficient allocation of resources now drawn from general tax revenue for nat-
ural disaster relief and compensation.
Italian firms could better guard against unexpected risks by using “contingent” capital
that can be acquired via insurance instruments, thus utilising their own risk capital in
more efficient fashion.
Insurance makes the most of the “culture of merit”, in that it rewards the most efficient
agents, i.e. those that manage risk more carefully. Greater resort to insurance would
make no small contribution to enhancing the merit orientation of the entire society.
However, rethinking and capitalising on the insurance industry’s potential contribution
to Italy and to Europe requires a synergistic effort involving national and Community
institutions alike.
This vision, with the opportunities implicit in it, needs to be communicated clearly and
scientifically documented to Italian and European policy-makers, to help them realise
how to use and regulate the insurance industry in a modern and above all efficient
manner.
On these premises, this research project brings out the fundamental contribution that
the insurance industry can make to the achievement of certain objectives of growth
and economic development. It sets forth a number of practical proposals and guide-
lines for coverage of risks, sustainability and growth in four highly topical areas that
have a vital bearing on welfare and growth:
– the pension system;
– health care;
– SMEs and financial markets;
– natural disasters and terrorism.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
9. 8
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
The project thus springs from the need to understand the role of the insurance indus-
try in society and to identify courses of action for the future. This means an operation
of “change management” to achieve a substantial modification of the attitudes of the
Italian public on these themes.
The project intends to bring the important role of the insurance industry to the atten-
tion of market participants and of policy-makers in Italy and in the main European
institutions. The objectives are:
– to describe the state of the insurance industry in Italy and in Europe, referring
where necessary to significant US benchmarks, with an analysis designed to pro-
duce a strategic, competitive picture of the industry and its influence on the rest of
the national economy;
– to bring together the most significant writings of a large number of scholars of the
industry, especially those that enjoy a substantial consensus, in order to produce a
strategic model of the situation;
– to formulate policy proposals that can actuate the potential of the insurance indus-
try nationally and European-wide and to translate these proposals into key mes-
sages to sensitise public opinion and government policy-makers in Italy and
Europe.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
10. 9
I. The role of the insurance system in value creation in Italy and Europe
SECTION I
THE ROLE OF THE INSURANCE SYSTEM IN VALUE CREATION
IN ITALY AND EUROPE
I.1 The size of the insurance sector: international comparison
The importance of the insurance industry is conventionally measured as the ratio of
total premiums to GDP (the insurance penetration index). This is higher than 10% in
the United States, against an average of 8.5% for the EU-25.
14.0% 1995 FIGURE I.1
2004 12.7%
12.0% Relative size of the insurance sector:
10.7% 10.6% Premium income/GDP (%)
10.0% 9.8% 9.4%
8.5% 8.8% 8.6% 8.4%
8.0% 7.5% 7.1%
6.7% 6.8% 7.0%
6.4%
6.0% 5.7%
4.8%
4.0% 3.5% 3.5% 3.3%
2.1%
2.0% 1.6%
0.0% Source: European House-Ambrosetti, based on CEA and
EU25 EU15 EU10 Germany United France Italy Spain Poland Japan United OECD data. The OECD data for Japan and US are for
Kingdom States 1995-2003
The gap is wider in non-life insurance, where the ratio of premiums to GDP is above
6% in the United States and below 3.5% in the EU-25. Excluding auto insurance,
which is compulsory everywhere, the ratio stands at 4.7% in the U.S. and 2.2% in the
EU-25.
7.0% 1995
6.2%
FIGURE I.2
2004
6.0% 5.7% Relative size of the insurance sector:
Non-life premium income/GDP (%)
5.0%
3.9% 4.3%
3.4% 3.8% 3.9%
4.0% 3.4% 3.3%
3.3% 3.3% 3.3%
3.2%
2.9%
3.0% 2.6%
2.1% 2.2% 2.1%
2.0% 1.8% 1.8%
1.5%
1.1%
1.0%
0.0% Source: European House-Ambrosetti, based on CEA and
EU25 EU15 EU10 Germany United France Italy Spain Poland Japan United OECD data. The OECD data for Japan and US are for
Kingdom States 1995-2003
5.0% 1995 4.7% FIGURE I.3
4.5% 2004 Relative size of the insurance sector: Non-life premium
4.0%
4.0% income net of auto insurance/GDP (%)
3.5% 3.2%
3.0% 2.8% 2.8%
2.6%
2.2% 2.3%
2.5% 2.1% 2.2% 2.2%
2.0% 1.9%
2.0%
1.6%
1.5% 1.1% 1.2%
0.9% 1.0% 0.9%
1.0% 0.7% 0.7%
0.5% 0.4%
0.0%
Source: European House-Ambrosetti, based on CEA and
EU25 EU15 EU10 Germany United France Italy Spain Poland Japan United OECD data. The OECD data for Japan and US are for
Kingdom States 1995-2003
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
11. 10
I. The role of the insurance system in value creation in Italy and Europe
Italy is one of the European countries where the insurance industry is least developed,
and especially in the non-life sector, where, excluding auto insurance, premiums come
to just 1% of GDP, less than half the European average and only one third of the ratio
in Germany and Britain.
