At this roundtable session dealing with the future of Italy’s welfare system, the participants observed that tackling the issue of risk management requires the resolution of an evident paradox, namely, that while the risks to which households and firms are exposed are becoming greater in number and increasingly serious, the public resources needed to address them are in ever more limited supply. Indeed, citizens, organizations and states are having to endure an ever-widening range of risks, spanning from healthcare, social security and professional risks to those connected with natural and man-made disasters.
In terms of health and social security risks, the roundtable discussions centered on the sustainability of a modern and efficient welfare system, given that the current economic crisis has effectively made the fragility and essential unsustainability of a universalistic approach – pursuant to which the state would entirely bear the risks for citizens – even more patent. It was suggested that waste and abuse have undoubtedly played a part in bringing this system to its knees, but the predominant factor in recent decades has been a shortfall between the contributions required to be paid in and entitlements to benefit payouts, thus putting a strain on public finances and resulting in a massive accumulation of debt by many developed countries, including Italy.
It was noted that both individuals and businesses, having long lived in the belief – or delusion – that the state could protect and cover them against any adverse circumstance, are now having to make independent risk management choices increasingly on their own and on the hop. At the same time, public authorities are finding it more and more difficult to contend with emergencies stemming from natural disasters and climate change. Indeed, it was felt that the case of disasters was one meriting special attention, with Europe and Italy (as well as other regions of the world) increasingly at risk of their occurrence. As made painfully clear, for example, by the earthquakes in L’Aquila in 2009 and in Emilia Romagna in 2012, in addition to the loss of human life, natural disasters cause damage to property worth billions of euro, with repercussions for economic stability and growth. Even in cases where the damage is confined to the local level, the costs of major disasters – if not adequately covered by insurance – could weigh heavily on state budgets and produce significant imbalances in public finances. Hence, even from a financial point of view, the management and prevention of disaster-related risks is no trifling matter for Italian and European citizens, businesses and authorities.
The participants stressed that particularly at a time of mounting social hardship, the implementation of policies enabling the various actors to make informed choices regarding the most appropriate means for preventing and transferring risks becomes vital. These choices will in turn lead to new costs, the burden of which needs to be shared equitably. Overhauling the welfare system so that it provides a modern safety net against the risks related to increased life expectancy, health, and the quality of environmental and local-area conditions will undoubtedly require the involvement of both private operators and the state. While there was a divergence of opinion regarding the extent to which and the manner in which the public and private sectors will need to work together, there was nevertheless agreement among the participants in respect of several policy-making considerations.
First and foremost, measures aimed at raising individuals’ awareness of risk in all its various forms were deemed essential, with a view to promoting more widespread financial literacy and education among citizens and businesses. Indeed, cultivating of a greater awareness of risk would at the same time have the advantage of fostering a culture of prevention, with obvious benefits for both public and private operators. Secondly, it was seen as imperative that full and transparent competition be ensured among market players, whereas the consensus was that some regulatory reforms – and, in particular, changes to the Solvency II Directive – risk penalizing certain operators by imposing prohibitively expensive capitalization requirements. Finally, it was suggested that the regulatory and fiscal framework needs to be simplified and kept stable over time to enable both operators and individuals to fully assess the value for money represented by the various insurance plans and schemes on the market.
Finally, the participants emphasized that a solid yet efficient social security system could provide Italy with a competitive edge. In this regard, the important role that insurance companies could play in furthering the growth and development of the country’s financial market should not – it was stressed – be overlooked. Indeed, by virtue of their stability, capital robustness and long-term management outlook, in many circumstances insurance companies are ideal investors for long-term projects involving, for instance, the construction of infrastructure.