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The World in the 2010sThinking ahead to trends and developments challenging the following decade
Prof Markku WileniusGroup Economic Research & Corporate Development
Allianz Media Discussion Forum May 17, 2010
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As Allianz we are…
Allianz Group Communications
All figures as per December 31, 2009
1) As per July 2009 Fortune Global 500 report
• servicing over 75 million customers in more than 70 countries
• among the top 20 of the world’s largest corporations based on revenues1
• among the global top 3 insurers based on market cap
• insuring the majority of the Global Fortune 500 companies
• the world’s largest P&C insurer based on revenues
• the largest provider of assistance services
• the global leader in credit insurance
• among the world’s largest active asset managers
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We are much more than just an insurer
Allianz Group Communications
Did you know that…?
All figures as per December 31, 2009
1) As per July 2009 Fortune Global 500 report
… Allianz is a partner of the Paralympic Movement
… Allianz insures major Hollywood and Bollywood movie productions
… Allianz offers already more than 50 “green” products and solutions
… Allianz has helped 3.5 million micro-insurance customers in Africa,
Asia and Latin America to ensure a basic security
… Allianz insures the construction of the new Gotthard Tunnel in
Switzerland – the longest railway tunnel in the world
… the Allianz Center for Technology conducts a crash test every week
to improve road safety for traffic participants around the world
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Grasping future business opportunities Allianz is strategically focusing on new trends and areas of growth
Global challenges …
Allianz Group Communications
… opportunities we seize
Climate change
Demographic change
Capital markets risks Volatile financial markets are generating anxiety.
Critical long-term structural trends include increased
ties between the financial markets of the developed
and emerging worlds, the increasing influence of
China, and the Euro zone’s growing financial clout.
As a global financial service provider, Allianz
believes demographic change to be of crucial
importance. Identified as one of the major
megatrends, demographic change will hold the key to
many upcoming social challenges, whether with
regard to health, old-age provision, education,
consumption or capital markets.
As a result of global warming, rising energy costs,
and a higher incidence of natural catastrophes our
customers are faced with an increasing risk potential
– but also with opportunities in investments.
Allianz Climate Solutions helps to meet the rising
demand for climate-related financial instruments.
Solutions include:Insurance: Car, Home, Liability, Renewable Energy,
Crop & Weather, Cat Bonds
Asset Management: Investments in renewable
energies (wind & solar), e.g. EcoTrend Fund
Through research and customer dialogue we identify
challenges and address them with products and
comprehensive solutions.
Solutions include:Insurance: Schutzbriefe 55+, Enkelpolice (Germany),
Invest4Life, Mondial Assistance products, Super Fit
Program (China), Allianz Index Select
Asset Management: Allianz RCM Demographic
Trend Fund, Real Income Distributions Strategy
In response to today’s volatile capital markets, we
develop solutions in insurance and asset management
Solutions include: Insurance: PrivatRente Klassik, PrivatRente
IndexSelect (private pension products)
Asset Management: A broad range of fixed income
and equity products, including comprehensive asset
allocation models and state-of-the art risk
management processes
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The future is increasingly hard to predict…
“Tis easy to see, hard to forsee” Which trends?
Too late to doanything about it
Too early to beginworking on
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Figure 1: Kondratieff cycles – long waves of prosperity.Rolling 10-year yield on the S&P 500 since 1814 till March 2009 (in %, p. a.)
Department, Branch, Subject or Chapter
Source: Datastream; Illustration: Allianz Global Investors Capital Market Analysis
History of modern societies suggest also something for our future….
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Trajectories for a new cycle: exhaust of old innovation, excess financial capital, severe recession, social change…
Overweening
arrogance
Self-
confidence
Mental brutality
Hubris
Greed
Greed in pay
packets
Greed in bonuses
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Economic fundamentals of the next decade…
� Return to normal inflation rates of 2 – 3% in the industrialized world
� Exchange rate moves mainly reflect inflation differentials!� Emerging markets as engines of growth – China’s rise continues
� Moderate global GDP growth of around 3% after crisis recovery
� Public and private consolidation weighs on growth
� Steady upward trend of energy & commodity prices
� Shift from public to private pension schemes accelerates
� S-curve adjustments of insurance penetration in EM
Macroeconomic premise for the next decade
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News from 2020…?