FIGURE I.4 High
Insurance penetration in Europe (2005). % EU15 average
6
Life sector reserves and non-life, non-auto premium
income as % of GDP 5
Non-life premiums excl. auto/GDP
4
Germany United Kingdom
3
EU15
EU15 average
2 Spain France
1
Italy
0
0 20 40 60 80 100 120 %
Source: European House-Ambrosetti, based on CEA and
Low Low Life sector reserves/GDP High
OECD data
In life insurance, which has grown strongly in Italy in recent years, the situation is
more diversified. Contrary to what many people think, life insurance does not mean
simply death benefits but involves a broad range of instruments and financial prod-
ucts, many of them designed for long-term saving.
The development of the life sector in Italy, which began in the second half of the 1990s,
has resulted in a significant rise in the ratio of premiums to GDP, which came to 5.2%
in 2005, broadly in line with the European average, though below those found in the
United Kingdom (the European leader at 9.4%), Belgium (8.5%) and France (7.1%).
FIGURE I.5 10.0% 9.4%
Life insurance premium income/GDP (%), 2005 9.0% 8.5%
8.0%
7.1%
7.0%
6.0%
5.2%
5.0% 4.9%
4.0%
3.2%
3.0%
2.3%
2.0%
1.0%
Source: European House-Ambrosetti, based on CEA and 0.0%
OECD data United Kingdom Belgium France Italy Netherlands Germany Spain
Despite this rapid recent growth, the degree of maturity of the life insurance market,
as measured by the ratio of mathematical reserves to GDP, is still limited.1 The indi-
1
Insurance companies accumulate mathematical reserves because the obligations of the insured (pre-
mium payments) and those of the insurer (indemnity or benefits) do not correspond in time. The insurer’s
obligation initiates the instant he receives the insured’s premium and lasts to the end of the coverage year.
The mathematical reserve measures the insurer’s obligations vis-à-vis the insured.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
12. 11
I. The role of the insurance system in value creation in Italy and Europe
cator rose significantly between 1996 and 2005, from 6.9% to 24.8% of GDP, but is
still well below its level in other European countries. The data thus confirm that the
Italian insurance market is not yet mature, so there is still scope for growth in the
life sector.
120.0% FIGURE I.6
110.0% 107.3%
Life insurance mathematical reserves/GDP (%), 2005
100.0%
90.0%
80.0%
70.0%
60.0% 55.3%
50.0% 48.3% EU15 average = 49%
42.9%
40.0%
30.0% 29.2%
24.8%
20.0% 13.7%
10.0%
0.0% Source: European House-Ambrosetti, based on CEA and
United Kingdom France Netherlands Belgium Germany Italy Spain OECD data
I.2 Is the underdevelopment of the insurance industry grounds for concern?
To answer this question, we need to see what factors limit the development of the
insurance sector, have an idea of how the context is changing, and reflect on the
industry’s characteristics and potential. A thorough analysis of the reasons for the
relative lack of development of the insurance industry in Italy and, in some specific
sub-sectors at least, in Europe will be provided in the next section. Here, we set
forth the reasons why the insurance industry has a key role to play for the efficient
operation of the economy, contributing to growth and employment. Underdevelop-
ment of the insurance industry can therefore be a factor inhibiting economic
growth.
I.2.1 How the frame of reference is changing: The “four challenges” of our
time
Our epoch is one of constant, drastic change, often swift and unpredictable, which
inevitably affects business models and civil society. The global context is one of
ceaseless, rapid evolution, involving such critical factors as:
– continual scientific and technological advances (often revolutionary);
– accelerated change;
– globalisation;
– the progressive modification of the demographic mix.
In an era in which the only sure thing is uncertainty, these key concepts are a fun-
damental point of reference for framing and understanding the increasingly impor-
tant role of the insurance industry, and consequently grasping the need to begin
rethinking our business and welfare models as a precondition for contributing con-
cretely to robust economic growth and significant value creation in Italy and
Europe.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
13. 12
I. The role of the insurance system in value creation in Italy and Europe
Each one of these factors would well repay thorough study. Here, we examine only
the demographic question. In recent decades many industrial countries, Italy among
them, have registered a significant reduction in birth rates and a substantial length-
ening of life expectancy. In short, while the life cycles of products, processes,
knowledge and skills have shortened, that of men and women has lengthened; and
this has a major impact on the sustainability of the current model of welfare (pen-
sions, health care, social assistance), which in Italy still depends heavily on the pub-
lic sector.
This has happened and is still happening at an intense pace, within a much shorter
time span than that ordinarily required for social adjustment.
