Thursday, September 15, 2005

Insurance , Over-population and AIDS

Insurance , Over-population and AIDS
Without a reliable store of value , the only way to ensure for old age is to have as many children in the hope that some will look after their parents .

The prudent person thus has as many children as possible .

Gold can be stolen , cattle can die , children can be ungrateful .

How can a prudent man ensure that a part of the extra wealth of his good years can be reliably saved for his old age ?

Enter the Insurance Company .

Birthrates fall when reliable financial institutions are introduced , since children change from an asset to liability .

Furthermore , extra longevity insured by having money for expensive medical care in old age postpones and decreases inheritances to the children . In Europe this effect can be seen in the increased number of children staying with the parents (previously they would have inherited the house) and fewer children , as family money is used for medical old-age expenses instead of babies .

Chart Sanlam’s growth against Afrikaner family size . Every endowment policy to age 60 or 65 is actually resources taken from present children to future parent (as well as a vote of no-confidence in the children . (Justified by the burgeoning of old-age homes and retirement villages.))

Inalienability :
This is a major point , since no parent can really say “No” to child dying of AIDS . It might break their hearts , but they must be able to say that their savings are locked up and outside their control .

What African clients want is reliable payment on proof of identity and inalienability .

Typical products would be
Endowment policies to age 60 or 65 or pensions after age 55 tied to the JSE Xchange trade market in gold . Each rand buys the customer a fixed amount of gold guaranteed by the JSE . No interest . No admin after purchase until redemption . Rates published in the newspapers . Absolute minimum admin.
Commission , expenses and profits 3% - 5 % .
Maturity only on the maturity date (not death) . The heirs might claim after maturity .
It is like a bearer bond with limited term payable on proof of identity .

Tell it straight . For the man who likes surety for his old age . Nobody can touch it except him or his heirs before the due date .
(Things in Africa do not get much surer than the JSE and RSA .)

Secondary markets:
It is tempting to set up loan and surrender markets , but this invalidates the principle of inalienability , especially taking AIDS and other pandemics into consideration .
Also , the expense is damnable .

The client must be absolutely assured that only he or his legal heirs can get the money
And only after the term has expired .
Informal secondary markets will spring up (ref trades in bearer bonds) , but this does not concern the original assurer.

One would think that the lower-birthrate effect would be slow , but lower-income parents are terrified of being cast away by their children (ref funeral policies) . They would rather pay premiums on a policy than have more children . Contraceptive methods always seemed available if enough people really wanted it . White Afrikaner birthrates in RSA dropped dramatically between 1920 and 1950 , pari-passu with the growth of Sanlam .

It will happen in Africa .

But the first ones will get the cream of the pent-up demand .



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