It's not often that people in financial services take a long view of the future, but earlier this year the Long Finance Forum of Futurists produced the report: In Safe Hands, on possible scenarios for the future of financial services heading towards 2050.
Gill Ringland authored the report, and I was please to take part in its development.
Unlike financial modelling under solvency rules, which are driven by a set of pre-determined rules, these scenarios are qualitative, global and take account of the full range of external factors that may impact on our industry.
Financial services strategists should find the report useful in testing out their long-term strategies against the challenges and opportunities of their business models.
Underpinning the scenarios are some assumptions: that the global population will grow to nine billion and get older, with most of the additional people coming from Africa and Asia.
This will cause major shifts of economic power: the new centres of power may not share the value systems of the West; technology will advance and affect society and how commercial arrangements operate; ecological, energy and environmental limits will be tested or breached as the population increases; and the percentage of the population living in cities will approach 70%.
Beyond these assumptions, four potential scenarios are envisaged. It is most unlikely that any one of them will happen in ‘pure’ form, but they are a helpful basis for stress-testing against uncertainty.
In Second Hand, Western values and institutions, and the nation state are still important, although they may have weaker powers than today. We continue to muddle through.
Visible Hand is a more proactive version of Second Hand. Here, there is a period of stability in the financial sector, driven by global consensus on the existing model and the growth of regional super states. But this turns out not to be sustainable in the longer term and breaks down into the next two scenarios.
In Long Hand, we have melt down in many Western countries. There is a retrenchment in state expenditure, consumer spending power and overall consumption. People ‘opt out’ and virtual connections that span geographies and are based on ethnic and religious affinity groups become the main global organising structures.
In Many Hands, globalisation is seen to have failed and Western value systems are isolated. The concept of the nation state disappears. In its place, a multitude of city states emerge, each with different strengths, weaknesses, wealth levels and brands.
For insurance in the medium term, the implications are regulatory pressures, for example on underwriting and reserving. Initially, these could be an iterative response to one crisis after another. But if we move to Visible Hand we can expect an avalanche of regulation at super-state and global level, with the promise of long-term stability.
There will be political pressure to sign up to this vision, but we would be well advised to do contingency planning for the breakdown of this consensus. Business models based on cities and affinity groups are common, and companies should not to ditch them in favour of the promise of global stability.
If the breakdown happens, the market will pick up the pieces and those companies that are not nimble will fail and newcomers will dominate the longer-term landscape.
Richard Walsh is a director and fellow of SAMI Consulting www.samiconsulting.co.uk
