Knowledge@Wharton -- Insurance and Pensions

An End to the 'Golden Years': Increasing Longevity Changes the Work-leisure Equation

Mon, 06 Dec 2010 13:14:17 EST

People are working longer and retirement ages are rising everywhere as aging populations, broken nest eggs and distressed pension funds make staying in the workforce a growing necessity. The baby boomers' desire to remain active and engaged further blurs the distinction between work and retirement -- a sharp reversal from attitudes that held sway during much of the 20th century, when retirement was seen as the ticket to an endless weekend.

Broken Promises: Can the World's Stressed-out Pension Plans Be Rescued?

Mon, 06 Dec 2010 13:13:58 EST

From Chicago to the Champs-Elysees, distressed retirement plans are coming under fire as they struggle to keep pace with projected payouts. Responses range from raising national retirement ages to whacking corporate profits to meet funding requirements. With state and local plans facing the widest gaps, some policy makers are taking increasingly risky steps to keep the funds solvent. According to some experts, resolving these pension-plan woes will take years of hard work.

Needed, Now: New Approaches to Financing Old Age

Wed, 26 May 2010 16:26:29 EST

Following the global financial crisis, troubled retirement systems around the world face new challenges that may result in sharply reduced income for retirees -- as well as the possibility that younger workers will need to work much longer, according to Wharton insurance and risk management professor Olivia Mitchell. In a recent paper titled, "Implications of the Financial Crisis for Long Run Retirement Security," Mitchell argues that current and future generations must "build new frameworks [with] public and private partnerships to better educate people about the risks they face, to help them work longer ... and to better regulate products and markets for an aging world."

Micro Insurance: A Safety Net With Too Many Holes?

Wed, 30 Sep 2009 17:48:04 EST

Unlike micro lending -- the better-known side of micro finance -- micro insurance has been a hard sell among the world's poor. The reasons why include a lack of understanding of how insurance products work, a general reticence on the part of poor populations to part with their meager financial resources, badly designed products and a shortage of localized risk management knowledge among providers. What needs to happen for micro insurance to prove that it can be both socially beneficial and economically viable?

Not So Golden: Employees -- and Employers -- Feel the Pinch from Shortfalls in Retirement Funding

Wed, 01 Apr 2009 17:13:39 EST

The golden years for most Americans appear increasingly threatened by the global financial crisis. Retirement accounts have lost from $2 trillion to $4 trillion as stocks have tumbled nearly 50% from their peak in 2007. Pension funds -- which typically invest between 60% and 70% in equities -- are also finding their accounts billions of dollars below minimum requirements. For Americans facing retirement, the details of how these plans work may be fuzzy, but the big picture is clear: Whatever comfortable cushion retirees may have had is now gone, and the process of building it back up will be arduous and long.

AIG Rescued: Was an $85 Billion Loan the Right Answer?

Wed, 17 Sep 2008 20:25:57 EST

After refusing to bail out Lehman Brothers, the government agreed to an $85 billion loan to insurance giant AIG, effectively taking over the company. Knowledge@Wharton talked to Wharton insurance professors Olivia Mitchell and Kent Smetters to find out how the world's largest insurer got into this situation and how it can be prevented from happening again.

You've Worked Hard, Saved and Just Retired: How Do You Manage Your Finances Now?

Wed, 13 Jun 2007 14:33:58 EST

As baby boomers retire and start spending their nest eggs, they will need new financial products to make their money last, according to speakers at a recent Wharton Impact Conference titled, "Managing Retirement Payouts: Positioning, Investing and Spending Assets." The conference explored emerging patterns in spending during retirement and debated new ideas to help retirees manage their finances after leaving the workforce.

Fantasy Sports: The Players, the Platforms and the Profits

Wed, 07 Feb 2007 15:59:14 EST

According to some industry estimates, fantasy sports is now a $4 billion industry and growing quickly. What is fantasy sports, who provides fantasy sports platforms, what are the most popular fantasy sports, and -- coming off the Indianapolis Colts' recent Super Bowl win -- can we assume there will be a Super Bowl for fantasy football, or for baseball, basketball or hockey? Knowledge@Wharton asked Kent Smetters, professor of insurance and risk management, to bring us up to speed on the future of this industry.