I.2.2 The insurance industry and the evolution of risk
The insurance industry is now experiencing a period of strong growth and rapid
change all around the world. This transformation is intimately bound up with the
constant evolution of the very concept of risk engendered by the present frame of
reference, which affects firms and individuals, the private and the public sector
alike.
In market economies, every economic decision is characterised by a risk variable.
That is, risk is an integral, intrinsic feature of business development, innovation and
growth. However, it is a variable that can be controlled, managed or transferred to
third parties. The insurance industry’s success has depended on its ability to manage
and transfer risk, making it an invaluable partner for people who want to develop a
business activity, protect themselves against harmful events, or ensure their welfare in
the future.
Within this logic, the insurance system is called on more and more frequently
where an individual institution – private or public – cannot handle the new dimen-
sions of risk (in connection, say, with disasters, terrorism, the long-run sustain-
ability of the welfare system, or support for troubled small and medium-sized
enterprises).
The foregoing considerations suggest that in the future the insurance industry,
together with other private parties and qualified institutional investors, can – or rather,
must – play a crucial role of concrete support to State intervention on various fronts,
through public-private cooperation (the “win-win” option). Actually, in Italy such syn-
ergy has yet to develop, but in practice it is the obligatory choice.
Insurance, in fact, is one of the most effective instruments ever devised for evaluating,
managing and reducing risk on all levels, with advantages and benefits that are clearly
and directly perceived by the insured themselves. Insurance, finally, fosters the cre-
ation of a climate of legality, requiring transparency in transactions (collection of pre-
miums and payment of compensation) and employing significant resources to curb
insurance fraud.
Thus insurance has great social value and contributes palpably to the provision of
strategic assets for the society as a whole
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
14. 13
I. The role of the insurance system in value creation in Italy and Europe
FIGURE I.7
THE INSURANCE INDUSTRY PROVIDES SIX STRATEGIC ASSETS TO SOCIETY The social value of insurance
EFFICIENCY/
FREEDOM SECURITY HEALTH WEALTH FLEXIBILITY
LEGALITY
To enjoy one’s At home and Greater Support for Making Greater
wealth while at work, investment in the entrepre- economic and efficiency
covered against health care neurial social life less thanks to
against accidents, and access culture dependent on better risk
unexpected crime, fire to better and for the State management;
events and natural services innovation enhanced
disasters legality thanks
to fiscal
transparency
and anti-fraud
action
Source: European House-Ambrosetti
I.3 How the insurance industry can foster economic growth
The insurance industry can make a significant, indispensable contribution to the cre-
ation of value for businesses, for society, and for the country as a system.
THE INSURANCE INDUSTRY’S CONTRIBUTION TO VALUE CREATION FIGURE I.8
The insurance industry’s contribution to value creation
ENCOURAGEMENT OF SOCIAL BETTER FINANCIAL CAREFUL RISK STABILISATION OF
ENTREPRENEURSHIP PROTECTION INTERMEDIATION MANAGEMENT CONSUMPTION
Business insurance Provision of a As an institutional Thanks to risk Guaranteeing stable
frees resources, “second pillar” in investor, the evaluation income over the life
encouraging addition to public insurance sector instruments, cycle, insurers help
additional investment, social protection, helps improve and insurers can provide stabilise consumption,
research significantly reducing develop financial incentives for greater stimulating growth
and innovation and public expenditure markets and facilitates precautions and and stabilising the
thus making the firms’ access sustainable economic cycle
market more dynamic to capital resource use
and competitive
RISK POOLING AND TRANSFER
Source: European House-Ambrosetti
In order for the industry to play a truly important role in support of Italian social and
economic development, two things are necessary:
– overcoming the idea of the central role of the State as responsible for all basic
public services (health, pensions, disaster coverage). Unfortunately, that idea is
still strongly rooted in Italian society;
– changing the traditional popular view of the insurance industry: there is a very
broad lack of awareness of the sector’s role in the economy.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
15. 14
I. The role of the insurance system in value creation in Italy and Europe
For systematic analysis of the strategic instruments upon which the insurance indus-
try can really count, in order to grasp its effective scope for serving the purposes of
economic growth and national development, what follows highlights the close rela-
tionship between the industry’s potential and the guidelines for relaunching the Lisbon
strategy.2
FIGURE I.9
MACROECONOMIC GUIDELINES:
Integrated guidelines for growth and jobs (2005-2008) to
relaunch the Lisbon Strategy 1. To secure economic stability.
2. To safeguard economic sustainability.
3. To promote an efficient allocation of resources.
4. To promote greater coherence between macroeconomic and structural poli-
cies.
5. To ensure that wage developments contribute to macroeconomic stability and
growth.
6. To contribute to a dynamic and well-functioning EMU.
MICROECONOMIC GUIDELINES:
7. To increase and improve investment in R&D, in particular in the private sector
with a view to creating a European knowledge area.
8. To facilitate innovation in all its forms
9. To facilitate the take-up of ICT and construct a true information society.
10. To strengthen the competitive advantages of the industrial base.
11. To encourage the sustainable use of resources and strengthen the synergies
between environmental protection and growth.
