Allianz is going down a new road: for the first time, the largest German financial service provider has called on politicians, academics and society to actively discuss all aspects of "Living Longer," and invited representatives of the above groups to its Berlin offices to do so.
"It is positive that we are living for longer and longer, but this leads to significant political, economic and social challenges," says Maximilian Zimmerer, CEO of Allianz Lebensversicherungs-AG, when asked to explain why the new "Living Longer" forum was created. "We want to use this dialog to critically analyze solutions to the issues which are arising," he continues.
In his opinion, such a forum has many advantages. Through dialog with representatives from politics, academia and society as a whole, Allianz can more accurately identify what issues need to be addressed as a result of demographic change. At the same time, as an integrated financial service provider that combines all components of old-age provision under one roof, the company offers efficiency in providing solutions. Thus Zimmerer is convinced that "all participants will benefit from the Living Longer forum."
Tackling demographic challenges together
Living Longer forum in Berlin: Allianz opens dialog with politicians, academics and society.
Maximilian Zimmerer: "It is positive that we are living for longer and longer, but this leads to significant political, economic and social challenges"
Old-age provision – guarantees indispensable
The effects of rising life expectancy are manifold. For this reason, several different workshops will be held to discuss the various issues that arise in the areas of old-age provision, assets, healthcare and real estate.
"In the next few years, demand for new products and services tailored to the needs of senior citizens will change the face of business significantly, and not just for financial service providers," explains Zimmerer. Due to demographic change and rising healthcare costs, a swift increase in the proportion of old-age and healthcare provision secured by capital stock is needed, he continues. In addition to this, the opportunities offered by the capital markets must be more fully exploited, while at the same time providing security. Because one thing is very clear, and that is that old-age provision secured by capital stock must provide guaranteed life-long pension payments. Only in this way can people rely on their pensions, emphasizes the CEO of the market leader in private and company pensions.
However, continues Zimmerer, new services providing help in the home and medical care are also necessary to enable people to stay in their own homes when they become older. Moreover, there needs to be greater focus on saving and financing models which provide the necessary funds for senior citizens to make their own homes more senior friendly or to move into assisted-living accommodation.
"In the next few years, demand for new products and services tailored to the needs of senior citizens will change the face of business significantly, and not just for financial service providers," explains Zimmerer. Due to demographic change and rising healthcare costs, a swift increase in the proportion of old-age and healthcare provision secured by capital stock is needed, he continues. In addition to this, the opportunities offered by the capital markets must be more fully exploited, while at the same time providing security. Because one thing is very clear, and that is that old-age provision secured by capital stock must provide guaranteed life-long pension payments. Only in this way can people rely on their pensions, emphasizes the CEO of the market leader in private and company pensions.
However, continues Zimmerer, new services providing help in the home and medical care are also necessary to enable people to stay in their own homes when they become older. Moreover, there needs to be greater focus on saving and financing models which provide the necessary funds for senior citizens to make their own homes more senior friendly or to move into assisted-living accommodation.
Ulrich Rumm: "What criteria do we use to decide which medical services are necessary?"
Health – Deficit of 700 billion euros in funds for healthcare in old age
Not demographic change alone, but above all the combination of this change and advances in medical technology has resulted in rapidly increasing expenditure on healthcare and nursing care. The cost of care rises disproportionately with age: in 2002, while care cost an average of 1,510 euros per capita for the 15 to 45 age group, it rose to 6,740 euros per capita for the over 65s (Source: Federal Office of Statistics). And this trend will only continue in the future. Moreover, the proportion of the population who are over 65 will grow from just over 18 percent today to more than 29 percent by 2040.
In a few years, the current pay-as-you-go financed state healthcare system will have reached its financial limits. Thereafter, the only way to avoid intolerably high contribution rates will be through rationing or removing services.
"Compulsory insurance schemes which provide healthcare for all simply cannot finance every treatment which is medically possible," says Ulrich Rumm, CEO of Allianz Private Krankenversicherungs-AG. The question is thus, "How can we ensure that all patients have access to the necessary medical services, and what criteria do we use to decide which services are necessary?"
Private health insurers have been able to mitigate the effects of the demographic transition by amassing capital-secured reserves for old age. However, nine out of ten insured persons are insured through the state system, and when extrapolation is used to calculate the sum needed to be relatively sure that the demography-induced increased costs of healthcare in old age can be covered, there is a deficit of approximately 700 billion euros in state coffers.
"It is not possible to change the system overnight," says Eckhard Knappe, Professor of Healthcare Economics at the University of Trier, "but we need to move fast to make use of the limited amount of time we have available and introduce capital coverage step by step." This could be done by introducing a capital-secured supplementary insurance scheme for individual services or through gradually building up the amount of capital coverage in the current system to at least 30 percent.
"A further significant advantage of capital coverage over rationing services would be the opportunity to use the healthcare growth market as an engine for developing the German economy," said Michael Heise, Chief Economist at Allianz Group. "The increasing demand for new senior-friendly healthcare products and services could be a real opportunity for Germany as a marketplace for services," agrees Rumm.
