In the public debate on the social insurance in Greece, the fact that the insurance risk contained in an insurance system is equated with the investment risk of the financial markets and the capital markets raises questions and concerns. In addition, this equation is a significant theoretical and methodological error, in the sense that in modern portfolio theory, investment-financial risk consists of systemic risk inherent in each market and non-systematic risk.

Non-systematic risk involves the possibility of eliminating it with the technique of diversification, which in market terms is concentrated in the wording of professionals “we do not put all eggs in the same basket.” In contrast, systemic risk is not differentiated but only hedged by various hedging techniques, such as the use of derivative financial products. In other words, insurance and systematic market risk are not differentiated but transferred.

An example of insurance risk transfer is reinsurance. Another example of insurance risk transfer used in retirement benefits is the purchase of annuities. From this point of view, it is worth understanding that according to the theory, actuarial mathematics and insurance economics (Pension Economics) claim that any insurance system that pays pension benefits is subject to demographic risk, whether it works with a distributive or a capitalization, or with some hybrid (distributive system of imaginary individual accounts) economic system.

This is because when considering the long-term viability of a pension system, whether it is a distributive or a capitalization system, it uses demographic projections and mortality tables (actuarial tables) as a key tool, through which the life expectancy is determined. In this context, the claim of government officials that the capitalization system of auxiliary insurance (Law 4826/21) is subject only to investment and not to demographic risk, raises serious questions and concerns.

Specifically, it is argued that a retiree with the structure of the social security system in Greece will receive three pensions, the national pension (is part of the main pension) and is subject only to fiscal risk, the compensatory (is the second part of the main pension) and is subject to demographic risk and ancillary which is claimed to be subject only to investment risk. In fact, in Solvency II, which is the Regulatory Framework of insurance companies operating under the Capitalization System (something similar to Bank Basel II), demographic risk and investment risk are mentioned as the most important risks for pension benefits, thus achieving the differentiation of insurance risk.

The question that arises is “what exactly is meant by saying that the insurance risk has changed”? Since the guarantor is again only one, the State. Therefore, no differentiation has taken place, and this is because, as mentioned above, the insurance risk is not differentiated. It is simply transferred with the capitalization of the auxiliary insurance to the demographic risk, adding another risk which is the investment risk of the markets (market risk), which is shouldered by the insured, the pensioners and the State Budget.

Consequently, the taxpayer bears the investment risk, since according to law 4826/2021, guarantees for negative returns are provided. Instead, the benefits are concentrated in the investment companies and funds that will take over the management of employees ‘and retirees’ savings. This observation means that the pre-existing insurance system contained only two risks, the fiscal risk and the demographic risk. On the contrary, with the capitalization of supplementary insurance, two other risks were added, the investment risk (market risk) and the risk of managing the costs (agent fee) of the insured’s savings (Blake D., 2006, “Pension Economics”), the costs of which will be borne by the State Budget, thus burdening the already burdened Greek budgets. To these burdens must be added the transition costs of 78 billion euros resulting from the gap that will be created, since there will be no contributions to finance the pensions of current retirees of supplementary insurance.

This cost will be borne by the State Budget, in order not to evaporate the supplementary pensions of current retirees and current employees over 35 years who will remain in the pre-existing supplementary insurance system. Thus, if to this cost of 78 billion euros are added the guarantees in case of falling purchases, disability and widowhood, then the cost will approach 100 billion euros. In these circumstances, it is highlighted in the most comprehensible and documented way that with the capitalization of the auxiliary insurance, not only the insurance risk (fiscal and demographic) is not differentiated, but in addition two other risks are added (investment and the risk of savings management costs), burdening the public debt and in general the future fiscal course of our country, which will be burdened both by the budgetary implications of the Covid – 19 pandemic and by the terms of the enhanced fiscal surveillance of the European Commission.

* Savvas G. Robolis is Om. Prof. Panteion University and Vassilios G. Betsis is a Doctor of Panteion University

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