12. To extend and deepen the internal market.
13. To ensure open and competitive markets within and outside Europe and reap
the fruits of globalisation.
14. To create a more competitive business environment and encourage private ini-
tiatives to improve regulation.
15. To promote a more entrepreneurial culture and create a supportive environ-
ment for SMEs.
16. To expand and improve European infrastructure and complete agreed priority
cross-border projects.
EMPLOYMENT GUIDELINES
17. To implement employment policies aimed at achieving full employment,
improving quality and productivity at work, and strengthening social and terri-
torial cohesion.
18. To promote a life-cycle approach to work.
2
Recognising the Strategy’s scanty achievements since 2000, the Council of Heads of State and Gov-
ernment decided on a resolute relaunching of the Lisbon Strategy to respond to the challenges of the 21st
century, focusing on two key objectives: economic growth and employment, as laid down in the “Integrated
guidelines for growth and jobs” for EU member states.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
16. 15
I. The role of the insurance system in value creation in Italy and Europe
19. To ensure inclusive labour markets, making work more attractive and making
it financially attractive for job-seekers and disadvantaged people.
20. To improve matching of labour market needs.
21. To promote flexibility combined with employment security and reduce labour
market segmentation, taking the role of the social partners into account.
22. To ensure employment-friendly wage and other labour cost developments.
23. To expand and improve investment in human capital.
24. To adapt education and training systems in response to new competence
requirements.
Source: European Commission
I.3.1 Thanks to its broad range of business services, the insurance indus-
try can help improve business transparency and financial manage-
ment
Insurance enables firms to grow and deal adequately with risk without having to build
up precious reserves of capital. Appropriate insurance is particularly advantageous for
small enterprises, which by nature have limited capital and face greater difficulty in
obtaining access to the financial markets. Without an adequate insurance system, in
fact, they would need very substantial funds to guard against risks, and for many
small and medium-sized companies it would be difficult and highly costly to procure
this capital. In other words, it would be a brake on growth. Instead, an effective, effi-
cient insurance system enables businesses to free resources from coverage against
risk and allocate them to growth, with a clear improvement in financial management.
The insurance system also performs the function of guaranteeing the vitality of the
myriad small and medium-sized enterprises that make up so much of the Italian eco-
nomic fabric, covering a part of business risk and capitalising on the firms’ assets.
I.3.2 Rewarding entrepreneurial aptitude, the insurance industry encour-
ages more investment and propensity to innovate, hence a more
dynamic market
For firms, the pursuit of business growth and innovation means taking risks. This in
turn is strictly related to the intensity of innovation, hence how dynamic the market is.
In economics, the propensity to risk is considered as a scarce resource. In this frame-
work, the intended contribution of the insurance industry can be interpreted on three
different levels:
– promoting the culture of risk management and helping firms to achieve profes-
sional risk management;
– inducing businesses to improve and extend risk prevention measures;
– designing coverage that is better configured for the real needs and characteristics
of firms.
Insurance, that is, performs the task of containing risks for firms. Well developed
insurance markets optimise the allocation of the scarce resource of risk-taking, con-
centrating it in the most innovative, high-potential sectors. Under-insured companies
generally fail to seize new business opportunities, they invest less in innovation, and
their international market presence tends to be weaker.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
17. 16
I. The role of the insurance system in value creation in Italy and Europe
The risk transfer function performed by insurance helps on the one hand to create a
more stable business environment for firms and on the other to reduce the amount of
capital they need for risk protection. This enables firms to free up additional resources
and concentrate on their core business, specifically: increase and improve investment
in R&D (Guideline 7); facilitate innovation, developing and marketing new products
(Guideline 8); extend or consolidate their business in other markets within and outside
the European Union (Guidelines 12 and 13).
Insurance activity can also improve the environment for SMEs (Guideline 15) and
offer a “safety net” in the event of difficulties, thus helping to ensure economic stabil-
ity for households and firms (Guideline 1).
I.3.3 Insurance can ease the pressure on the public system, offering sup-
plementary social protection
There is a mounting debate throughout the industrial world on the need to rethink the
State social security system. In the face of the changing demographic structure in
Europe, with greater life expectancy, the progressive ageing of the population and
lower birth rates, it is necessary to give citizens an adequate social welfare model, i.e.
more efficient, complete and sophisticated services both in health care and in retire-
ment provision. This is an increasingly hard task for the State, which cannot count on
limitless resources.
On health care, consideration needs to be given to striking a new, more efficient bal-
ance between State intervention and the market, one that can favour the development
of firms and the creation of jobs in the sector and at the same time lead to a lasting,
sustainable reduction in the fiscal burden. In this context, the structural support of pri-
vate entities, such as insurance companies, becomes indispensable. They must con-
tribute to the development of a “second pillar” to flank the social protection offered by
the State and capitalise on emerging social needs, where possible converting them
from costs into opportunities for growth.