In a few years, the current pay-as-you-go financed state healthcare system will have reached its financial limits. Thereafter, the only way to avoid intolerably high contribution rates will be through rationing or removing services.
"Compulsory insurance schemes which provide healthcare for all simply cannot finance every treatment which is medically possible," says Ulrich Rumm, CEO of Allianz Private Krankenversicherungs-AG. The question is thus, "How can we ensure that all patients have access to the necessary medical services, and what criteria do we use to decide which services are necessary?"
Private health insurers have been able to mitigate the effects of the demographic transition by amassing capital-secured reserves for old age. However, nine out of ten insured persons are insured through the state system, and when extrapolation is used to calculate the sum needed to be relatively sure that the demography-induced increased costs of healthcare in old age can be covered, there is a deficit of approximately 700 billion euros in state coffers.
"It is not possible to change the system overnight," says Eckhard Knappe, Professor of Healthcare Economics at the University of Trier, "but we need to move fast to make use of the limited amount of time we have available and introduce capital coverage step by step." This could be done by introducing a capital-secured supplementary insurance scheme for individual services or through gradually building up the amount of capital coverage in the current system to at least 30 percent.
"A further significant advantage of capital coverage over rationing services would be the opportunity to use the healthcare growth market as an engine for developing the German economy," said Michael Heise, Chief Economist at Allianz Group. "The increasing demand for new senior-friendly healthcare products and services could be a real opportunity for Germany as a marketplace for services," agrees Rumm.
Markus Rieß: "The Germans do not save too little, the main problem is that most of them choose the wrong savings vehicles"
Assets – Germans choose the wrong instruments for saving
At more than 4 trillion euros, that is more than 100,000 euros per household, the financial assets of people in Germany are not insignificant. However, almost 40 percent of these assets are held as low-interest bank or sight deposits, while only 7.3 percent of Germans (Source: Deutsches Aktieninstitut) hold any shares.
"The Germans do not save too little, the main problem is that most of them choose the wrong savings vehicles," explains Markus Rieß, Spokesman for the Management Board of Deutscher Investment Trust (dit). The growing deficit in the pension coffers and the rising costs of healthcare are now increasing the need for investments that yield higher returns.
Asset managers aim to compensate for the higher risk involved in investments with higher returns by means of flexible investment in the international capital markets, a wide product range and through new products offering life-cycle models. The longer the period of investment, the lower the risk, therefore those who begin to save early can fully exploit the potential to receive higher returns.
"The Germans do not save too little, the main problem is that most of them choose the wrong savings vehicles," explains Markus Rieß, Spokesman for the Management Board of Deutscher Investment Trust (dit). The growing deficit in the pension coffers and the rising costs of healthcare are now increasing the need for investments that yield higher returns.
Asset managers aim to compensate for the higher risk involved in investments with higher returns by means of flexible investment in the international capital markets, a wide product range and through new products offering life-cycle models. The longer the period of investment, the lower the risk, therefore those who begin to save early can fully exploit the potential to receive higher returns.
Real estate – Main component of German people's asset portfolios
Real estate is the main component of German people's asset portfolios, yet the home ownership rate there is lower than in most other European countries. With respect to real estate as a capital investment, the main question is what the effect of an aging and declining population will be: Is real estate still an effective way of providing for old age?
Although the population is declining, the number of households and the demand for living space continues to grow. "Prices in the different regions will develop very differently, however," predicts Kai Fischer, Head of Mortgages at Allianz Lebensversicherungs-AG. "The escape to the countryside is coming to an end, living space in metropolitan areas is becoming attractive again, and in these areas, location is key."
In addition, both population aging and the increasing mobility of young people will change the requirements of real estate and thus of financial service providers. Demand for saving and financing models that enable senior citizens to convert their homes will increase significantly, as will demand for services providing help in the home and medical care. People who receive support in running their homes, for example help with their shopping or DIY, or who receive medical care can live in their own homes for longer and postpone the expensive move into a retirement home. The mobility of young people will mean that houses and flats change hands more often, particularly in metropolitan areas, leading to considerable price fluctuations, mainly dependent on location." In the long term, the trend will be away from new-build measures and toward financing and converting existing real estate," says Fischer.
Although the population is declining, the number of households and the demand for living space continues to grow. "Prices in the different regions will develop very differently, however," predicts Kai Fischer, Head of Mortgages at Allianz Lebensversicherungs-AG. "The escape to the countryside is coming to an end, living space in metropolitan areas is becoming attractive again, and in these areas, location is key."
In addition, both population aging and the increasing mobility of young people will change the requirements of real estate and thus of financial service providers. Demand for saving and financing models that enable senior citizens to convert their homes will increase significantly, as will demand for services providing help in the home and medical care. People who receive support in running their homes, for example help with their shopping or DIY, or who receive medical care can live in their own homes for longer and postpone the expensive move into a retirement home. The mobility of young people will mean that houses and flats change hands more often, particularly in metropolitan areas, leading to considerable price fluctuations, mainly dependent on location." In the long term, the trend will be away from new-build measures and toward financing and converting existing real estate," says Fischer.
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