How Can Employers Improve Defined Contribution Plans?

Wed, 18 Oct 2006 16:48:45 EST

If 401(k)s and similar plans are the main way Americans invest for retirement, how can employers improve them? By making enrollment automatic, minimizing the use of the employer's stock, expanding the role of annuities and improving employees' financial knowledge, according to a set of recommendations issued by the Financial Economists Roundtable, a group of about 50 prominent economists, including several Wharton faculty members.

Strategies for Dealing with the Risks of 9/11, Katrina and Other Disasters: A Conversation with Wharton Experts

Wed, 27 Sep 2006 18:51:30 EST

In the five years since the attacks on September 11, 2001, Howard Kunreuther, Wharton professor of operations and information management, has collaborated with members of the private and public sectors to determine how individuals and firms can be motivated to enhance security in our interconnected world. In a new book titled, Seeds of Disaster, Roots of Response: How Private Action Can Reduce Public Vulnerability, Kunreuther and other contributors argue that the United States will continue to be at risk for low-probability, high-consequence events like 9/11 and Hurricane Katrina until the private sector and public leadership develop strategies to persuade individuals and firms to invest in cost-effective protective measures. The book is edited by Erwann Michel-Kerjan, managing director of Wharton's Center for Risk Management and Decision Processes, and three others.

Longer Lives and the 'Lump-Sum Illusion' Are Just Two of the Challenges Retiring Baby-Boomers Face

Wed, 26 Jul 2006 12:03:13 EST

In the United States alone, an unprecedented 77 million baby-boomers will be living the next 20 to 30 years in retirement. With long lives ahead of them -- and without adequate planning -- what are the risks they are facing? According to Olivia Mitchell, Wharton professor of insurance and risk management, and Christopher "Kip" Condron, president and CEO of AXA Financial, the world's largest financial services firm, the rising tide of boomers in the U.S. and around the world needs to meet challenges that previous generations never faced, including changes to key retirement institutions, as well as medical-care cost inflation and the "lump-sum illusion." Knowledge@Wharton spoke with Mitchell and Condron about how the financial services industry is working to meet the needs of this next wave of retirees.

Hands-off: Holders of 401(k) Retirement Accounts Are Not Your Typical Investors

Wed, 08 Mar 2006 16:27:20 EST

With $2.5 trillion invested in 401(k) retirement accounts, 60 million Americans control a powerful chunk of cash. So how much attention do investors pay to this vast pool of savings? Not much. According to a new Wharton analysis of retirement accounts managed by The Vanguard Group in 2003 and 2004, participants in 401(k) plans made little effort to tend their defined-contribution plans once they were set up. Even among those who did trade regularly, turnover rates were one-third those of professional money managers. Olivia S. Mitchell, executive director of Wharton's Pension Research Council, Stephen P. Utkus, principal, Vanguard Center for Retirement Research, and researchers Gary Mottola and Takeshi Yamaguchi present their findings in a paper entitled, "The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans."

Unlike Death and Taxes, Pensions Are No Longer Guaranteed

Wed, 08 Feb 2006 16:31:18 EST

IBM. Verizon. Sears. Hewlett-Packard. Motorola. The list of corporations that have put a halt to guaranteed pension plans comes as a jolt to Baby Boom employees entering what they thought would be their peak pension-building years. At the same time, new accounting rules and Congressional legislation are being drafted to close the U.S. pension-funding gap, now estimated at $450 billion. While some proposals under discussion could make it easier for companies to discontinue defined-benefit plans, others would create incentives to support defined-contribution programs, such as 401(k) plans, according to Wharton faculty and pension experts. Amid all this flux, they add, one thing seems certain: Pension plans have become risky business.

Are Eliot Spitzer's Insurance Lawsuits Hitting the Wrong Targets?