The drowned world: climate change
More icecaps have melted, sea level
has risen further and more islands
are gone…
The East is (getting) ready
China is on the verge of superseding
the US as the world's leading
economic power. Time for the West to
wake up and smell the soy sauce…
The next economic bubble
The third bubble since the
financial crisis is about to burst!
Demography
Welcome to the new members to
The Gray Society
The connected world
Let’s meet our Chinese colleagues
in the virtual Canteen –
What a pity I can’t taste the
Peking duck – it looks damn good…
The decade of the consumer
Consumers in the
driver’s seat
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Source: Meinshausen et al, Nature, May 2009
1. Drowned world … Climate change
Source: i.telegraph.co.uk
Source: Major Tipping Points in the Earth‘s Climate System and Consequences for theInsurance Sector, published by Allianz & WWF-World Wide Fund for Nature, Nov.
26th, 2009
Global climate: Twelve tipping points that are decisive for all ecosystems on earth
1.
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The earth-system‘s tipping points: 2°C ���� there is no more leeway! And partwise we are going to tip…
unavoidable
Source: Prof. Schellnhuber, PIK, 2007
to be avoided
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Insurers feeling the heat…
Allianz sees a connection between climate change and frequency of extreme weather, with significant implications for insurers
� Fifteen-fold increase in weather related
insurance claims over last 30 years.
� Trends like urbanization and coastal/
floodplain development increase risk
for such losses.
Average Insured Losses1
(Billion USD)
0
5
10
15
20
25
30
35
40
45
1970-79 1980-89 1990-99 2000-06 2010-19
1 Allianz / Dresdner Economic Research
… but also tapping the huge opportunities
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From Laggard to Leadership
We have builded a solid base for being active in environmental business of the future, now with 50 products already out in the markets…
1) Dow Jones Sustainability Index
2) Carbon Disclosure Project (CDP7)
DevelopmentStage
Time
Laggard
Follower
Leader
Foundation of theAllianz Group Sustainable Development Office
2000
1st Allianz SRI Fund
2003
Integration of Sustainable Development in the Allianz Code of Conduct
2005
Implementation of anAllianz Group ClimateStrategy
2006
Allianz Group sectorleadership “Insurance”in DJ Sustainability Index1
2006/2007
Climate Change leadership(CDP)2
2009New strategic approach to social engagement in the Allianz Group
2008
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2. The East is (getting) ready
7%
6%
23%4%
7%
7%
8%
8%
6% 24%
19%
4%
22%
9%
6%
5%
5%
6%
6%
18%
Shares of worldwide GDP (in %)
2008:€ 40trn
2020: € 71trn
USA
Eastern Europe
Germany
EU 15 (ex. Germany)
Africa & Middle East
Latin America
Remaining Asia
China
Japan
Remaining industrialized
countries
2.
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Figure 3: Asia’s role in the world economy.
Global share of Asia (in %)
* without Japan; ** Year 2008
Source: MSCI, IWF,UN, BP, Illustration: Allianz Global Investors Capital Market Analysis
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Emerging countries continue to gain ground…
GDP per capita (adjusted for purchasing power, USD) vs. GDP growth (Average 1999 till 2009, in % p. a.)
Source: Datastream; Illustration: Allianz Global Investors Capital Market Analysis
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3. Demography: What? We are getting older…?
Source: worldmapper.org
This map shows the worldwide distribution of people over 65 years old.
0
50
100
150
200
250
300
350
400
450
2000 2020 2040
0.0
2.5
5.0
7.5
10.0
80+ in % population
Increasing worldwide 80+ population0.5 % 1.5 % 4.8 % 1.8 %
0
10
20
30
40
50
60
70
Africa Asia Europe Latin
America
USA
3.7 %
in %
Po
pu
latio
n 8
0+
(mn
)
Po
pu
latio
n 8
0+
(mn
)
percentage
of population
Source: Allianz Dresdner Economic Research, UN Population Database 2006 Revision, Allianz SE Group Development.
3.
