Powering the Recovery - Insurance Thought Leadership

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October 4, 2021

Powering the Recovery

Summary:

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At last week’s Global Insurance Forum, Swiss Re Group CEO Christian Mumenthaler said the industry has been in a sort of hibernation for the past year and a half to two years, in terms of big deals and bold moves – but is about to wake up.

“I think we’re in for a very interesting two or three years, with lots of change in the industry,” he said at the virtual event, “Powering Recovery,” held by the International Insurance Society.

Roy Gori, CEO of Manulife, said insurance has “an opportunity to change the paradigm of how people think about our industry.” He described the opportunity as “once-in-a-lifetime.”

Mumenthaler, Gori and many of the other speakers at the three-day event –videos of which you can see here — said the industry had managed a stunning pivot to digital in the face of the pandemic, almost overnight. But they also pointed to numerous challenges and opportunities for the industry as the world gradually puts the pandemic behind us.

Gori, for instance, said the pandemic has underscored the role that insurance plays in creating personal financial stability, while also creating the opportunity for the “complete digitization of every aspect of our business … to eliminate the friction that makes insurance an unattractive proposition sometimes.” He said Manulife has “done more in the past 18 months than in the prior 18 years” in digitizing and has seen the benefits — e.g., straight-through processing now handling 81% of claims, up from 68%.

He sees a major role for insurance in the sorts of public-private partnerships that will be necessary to implement the infrastructure bill that, in some form, seems likely to pass in the U.S. Congress soon. Insurers can also help with what appears to be a new emphasis for global supply chains — while companies have spent many years optimizing them for efficiency, the pandemic has made clear that companies need to build much more resiliency into them.

He cited two other key challenges/opportunities: “Cyber crime is up 600% in the pandemic,” he said, “and 100 million people have been pushed back into poverty…. What can we do to close the income gaps that have been created?”

Mumenthaler said the Swiss Re Institute measures the protection gap — the gap between the economic losses in the world and the insured losses, across all lines of business — and saw a 6% increase during the pandemic, to $1.4 trillion. He said there “should be an obsession to close that protection gap.”

He said he sees an opportunity to apply behavioral science to not only better understand customers but to work better with governments to address massive problems like future pandemics, major terrorist events and large-scale cyber attacks.

“The big events are entirely foreseeable,” he said, citing a 2007 paper by 20 chief risk officers that not only said a pandemic was coming but that laid out almost all the repercussions we’ve experienced in the past year and a half. “Very few risks are totally off the screen,” he said. But insurers can do a better job of helping governments to not only see the risks but to “pre-finance” responses, when actions are far less costly, rather than wait until disaster hits.

Dan Glaser, CEO of Marsh McLennan, agreed with Mumenthaler that supply chains need to focus far more on resiliency. “The world was in a hyper-efficiency mode,” he said. “But the hyper-efficient companies shouldn’t be viewed as best in class. We have to see that risk-adjusted returns are more import than actual returns. Companies need to be asked: How prepared are you?”

The IIS’ Global Priorities Report, released in conjunction with the forum, underscored the challenges facing the industry. The report, based on surveys sent to nearly 10,000 executives worldwide, found that “changing customer expectations during these crises can result in insurer frustration, as consumers may not fully understand how their insurance policy works and what it covers. One executive noted the challenge of correcting ‘how insurance is viewed by the general public. It is not meant nor intended to cure all ills, yet it is often expected to.’ This was especially true during the pandemic.”

The report found that the biggest worry is about competition from outside the insurance sector: “Executives worry that digital engagement has taken over and that the industry faces disruption from new entrants with ‘better-organized data and a stronger consumer orientation.'”

I could go on and on. There is an awful lot of meat both to the videos from the three days of the forum and to the Global Priorities Report — which I encourage you to view and to read. But I’ll just cite two more of the speakers, whose comments I thought were especially insightful, then let Marsh McLennan’s Glaser bring us home.

As we’ve seen, ESG (environment, society and governance) has become a hot topic as companies are being pressed to be better corporate citizens, and that emphasis is likely to increase coming out of the world-shaking pandemic. Neeti Bhalla Johnson, president, Global Risk Solutions at Liberty Mutual Insurance, said insurance has a unique role to play in many aspects of ESG, notably climate change, because the industry has both “the asset and the liability side of the balance sheet.” In other words, the industry carries the risk, while also have enough capital to help address it. She said ESG could also help address the industry’s talent gap, because new types of people will want to join forces with insurers to tackle big ESG problems.

Meanwhile, Lorenzo Chan, president and CEO of Pioneer Inc., used the pandemic to make a bold step toward addressing the protection gap by, as he put it, going down the pyramid. He said that everyone typically goes for the best prospects, at the top of the pyramid, but he aimed at the “micromarket” in the Philippines. He says lots of people had negative associations about insurance — slow to pay, tricky in the fine print, etc. — so he looked for partners he could work with who were trusted by a broad market of the less wealthy. He wound up working with supermarkets, motorcycle distributors and, in particular, pawn shops.

“We unlearned everything we knew in traditional insurance,” Chan said. But, in the process, Pioneer went from 180,000 customers in the micromarket to 18 million, and Chan thinks there is still considerable room to grow.

Talk about narrowing the protection gap.  

As Marsh McLennan’s Glaser looks at the challenges ahead, he says: “In my 40-year career, it’s always been thus: There have always been things on the horizon that look dangerous. We’re one of society’s ways of sensing those dangers.”

He adds: “Insurance is a noble business. It’s hard to think of a business that does more for society.”

Cheers,

Paul

P.S. If you’re at InsureTech Connect in Las Vegas this week, please stop by and say hello. I’ll mostly be hanging out at The Institutes’ booth, #1117 on the expo floor. I may be off doing some video interviews for a series we’re pulling together, but I shouldn’t be gone long. I hope to see you there.

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About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

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