Finally, by providing supplementary products, the insurance industry can help guaran-
tee stable incomes throughout life (Guideline 18) and mitigate the impact of demo-
graphic change on the public finances, thus safeguarding economic sustainability
(Guideline 2).
I.3.4 The insurance sector can help create liquidity and mobilise savings,
foster financial intermediation, raise and channel substantial finan-
cial resources and facilitate firms’ access to capital
With investments totalling almost €6 trillion, insurance companies are among the
leading institutional investors in Europe. Insurers and businesses have a shared inter-
est in the development of a modern, competitive insurance market that can facilitate
corporate fund-raising and offer a broad range of investment opportunities. Insurance
companies can help create more liquidity and mobilise savings. They can help foster
fund-raising and financial intermediation and can channel massive resources to the
financial market.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
18. 17
I. The role of the insurance system in value creation in Italy and Europe
As an institutional investor the insurance industry thus makes an invaluable contribu-
tion to the development and better working of the capital market. The financial system
in general – and within it the insurance system – plays a fundamental role in several
respects. It supplies long-term funds, smoothing out the effects of demographic
dynamics and increasing investment opportunities.
An impulse to making the industry’s contribution to the financial markets more effi-
cient will come from the planned Solvency II directive, which offers incentives for bet-
ter risk measurement and management by insurance companies and removes the
arbitrary limits on investment in place in many member states.
Finally, a sounder, more dynamic, competitive financial market also contributes to
sustainable economic growth (Guideline 4).
I.3.5 The insurance industry helps foster a sensible risk stance on the part
of individuals and firms
The evaluation of risks made by the insurance industry is reflected essentially in the
costs and terms of insurance policies. In this way, the insured have an incentive to
lower their risk profile, to prevent or at least limit the potential loss. This encourages
virtuous conduct, which results in the responsible and sustainable use of resources,
public and private alike. This virtuous process also affects investment decisions, con-
tributing to the sustainable growth of the economy and the advance of the society. In
summary, insurance companies not only provide a more stable socio-economic envi-
ronment in which to do business but also help sensitise operators to risk manage-
ment.
In the same way, differentiated contract terms for policies are decisive factors in
households’ decisions as well, helping to foster more intelligent attitudes, oriented to
the sustainable use of the resources available (Guideline 11).
I.3.6 Insurance helps smooth consumption over people’s life cycle
Consumption, which accounts for two thirds of GDP, is one of the main drivers of eco-
nomic growth for the country and of welfare for individuals. But worries over the sus-
tainability of today’s model of welfare put pressure on earnings and therefore house-
hold consumption.
Through social protection products (health insurance and workplace accident poli-
cies), the insurance industry offers risk coverage against adverse events, provides
economic resources in case of necessity and permits the stabilisation of income levels
over the course of the individual’s life cycle. The result is greater stability in consump-
tion.
In a word, the insurance industry can therefore contribute significantly to a life-cycle
approach to work (Guideline 18).
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
19. THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
20. 19
II. The insurance industry and its value for growth
SECTION II
THE INSURANCE INDUSTRY AND ITS VALUE FOR GROWTH
As an institutional investor and with its expertise in risk evaluation and management,
the insurance industry is a key actor, one that can work alongside the public sector in
an effective, synergic relationship to support the growth of the economy in Italy and,
more broadly, in Europe.
The scope for action by the insurance industry is vast. This study focuses on four
areas of fundamental importance for the country’s prospective welfare and growth:
pensions, health, small and medium-sized enterprises (SMEs) and the financial mar-
kets, and natural disasters and terrorism. In these four areas the insurance industry
can concretely demonstrate its value for the growth of the economy and of employ-
ment.
FIGURE II.1
The insurance industry and its value for growth
Pensions
SMEs and
Health
financial markets
Natural
disasters and
terrorism Source: European House-Ambrosetti
Following the overview of the insurance environment in Italy and Europe, the present
section focuses on the four fields mentioned above, adopting a single interpretative
key to cite evidence highlighting the magnitude of each phenomenon, identify critical
issues and the challenges that lie ahead.
Section III will concentrate on recommendations for policymakers in Italy and Europe,
setting out, for each area, concrete suggestions, proposals and guidelines aimed at
releasing the insurance industry’s potential on behalf of growth and development in
Italy (and Europe). It also contains simulations of the possible consequences for value
creation. These rough-and-ready estimates, for which no claim of scientific rigour is
asserted, measure the resources that could be freed up for new investment and the
savings in public expenditure that could derive from greater penetration of the insur-
ance industry in the target areas of intervention.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
21. 20
II. The insurance industry and its value for growth
II.1 The outlook for the social security system
The social security system is one of the pillars of the modern state, guaranteeing an
adequate protection for people who have ended their working career because of age or
are temporarily or permanently unable to continue to work owing to sickness or acci-
dent. In such circumstances workers are entitled to receive a monthly payment of an
amount that should allow them to maintain a standard of living similar to that they
enjoyed during their working years.