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Demography
World population is ageing
Sources: UN Department of Economic and Social Affairs, Allianz SE
� The world population will increase from 6.6 billion people today to 9.2 billion in 2050
� In 2050, more than 400 million people will be aged 80 and above
� Longevity risk increases
� Reforms of social systems trigger regulatory amendments worldwide
� Continuously growing demand for private old age provision and health care
(billion) (in %)
0
1
2
3
4
5
6
7
8
9
10
1950 1970 1990 2010 2030 2050
0
10
20
30
40
50
60
70
80
90
100
Development of world population
0 - 14
Dependency ratio
15 - 64
80+65 - 79
Old age dependency ratio
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Figure 2: Global trend: demography.
Population in millions of people
Source: UN, Population Division; Illustration: Allianz Global Investors Capital Market Analysis
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The aging will particularly hitEurope...
Source: Prof. Wolfgang Lutz/Global Education Trend scenario, World
Population Program, IIASA 2009
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We need to recognise longevity & aging in our business models
Stronger demand
for pensions and
investment
products
New life
styles & consumption
patterns emerge
Increased need in public-private partnerships
to fund enhancements in national health systems
Increasing demand for
life quality enhancing services
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4. Connected world4.
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The insurance industry is going digital
Online Advertising Spending by US Insurance Companies in mn $
720
980
1380
1680
1990
2310
0
500
1000
1500
2000
2500
2006 2007 2008 2009 2010 2011Source: eMarketer
+220 %
Percentage of US Insurers that use or test certain Web 2.0 Features
40
30
65
26
0
10
20
30
40
50
60
70
User-
Generated
Content
Social
Networking
Wikis Cloud
Computing
Source: Novarica
� 41 % use online tools to make financial decisions
� Customers expect service everywhere, immediately and in an easy way
� Price-sensitivity is increasing
Changing
Customer
Behavior
� Especially younger customers can easily be contacted
� Administration and distribution cost of the online channel are much lower
� More information makes it easier to understand customers
Opportunities
for the
Insurance
Industry
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High globalization, technology and innovation will shape the future of financial services
� The gap between technology available to the consumer and that
available to corporations will narrow considerably
� Consumers can use technology to play firms against each other
in real-time
� Technology is likely to facilitate new forms of e-currency and micro-payments
to solve many of today’s access problems for this segment
� Delivery costs will decline making it more profitable to do business with low
income consumers.
� Leaders of the financial industry should anticipate dramatic changes to
business models
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The 25 – 45s go virtual and expect flexible
and individualized services
Changing consumption patterns
25 – 45s Today
� Electronic shopping: 92% of the internetusers aged 30 – 49 use e-commerce.
� Challenging customers. New technologieshave raised expectations. Everything has to happen faster, 24/7, more efficiently, throughall channels (offline, online, mobile).
� Individualized services and products.Consumers increasingly prefer individualized, “mass-customized” solutions.
� Service-orientation. In an ever more complexworld, time becomes a scarce good. People askfor simplicity/relief, more convenience goods.
� Smart shopper. Driven by future anxiety, especially the target group looks for the best price-value relation and is well-informed.
Internet usage of Germans in different agegroups in the last three months (survey results)
25 – 44
55 and older
Source: Z-Punkt Research
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Allianz is also responding to these demands at the
fast rate…
Key trend towards flexibility, convenience & customer centric approach
Ease of Customer Interaction
Low High
� Access everywhere at any time …
� According to customer personal needs …
� More focused on value added services!
@
Inte
lligen
t Se
rvic
e
pla
tform
@
Inte
gra
tio
nN
o I
nte
gra
tio
n
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The history lesson: Booms, busts and bubbles
5) Economic horror or reality…the next bubble
in: This time is different: A Panoramic view of two centuries of financial crisis, Reinhart &
Rogoff, University of Maryland & Harvard University, 2008
5.
1950s world: regional
Today’s world: global
Banking crisis is not new but the increasing magnitude of its impact is!
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• Before 2001: Trading in increments of eighths and sixteenths of dollars
• 2001: Trading in decimal price increments begins
• 2005: Sub-penny trading is established
• It creates a revenue of 21.8 billion a year
• Only 2 % of traders (about 400 firms) engage in HFT
• Traders can send out up to 1,000 orders per second, taking 400 microseconds per order
• Complex algorithms are the main actors: the faster, the better
Lime Brokerage: "The Next 'Long Term Capital' Meltdown Will Happen In A Five-Minute Time Period."