Wed, 19 Oct 2005 16:43:39 EST

On September 15, New York State Attorney General Eliot Spitzer indicted eight former executives from Marsh & McLennan Companies -- Marsh itself was not charged -- for their part in an alleged bid-rigging scheme. For Spitzer, bid-rigging is just part of the problem with the insurance industry. He says that another practice, contingent commissions, also artificially inflates the price of commercial insurance and therefore should no longer be allowed. Yet according to Wharton professor J. David Cummins, "contingent commissions can help keep property-casualty and other markets efficient," and may "actually level the playing field by giving buyers and sellers equal access to vital market information."

How Well Has Chile's Retirement Program Aged?

Wed, 07 Sep 2005 15:24:58 EST

Viewed as one of the world's most innovative pension systems when it was created a quarter century ago, the Chilean retirement program is receiving new scrutiny as participants begin to reach retirement age, and President Bush promotes elements of the plan as a way to reform Social Security in the United States. An upcoming Presidential election in Chile has prompted additional debate about whether the Chilean system provides enough coverage to prevent old-age poverty, according to Olivia Mitchell, Wharton professor of risk management, who recently led a panel entitled, "Exporting the Pension Revolution: Chile and Beyond," at the Wharton Global Alumni Forum in Santiago.

The Financial Risks of Terrorism: Balancing Public and Private Roles

Wed, 07 Sep 2005 15:24:58 EST

Who should pay for the economic consequences of a terrorist attack in the United States? This week, the Wharton Risk Management and Decision Processes Center publishes TRIA and Beyond, an analysis of the Terrorism Risk Insurance Act of 2002 (TRIA), which will expire December 31, 2005, if not renewed. The Risk Center's report offers policymakers, key industry representatives and other interested parties an analysis of what roles the public and private sectors should play with respect to terrorism risk coverage in the United States.

Insurance, Life Expectancy and the Cost of Firearm Deaths in the U.S.

Wed, 15 Jun 2005 15:46:04 EST

While the U.S. operates the most expensive health care system in the world, its citizens are neither healthier nor live longer than citizens in other countries. In addition, while the U.S. is considered among the safest countries in the world, deaths from gunshot wounds are staggeringly high. In 2000, the U.S. recorded close to 11,000 firearm homicides. The European Union reported fewer than 1,300 firearm homicides for the same year. In Japan, the number was 22. Jean Lemaire, professor of insurance and actuarial science at Wharton, argues that these facts should be looked at in tandem. In a recent paper, Lemaire works through the medical and financial impact of firearms on American society.

Retirement Programs Face an "Aging-Population Tsunami"

Wed, 01 Jun 2005 17:22:46 EST

Against the backdrop of rising concerns over both public and private pension systems in the U.S., industry experts convened at a recent Wharton conference to debate ways in which retirement programs can be better managed. Participants discussed such topics as the problems facing Social Security, the solvency of the Pension Benefit Guaranty Corp., and the consequences of an increase in defined contribution plans like 401(k)s along with a corresponding decline in defined benefit plans. The conference was titled "The Evolution of Risk and Reward Sharing in Retirement."

Can AIG Stay on Top?

Wed, 01 Jun 2005 16:49:37 EST

To the lengthening list of fallen executives, add one more: Maurice "Hank" Greenberg, legendary CEO of American International Group, was forced to step down March 14 as investigators look at whether the company used complex insurance transactions to improperly pad its bottom line. Greenberg's departure, after a four-decade reign that turned AIG from a sleepy also-ran into the world's biggest insurer, immediately raises questions about whether the company can stay on top -- or whether shareholders will suffer, as they have in so many corporate scandals.

Accounting for the Abuses at AIG

Wed, 20 Apr 2005 15:36:00 EST

When accounting problems at American International Group surfaced last winter, it looked like a small matter next to the corporation-busting scandals of the Enron era. But AIG directors acted as if the company's very survival was at stake, removing Maurice Greenberg as CEO and later forcing him to step down as chairman. The heart of the problem is this: No one can be sure how big the scandal will grow, because it involves business relationships, insurance products and accounting practices so arcane that few people understand them -- including a controversial product known as "finite insurance."