Social security is a State-centred system. The main features of the public pension (or
basic pension) system can be summarised as follows:
1. registration is mandatory for all workers;
2. to be eligible for social security benefits, workers must pay a sum of money, which
for payroll employees is withheld from wages (“social security contributions”).
Contributions are also paid in by employers;
3. the basic pension system is financed on a pay-a-you-go basis. Current workers
pay in the contributions needed to finance pension disbursements to retirees.
In the past decades demographic, social and macroeconomic factors have combined
to drive up the ratios of pension expenditure to GDP. In Italy pension expenditure rose
from 5% of GDP in 1960 to 13% in 1990 and continued to gravitate upwards to
14.7% in 2004.
FIGURE II.2 16%
Total pension expenditure in Italy as a
% of GDP (1960-2004) 14%
12%
10%
8%
6%
Source: European House-Ambrosetti, based on Eurostat 4%
and Bank of Italy data 1960 1965 1970 1975 1980 1985 1990 1995 2000
Pension expenditure has increased in all the countries of Europe. However, its ratio to
GDP in Italy is higher than the European average (12.3% for the EU-15) and than in
the other major European countries (13.3% in Germany, 13.1% in France, 10.7% in
the United Kingdom and 9.2% in Spain).
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
22. 21
II. The insurance industry and its value for growth
16% FIGURE II.3
Total pension expenditure in selected EU countries as a
14.7%
% of GDP (2004)
14% 13.3%
13.1% 12.9% 12.6%
EU-15 average, 12.3%
12%
11.1%
10.7%
10% Source: European House-Ambrosetii, based on Eurostat
9,2%
data, 2007
8% N.B. The data includes long-service pensions, early long
Italy Germany France Netherlands Sweden Belgium United Spain service pensions, disability pensions and early retirement
Kingdom benefits for occupational disabilities
One must also bear in mind that Italy’s ratio of public debt to GDP is by far the highest
in the European Union.
FIGURE II.4
110% 106.8% Public debt in selected EU countries as a
100% % of GDP (2004)
89.1%
90%
80%
67.9%
70% 63.9%
60%
48.7% 46.9%
50% 45.5%
39.9%
40%
30%
20%
10%
0%
Italy Belgium Germany France Netherlands Sweden United Spain Source: European House-Ambrosetti, based on Eurostat
Kingdom data, 2007
In order not to jeopardise the sustainability of the public finances, in the past fifteen
years the governments of many European countries, including Italy, have put in place
corrective measures aimed at curbing pension expenditure. Correction has been
achieved by gradually modifying pension eligibility requirements, pension benefits or
both.
With a view to ensuring adequate income protection for pensioners, many countries
have also adopted policies to foster the development of supplementary pension plans
and the consequent creation of a system in which the monthly amount of benefits a
pensioner receives consists of two distinct components:
– a public pension;
– a supplementary, private pension.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
23. 22
II. The insurance industry and its value for growth
II.1.1 The public pension system
The reform of the social security system, decided in Italy over the last fifteen years,
has involved an increase in the age at which workers are entitled to basic benefits and
a decrease in benefit amounts, especially for future pensions.
Benefits have been reduced through changes in the pension calculation method. In
particular, depending on when a person began to work, the method can be Pay As
You Go (based on the earnings received by the worker during his working years) or
fully funded (based on the contributions paid in and set aside on notional
accounts).1 The earnings-based system applies to workers with at least 18 years of
contributions as of 31 December 1995, the contributions-based system to those
who began to work from 1 January 1996 onwards. For workers with fewer than 18
contribution years as of 31 December 1995, benefits are calculated with a “mixed
system” (earnings-based up to 31 December 1995 and contributions-based there-
after).
According to some forecasts,2 for the public pension system the income replacement
rate – that is, the ratio of a worker’s pension benefit to his last earnings – will decline
from 67.3% in 2000 to 48.1% in 2050 for private-sector employees aged 60 with 35
years of contributions. The effects on the spending power of future pensions can be
easily imagined.
FIGURE II.5 80%
Forecast replacement rate of basic pension for private- 67.3% 67.1%
70%
sector employees aged 60 with 35 years of contributions 56.0%
60%
(% of final earnings) 49.6% 48.5% 48.1%
50%
40%
30%
20%
10%
Source: European House-Ambrosetti, based on Rapporto 2000 2010 2020 2030 2040 2050
di strategia nazionale sulle pensioni, prepared in 2002 by
Ministero del Lavoro e delle Politiche Sociali Income replacement rate of basic pension for private-sector employees
Despite the reduction in future public pension amounts and the gradual increase in
retirement age, the forecasts made by the State Accounting Office at the end of 2006
indicate that the ratio of pension expenditure to GDP will keep on rising until it peaks
1
Since the public pension system is financed on a pay-as-you-go, not a funded basis, the contributions
periodically paid in by the worker are not actually banked or accumulated but are used instead to pay for cur-
rent pensions. However, they are taken into account for the purpose of determining the worker’s benefit
amount upon retirement.