Since 1970, trading has become more and more
automated.
• Dark pools allow their clients to make transactions without involvement of the market
• Dark pools can influence the price of stocks and lead to higher volatility
• Almost 700 million transactions a day are executed by only eight dark pools
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009
Source: Tabb Group
Percentage of US trading in high frequency
0
2
4
6
8
10
12
14
2008 2009 2010e
Percentage of US stock
trading executed by dark pools
Source: Tabb Group
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6) The decade of the consumer
Coping strategies
CHANGE YOUR ATTITUDE
CHANGE THE PARADIGM
CHANGE THE CONTEXT
CHANGE YOUR HABITS
ACTIVATING and EXPERIMENTING
CRISIS AS A ….PERSONAL FAILURE
ACCEPTANCE and INTGEGRATION
CRISIS AS A ….PERSONAL CHANCE TO GROW
REFRAMING and SPIRIT UP
CRISIS AS A ….STORM TO GO BY
FIGHTING and REMOVING
CRISIS AS A ….FAILURE OF THE SYSTEM
6.
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Four key consumer trends that will predominate the coming decade
Downshifting Transparency Selfness Age of Less
Value for money Clarity Control Substance
Consumer increasingly in the driver’s seat!
DIY, Resistance, Revamp,
Maintenance
Simplicity, Clear essence,
Tangibility, LightnessDIY, Competence, SelfManagement, Insourcing
Fundamentals, quality, Destress, authentic
Source: Customer Centric Business Study in core markets (F, D, I, US), Allianz GER&CD
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trends shaping the world
These trends challenge us to think how to translate the trends into business…
Impact on financial services
c) Crisis in public provision of pension, health care and infrastructure
b) Political / social shocks driven by divergence of cultures
d) Increased longevity and concern with well-being
e) Changing family structure
g) Tighter requirements for treating customers fairly
h) Increased harnessing of digital and virtual technology
i) Rise of strong corporations (and wealth) based in emerging countries
f) Increased customer empowerment
� Increased demand for risk management and protection in commercial and retail markets
� Varying successful political models require operational flexibility
� Increased opportunity for private sector participation in pensions, health care and
infrastructure
� Shift from ‘consumers being sold’ to ‘consumers buying’ pension and life insurance products
� Greater demand for asset accumulation and assistance in funding long-term care and
enhancement medicine
� Increased demand for credit and self-service (for low income segments), wealth management
(for high income segments) and services for singles
� Need for financial institutions, distribution and compensation models that demonstrably act in
customers’ best interest
� Change in economics of distribution and advice delivery
� Increased opportunity for financial institutions to flex their business model (e.g. back-office
consolidation, channel integration, self-service expansion)
� Need for strong presence in developed and key emerging countries to access dominant
corporates and wealthy individuals based there
� Increased importance of capital markets and financial institutions based in developing
countries
� Divergence of wealth and need for differentiated products and services� Greater demand for tailored offerings (e.g. ‘green’ products/ services)
a) Climate change
Now what?7.
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Horace 65 – 8 BC
Dimidium facti qui coepit habet: sapere aude, incipe.
"He who has begun is half done: dare to know! Start now!"
(from Horace’s first book of Epistles)
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"Heavier-than-air flying machines are impossible."
-- Lord Kelvin, president, Royal Society, 1895.
"There is no reason anyone would want a computer in their home."
-- Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977
"Drill for oil? You mean drill into the ground to try and
find oil? You're crazy."
-- Drillers who Edwin L. Drake tried to enlist to his project to drill for oil in 1859.
“I think there is a world market for maybe five
computers."
-- Thomas Watson, chairman
of IBM, 1943
"Who the h_ll wants to hear actors talk?"
-- H.M. Warner, Warner Brothers, 1927.
Please be open, radical and ready for
change…
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Filename or other information© Copyright Allianz 5/11/2010
Student 10.10.200933
And be aware what happens around you, without losing your
sense of direction...
