Spending over a year in insurance industry, I started looking at a world in more risk-aware way. Or so I hope.

In February 2022 I started working for a Russia-owned bank, which went insolvent in just 4 weeks later (technically, it went insolvent in three days after Russia escalated the conflict and a day after their invasion to Ukraine). That experience showed me that macro view matters even in the short term. I definitely didn't expect anything like that.

I switched to insurance and I have to admit, I don't really like the regulations in financial industry. Or - to be more precise - the severe administrative regulatory demands. And since my bread and butter is in financial planning, analysis and controlling (and accounting), I did a lot of said administration and reporting.

But I do see insurance as crucial part of economy and personal finance. It is a way to reduce risk and mitigate potential wipe-out scenario. You know how everybody in investments says you shouldn't put all your eggs into one basket and rather should diversify? Well, if your meager pension savings are wiped out when you are thirty, it is nothing compared to you losing income forever (disability) or having to pay three times your annual salary to repair your apartment. But I digress...

What are the risks running through Europe and Czechia?

Demographics

This thing is obvious since it is very talked about, but changing demographics is major issue in our part of the world. Our population is ageing and as it gets older, it creates some issues.

People living longer change structure of demand

Older people tend to lead dramatically different lives than younger people. Not surprisingly: They work less, eat out less, visit their doctors more, need more medications and surgeries, need social care (as in care homes or carers helping them with more difficult tasks).

They might find driving around in their cars increasingly difficult, they live on a fixed income (partially or completely provided from government) and are vulnerable to sudden price increases (hello, inflation).

Possible outcomes

There will have to be rearrangement of labour to provide more care. That will probably mean more government spending and investments into education, buildings and medical supplies. Eventually because of costs of healthcare, more private capital will have to be summoned, with private health and life insurance partaking in providing some care and competition in the area. Otherwise we are looking at shortages in care (beds, personnel and medicine and other health products)

We might be in luck with further automation (I don't think LLMs will help here, but who am I to judge the race towards the best wired personal assistant), which could release some workers into the market. And with self driving cars, which will make some people not drive around and therefore roads will be less dangerous.

The problem with how to pay for old people's pensions is very vehemently discussed in Czechia. And like it or not, part of the pension will have to come from personal savings and not from state-sponsored (tax funded) pension scheme. The increasing demand for investments and savings will at least in mid-to-long term depress interest rates.

Low birthrates put pressure on productivity

Here is the thing, fewer kids being born can easily be mitigated by migration from places, where natality is high. That however does come with a cost, mainly political and cultural, and therefore will probably not be the chosen way for Europe. With lower birth rates comes decreasing working age population and their share on population as a whole.

This will put pressure on a job market and productivity. Since the only way to raise the output of the economy is to either increase number of worked hours or productivity per hour, to at least sustain the level of development further investments into productivity (again with the automation...) will be needed.

We might be in luck here, because of underlining demographic pressures and resulting low longterm interest rates, funding for technological advances will be probably available. However, use of those technologies and indeed even their invention and implementation will need rapidly reskilling population. A task to which current education system is not prepared.

Education in these circumstances is important and looks actually dire. Even if teenagers and young adults were prepared for workforce after their studies, change of career requiring two more years of (yet another) graduate school might not suit the system anymore considering an adult worker might need to reskill more times during their career.

Reskilling is both a great opportunity for private educational companies offering courses in both on-line (this one seems quite scalable and already full of Skillshare, Udemy, Coursera and others) and in-person training, it is also a massive challenge for public sector to transform education systems to allow for more flexible learning. Part-time, evening programs, micro-credentials and courses for reskilling and changing careers.

Regionalization

Another big risk and opportunity seems to stem from deglobalization. Not the end of globalization, but disintegration of the world back to large trading blocks. Say NAFTA, EEA, AfCFTA and others. And while all will definitely act in their own way, we have seen from 2010s push towards onshoring of manufacturing and trade wars between USA and other parts of the world.

Onshoring became important especially during covid. Because of the disruption in marine transportations, certain goods became more scarce than usual. The nature of free markets lies in ability to react to sudden changes in availability (supply) with price increase. However, that is a risk in a critical areas. What are those areas? Food, infrastructure building and energy.

Another area that will see itself gaining from regionalization is defense sector. After Russian invasion into Ukraine, with tensions rising in the middle east and in Africa, countries are on their way to increase military spending. With that, Europe will slowly increase the share of defense spending on their GDP. While this will boost local weapons manufacturers and other industries, it will also weaken the link between Europe and USA. Right now Europe needs US military, if they were to increase its combat readiness and become more independent, they might float further from the atlantic friendship.

Climate change

As the planet gets hotter and summers get more dry, we can probably see more changes in society. With cities getting hotter during summer, there will be trend towards higher energy usage (airconditioning during sunny days, which might help with stabilise prices of electricity from solar), greenification of cities, where we might see streets and roofs getting more and more plant mass which help with high temperatures. We might also see higher rates of suburbanization, especially if governments invest in high speed, quality public infrastructure around main cities.

We might also see changes in agricultural use. First of all, high temperatures might lead to changes in plant rotation schedules, either with inclusion of drought resistant varieties or with complete changes in grown grains and vegetables.

Depending on economy growth, European agriculture might emphasise more organic and regenerative agricultural practices, however those are more expensive, more complex and either would require robust growth or significant subsidies (and therefore robust growth in tax revenue to pay for it).

Regarding coming droughts, we might be seeing water shortages in cities and countryside as well. Let's start with countryside:

In agricultural lands, there will be few options to deal with water shortages. Either make sure, that water from winter months stays in the area, either in ponds and earth itself, which would result in loss of arable area, or in large water structures from which it would be redistributed back using aqueducts. Either way this would mean a lot of investment in infrastructure.

Other way to be more resilient towards drought is growing drought resistant plant varieties. That could mean more shifting of agricultural zones from south to north and growing typical Spanish produce in Germany (and in Spain get more inspired by food grown in Sahel). Or find and breed varieties, that are more used to heat and drought.

Local weather notwithstanding, we also have to take into account risks from rising sea levels.

Weather changes - agriculture - - (de)urbanization - - higher energy usage in summers (cooling of buildings) - Water shortages - recycling in cities - agriculture - desalination

Rising ocean (Netherlands?) Carbon credits and offset markets

Electrification

Car industry decline Push towards more energy sources Nuclear power

https://www.youtube.com/watch?v=x6e03HWI2nQ

https://www.youtube.com/watch?v=S8DjqJdCIYM

https://laetitiaatwork.substack.com/p/what-future-of-work-in-a-warmer-world