2
Rapporto di strategia nazionale sulle pensioni, a 2002 pension reform strategy report prepared by the
Ministry of Labour and Social Policies.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
24. 23
II. The insurance industry and its value for growth
at 15.1% in 2040, when the system will be almost entirely contributions-based; it will
decline thereafter, to 13.8% in 2050. The projected “pension hump” is depicted in the
figure below.3
16% FIGURE II.6
Pension expenditure as a percentage of GDP
15.1% (2005-2050): the pension “hump”
15% 14.8%
14.3% 14.2%
14.1%
14% 13.8%
Source: European House-Ambrosetti, based on data
13% published by the State Accounting Office in its national
2005 2010 2020 2030 2040 2050 scenario, December 2006
The State Accounting Office forecasts assume unchanged legislation, that is to say
they take into account both the enacted “big step” raising the minimum retirement age
to 60 for everyone as of 1 January 2008 and the ten-yearly revision, mandated by Law
335/1995, of the coefficient for converting contributions accrued under the contribu-
tions-based system into benefits. It does not take account of the legislation passed in
2007 or of possible future measures to boost low pensions.
The forecasts may require far-reaching revisions if the pension rules are changed as a
result of negotiations with the social partners and parliamentary action, and in particu-
lar if it is decided not to update the conversion coefficients.
Over-65s make up a considerable part of the population. From 6% at the turn of the
twentieth century, their share has risen to nearly 25% and, extrapolating the cur-
rent trends, will reach 29% in 2020 and 47% in 2050 (Eurostat projections, base
2004). Even today, there are more people over age 65 than people under age 20; by
2050 there will be more than three times as many (25 million and 8 million respec-
tively).
In addition, according to Istat, the life expectancy of the average 65-year-old male
lengthened from 14.2 years in 1992 to 18.5 years in 2005.
The prospects, then, are for pension expenditure to place an even heavier burden on
the public finances.
3
The State Accounting Office forecasts include disability, old-age and survivors pensions, net of
lump-sum benefits and non-contributory welfare pensions. Unlike the data used in the international com-
parison (which Eurostat classifies in terms of an old-age function), the State Accounting Office does not
include some non-pension benefits, e.g. benefits deriving from the interruption of an employment rela-
tionship.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
25. 24
II. The insurance industry and its value for growth
II.1.2 Supplementary pension plans
From this angle, private pension plans are an indispensable “corrective” instrument to
provide a substantial supplement to the benefits guaranteed by social security and to
ensure future pensioners adequate total retirement income.
In a broader perspective, supplementary pensions are a fundamental instrument that
can bring major, concrete advantages to different actors.
FIGURE II.7 INDIVIDUAL ECONOMIC SYSTEM
Supplementary pension provision and its advantages ADVANTAGES
More scope for adapting Funded systems are better
pension cover to the needs able to withstand demographic
of individual workers STATE change
Higher returns on Development of financial markets:
contributions than delivered Diversification of longevity risk accumulated savings are invested
in the past by company’s on the financial markets in the
severance pay funds Adjustment of the public finances and quest for higher returns
tax burden
Ensured long-term savings, Impetus to the economy:
Creation of a more efficient system of
generally up to retirement age. competition between financial
social protection
Long-term savings are more institutions offering pension plans
Source: European House-Ambrosetti, based on data in able than traditional savings Increase in public resources for improves portfolio allocation,
to allow workers to enjoy infrastructure construction, to the benefit of plan members,
Giancarlo Morcaldo, “Pensioni, necessità di una riforma”, adequate living standards technological innovation and human overall resource utilisation and
7 March 2007 after retirement capital formation economic growth
Recent years have seen a general growth in supplementary pension plans throughout
Europe in terms of assets under management and number of participants, with a slow
but steady change in the composition of households’ financial portfolios.
In the euro area, life insurance reserves (which include both life policies proper and
pension funds) rose from 21.2% of households’ total financial portfolio in 1997 to
25.5% in 2006.4
The European Central Bank estimates that investments in life insurance policies and
pension funds were equal to about 6% of households’ disposable income in 2006.
In Italy, participation in supplementary pension plans is voluntary and the eligibility
conditions for participation and to receive benefits are established by law.
The plans operate on a funded basis, in which the worker and the employer pay in
amounts (contributions) that are invested by fund managers on the financial market.
Essentially, there are three types of supplementary pension plan:
– occupational pension funds, instituted by collective agreements negotiated by
labour unions and trade associations at national level or by labour and manage-
ment at company level;
4
European Central Bank, Monetary Statistics 2006.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
26. 25
II. The insurance industry and its value for growth
– open pension funds, available to all workers and promoted by financial institutions
authorised by law to manage pension funds, i.e. banks, investment firms, asset
management companies and insurance companies;
– individual pension plans, an insurance-type product.
