Best’s News & Research Service - June 23, 2014 02:51 PM (EDT)
Ace's Greenberg: Insurance Fares Poorly in the Returns it Gets for Risks it Takes
LONDON //BestWire// - The use of technology to extract maximum value from data will become a measure of success as insurers compete in a rapidly changing world, Evan G. Greenberg, chairman and chief executive officer of Ace Group, told delegates to the 50th anniversary annual seminar of the International Insurance Society.
"For the most part, as an industry overall, I think [insurance] is pretty mediocre," Greenberg said during a panel on global insurance leadership. Insurance, Greenberg told the audience, fares poorly in the returns it gets for the risks it takes and in its ability to move quickly.
But apart from its wider weaknesses, Greenberg said, parts of the insurance industry have produced "innovators and creators" who can differentiate themselves and outperform their competitors. He dismissed the notion that insurance is behind on technology and under threat.
"I challenge that," Greenberg said, pointing to the successful application of technology by the insurance industry in such categories as marketing and sales, decision-making, controlling costs and analyzing vast quantities of data. "I see technology being used in a cutting edge way by different companies in each of those areas in a very creative way," Greenberg said. "That is the arms race of our industry."
Greenberg suggested that the influx of outside capital into the nonlife market may be the start of a broader and more sustained trend. The nonlife market, he said caught the eye of capital providers because of its favorable pricing prospects.
That flow, Greenberg said, "wrung out a lot of profit that the reinsurance and the wholesale market was dependent on, and that's created stress." Outside capital has now begun to attach itself to traditional, medium-tail risk, he said.
"As an originator of risk, I don't worry about it," Greenberg said. "The originator of risk is on the ground, underwriting and gathering it. But the ability to package risk is a change in the marketplace."
Michael J. Morrissey, IIS president and chief executive officer, said the insurance industry is well placed in relation to "the central economic unit"--data. This, he suggested, fits with the theme of the conference, which is the effect of science and technology on the insurance industry.
Over the centuries, Morrissey told the audience, the measurement of wealth has shifted from land, to industrial production, to capital, and, most recently, to information.
"Those who can best collect, and act upon data have the economic power in the world today," Morrissey said. "And it is the forces of science and technology that are the demystifiers of data that made this happen."
Greenberg argued that regulators should avoid applying a one-size-fits-all approach to insurance. Central bankers, he suggested, do not understand insurance. "I don't think traditional insurance is systemic," he said. "We don't have a liquidity risk that banks have. We don't have that mismatch."
In the United States, Greenberg said, insurance regulation is designed to protect policyholders. In the European Union, he added, Solvency II protection extends to bondholders and shareholders. "That's fine," Greenberg said. "It's the system that Europe is free to adopt. But the U.S. is not forced to adopt that system."
"The industry does face a lot of challenges," Greig Woodring, CEO of Reinsurance Group of America Inc. and the IIS' chairman and president, told the audience.
Inga Beale, chief executive of Lloyd's, recounted Lloyd's own history of innovation, including the first motor policy (in 1904), the first satellite policy (in 1965) and the first directors and officers policy in the United States. Underwriting skill, Beale said, is of particular importance in the current low interest rate environment.
Beale, who is Lloyd's first female CEO, also made a plea for the industry to recruit people who will match the world's changing demographics. Displaying an IIS brochure promoting the conference, she pointed a spread of "lovely pictures" -of men--and asked: "Where are all the women?"
"It's vitally important for our industry to find new talent," Beale said. "As we go into new markets, we have to understand those markets, and we need to start reflecting those markets."
Beale told of being instructed in efficiency by a young women intern from Chicago who, while honored to be at Lloyd's, pointed out that a transaction that should have taken four seconds lasted 44 seconds because of 40 seconds of chat between the broker and the underwriter.
Barry Stowe, chief executive of Prudential Corporation Asia, said low penetration rates in Asia offer good prospects for insurers. Rates are 17% to 18% in the West he said, and less than 2% in Indonesia.
Insurers, Stowe said, stand to gain from the rise of the middle class in Asia and the retirement, in the United States "of the wealthiest generation in the history of civilization."
Greenberg said Ace has been successful in attracting and retaining talent. It hires about 300 trainees a year and manages to keep more than 80% of the very best of them beyond four years. People in their twenties don't want simply to be told what to do, he said.
"They want to be heard," he said. "They want it to be more dynamic. They've got somethig to say after a week there, which is fine."
Lloyd's has a current Best's Financial Strength Rating of A (Excellent).
(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)