Financial Crisis Focuses Need for Long-Term Financial Protec

(BestWire Services Via Acquire Media NewsEdge) Sufficient financial support and planning for retirement has been viewed as a critical factor in the lives of many in Asia amid the current global financial woes.

Most affluent Asians start planning for their retirement earlier, at the age of 36, compared with 39 a year ago, said Axa Asia Pacific [86639] in a recent survey conducted in eight Asian markets with 2,707 respondents.

According to the survey, satisfaction among Asian with their retirement preparation dropped to 28% from 32% in 2007, indicating awareness of more challenges in retirement planning during economic difficulties. However, only 24% of the respondents said they are willing to increase their savings for retirement despite the added economic challenges, said Axa.

"Mass affluent Asians have been shaken up by the global economic gloom and they are now acutely aware that they need to focus on some life factors, which they might have paid less attention to in the past years when the economy was much better," said Rebecca Chan, regional chief marketing officer at Axa.

Back to Basics The economic downturn has brought about the "back-to-basics" approach for life insurance products, shifting from high-risk and high-return investment-linked products to traditional life protection or life products combined with long-term savings, said Chan. This demonstrates a dramatic shift from aggressive to conservative strategies among affluent Asians in the region.

In the past five years, Chan said people looked more into the investment perspective of life insurance products when unit-linked products sold very well. In India, people had viewed the nature of life insurance as investment products because of the popularity of investment-linked products. Now, Chan said Asians have become more "down to the earth," with the focus on life protection.

Most affluent Asians have become less optimistic because of the current economic turmoil. Their life outlook index for satisfaction dropped to 69 from 71.6 in the region, according to Axa's survey in China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

China and Hong Kong saw the biggest drop in life outlook satisfaction in the past year, sliding to 66.9 from 75.1 and 60.6 from 67.7, respectively.

In light of a bleaker economic outlook, most Asians realize the fundamental importance of financial matters and long-term financial savings. But the survey found only some 35% of respondents are willing to trade off their current living standard to achieve earlier retirement. About 33% of the respondents said they will purchase a life insurance product in the coming year.

Individual Burden Axa regional chief operating officer Keith Perkins said the findings "at some point really worry us" as there are gaps in what they want or should do. "It is important for Asians to be aware that in the Asia-Pacific, there are limited retirement provisions from the governments and they need to start to build their retirement fund early." In the current market situation, Perkins noted Asians should start to "seriously increase savings" for the longer term. "There is no question that those mass affluent Asians who start late in retirement planning will need to extend their retirement age in order for them to have enough funds to continue with their current living standards when they retire," said Perkins.

Social and economic trends have increased the need for private retirement financing solutions, said Swiss Re in a recent Sigma report. Pension systems are supported by three pillars: a mandatory government-run system, occupational pension plans and voluntary personal savings through annuity and insurance.

Determining how much to save for retirement is challenging, said Swiss Re. In general, life insurers are "well-positioned" to offer financial solutions such as various types of annuities, long-term care insurance and reverse mortgages in different markets.

Insurance has taken on an increasingly important role in managing occupational pension schemes and offering voluntary savings products, while government provides a basic level of protection, according to Swiss Re. In Japan, the rapid growth of the variable annuity market was facilitated by deregulation on bancassurance. As a result, total variable annuity assets grew to US$138 billion in 2008 from US$10 billion in 2003.

Education and government initiatives should play an important role in financial planning and savings for retirement in the long run, said Perkins.

Government's Role Government is in a favorable position to enforce transparency and it can offer tax incentives and implement legal measures for private and public pension systems, according to Swiss Re.

In Australia, the tax-free benefits introduced in 2007 for certain policyholders of superannuation, a private retirement savings system, lifted superannuation premiums by 66% in the second quarter of 2007. In Taiwan, the enforcement of labor pension legislation in 2005 confirmed the status of annuity products as a supplement retirement mode. Total annuity premiums stood at US$4.8 billion in 2007, growing to 10 times the market size five years ago.

The acceptance of capital market insurance solutions is determined by the success of investor education, transparency, liquidity and development of good benchmarks, according to Swiss Re.

"Irrational human behavior" is one key challenge for life insurers, governments and plan sponsors. "Many people realize the need to better prepare for retirement yet fail to do so. Many save too little, invest inappropriately, or fail to insure when it makes sense to," said Swiss Re.

Therefore, product design improvements can make occupational pension scheme and private annuity plans "better-suited" to retirees, said Swiss Re.

While governments should have strong incentive to foster private retirement solutions, life insurers "can do much to better position itself in the retirement universe" with product development aligned with consumer preference, said Swiss Re.

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com) (c) 2009 A.M. Best Company, Inc.