Workers can enrol in supplementary pension plans individually or, in the case of pen-
sion funds, collectively. The new legislation (Legislative Decree 252/2005), whose
entry into force was moved up to 1 January 2007,5 establishes equivalent treatment of
the different types of supplementary plan.
Despite the growth trend, documented by the Figure II.8, supplementary pension
plans have yet to attain the scale needed to transform the Italian pension system into a
“multi-pillar” model. According to Covip, the pension fund supervisory authority, at
the end of 2006 13.9% of those eligible to enrol in occupational pension funds had
actually signed up.
% Change FIGURE II.8
1,700
1.700
1.700 2,129
2.129
2.129 2,362
2.362
2.362 2,567
2.567
2.567 2,731
2.731
2.731 3,004
3.004
3.004 3,259
3.259
3.259
11% Number of members of supplementary pension plans
100% - (thousands)
219 390
90% 555 685 From 2001
592
818 948 34%
80%
613
70% 614
611 602
60% 658 666 2%
223
287
50% 338 365 382 382 440
40% 12%
30%
886
886 1,010
1.010
20% 1,021
1.021 1,038
1.038 1,063
1.063 1,146
1.146 1,205
1.205
5%
10%
0%
2000 2001 2002 2003 2004 2005 2006 CAGR*
Source: European House-Ambrosetti, based on Bollettino
Closed pension funds Open pension funds Pre-existing pension funds Individual pension plans Statistico Mefop, No. 25, June 2007
* CAGR: Compound Average Growth Rate
A variety of factors may be responsible for the as yet limited development of supple-
mentary pension plans in Italy, including:
– insufficient awareness, especially among younger workers, of the radical changes
under way;
– scant knowledge on the part of workers about the pension system in general and
their own pension position in particular;
– the greater confidence workers have in keeping accruing severance pay with their
company than in investing it in pension funds and the financial market;
– the strong asset base of Italian households.
Savings, accumulated severance pay, buildings and annuities of various kind are con-
sidered “improper” but effective means of supplementing the basic pension, not least
in view of the scant resources allocable to supplementary pension plans owing to the
5
The entry into force of Legislative Decree 252/2005, originally scheduled for 1 January 2008 for
both its general provisions and its tax aspects, was advanced to 1 January 2007 by Legislative Decree
279/2006. The contents of Legislative Decree 252/2005 were consequently inserted into the text of the Fi-
nance Law for 2007.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe
27. 26
II. The insurance industry and its value for growth
high rate of contributions to the compulsory pension fund for private-sector employ-
ees (33%) and to severance pay funds (6.91%).
Legislative Decree 252/2005 allows employees to assign accruing severance pay to
one of the different forms of supplementary pension provision with an explicit,
irrevocable declaration. Where a worker makes no declaration, accruing pension
pay is assigned as provided for by contracts or collective agreements, including
those made at company level. An employee may transfer his own supplementary
pension position to any other form of supplementary plan, but not back to his
company’s staff severance pay fund. As regards the possibility of continuing to
receive his employer’s contribution to the accruing flow, the worker’s freedom of
choice is restricted to the procedures established by contracts or collective agree-
ments.
To encourage workers to enrol, Legislative Decree 252/2005 expands the tax
deductibility of contributions and lowers the taxation of benefits.
Initial estimates as of 30 June 2007 counted just under 400,000 new explicit regis-
trants with occupational funds, i.e. about 4% of the potential new members. Most
employees, and three quarters of those who made an explicit option, had decided not
to enrol in a supplementary plan. Some observers feel it is highly unlikely that the tar-
get of 40% for explicit options can be reached by the end of the year, even counting
new registrants in open and individual retirement schemes.6 If this figure is reached, it
will only be thanks to tacit agreement, the data on which will not be available until the
end of September.
The projections for the evolution of the Italian pension system and the crucial
importance of supplementary pension provision suggest that closer attention
should be paid to the role that private-sector actors, first and foremost the insur-
ance industry, can play in helping to build a serene future for pensioners by guar-
FIGURE II.9 2,900
2.900 2,954
2.954 7,614
7.614 30,546
30.546 44,014
44.014
Supplementary pension plans: assets by type
100%
of intermediary, 2005 90%
80%
70% 60%
60% 61%
60% 76%
85%
85%
50% 100%
100%
40%
30%
20% 40%
40% 39%
10% 24%
15%
15%
0%
Individual Open pension Pre-existing Occupational Total
pension plans funds pension funds pension funds supplementary
pension plans
Source: European House-Ambrosetti, based on Fact-pack
Previdenza ANIA, January 2007, and Bollettino Statistico
Mefop, No. 25, June 2007 Insurance companies Other intermediaries
6
See among others Marcello Messori and Tito Boeri, “Previdenza complementare: un decollo senza I
giovani”, 6 August 2007, www.lavoce.info.
THE CONTRIBUTION OF THE INSURANCE INDUSTRY to economic growth in Italy and Europe