The virtual, global economy humbles insurance leaders

By | November 6, 2006

Insurance agents and executives have a lot to worry about as the fast-paced virtual economy takes hold.

According to futurist Edie Weiner, they are right to be worried. She says there are a lot of risks ahead and given the speed of change, those that now appear to be remote could be on insurers’ doorsteps sooner than many think.

“Are we prepared over the next five years? Because that’s when these things are coming down. Are we prepared, with the people we currently have, to understand the risks … as we go forward?” Weiner asked.

Weiner, president of Weiner, Edridge and Brown, a futurist consulting group, sees risk in just about every trend in the virtual economy. Her insights framed a recent panel discussion sponsored by the Independent Insurance Agents and Brokers of New York Inc. in Manhattan.

Start with software. Weiner contends that brownouts, identity thefts, viruses, hacking and software glitches are not yet seen as the “pollution” they are.

Imagine society telling a chemical firm to go ahead and build a plant now and worry later when pollution and diseases start to manifest themselves. “You can’t build a plant on that basis today. But we are introducing software on that basis today. There will be latent liabilities that you have not even begun to see because those glitches and abuses in software are the pollution of the coming economy,” she said

This new “pollution” is just one area of potential exposure for insurers and their customers. Another has ramifications for workers’ compensation: stress. “We know already that stress will probably be the No. 1 cause of pulling down workers’ comp claims in the 21st century. Yet we have not even begun to deal with that risk effectively,” Weiner added.

While some worry about “big brother,” Weiner said she is more concerned about “little brother” intrusions on privacy, where individual citizens gain access to private information, often legally. “As we go into the future, neighbor will be able to know everything and spy on neighbor, coworker against coworker, spouse against spouse. We will have a situation where, while you protect your information systems from unauthorized access, authorized access will become a major risk because of blackmail, which probably is becoming the No. 1 white collar crime in the country,” Weiner said.

Weiner’s warning list goes on and on: climate change, outsourcing, supply chain management, suburban sprawl, water issues, global disease, life extension, alternatives in energy, nanotechnology, genetic manipulation, remote employees, centralized organizational networks of energy, finance, and transportation patterns and more, all the way down to the fact that U.S. teens are spending more time online than they are driving cars.

The insurance leaders at IIABNY’s meeting cited their own priorities among the looming threats, while candidly acknowledging they do not have all the answers for what to do about them.

Worldwide catastrophes
Tom Motamed is most worried about the “potential for a whole new generation of worldwide catastrophes.” Along with floods, windstorms, earthquakes and even terrorism, he believes one of the main challenges is going to be global diseases, such as SARS, mad cow disease and the avian flu, according to the vice chairman and CEO of the Chubb Corp.

Motamed suggested that something like the avian flu could lead to workers’ compensation claims brought by employers infected on the job. There also could be negligence claims against farmers, processors, restaurants and others. Boards of directors could be exposed for lack of a disaster recovery plan and, ultimately, even employment practices may be tapped, as employees fear being let go because they decide not to show up to work amid an outbreak.

Globalization is going to have an effect on how insurers spread their risk and where they do business, Motamed added. Whether insurers currently do business only in the United States or in France, carriers eventually are going to be pressured to follow their clients. Carriers are also going to try to improve their spread of risk through “uncorrelated risk,” meaning if they have a lot of Florida wind business, they’re going to be looking for non-weather related business.

Country to country
Change is communicated quickly and new ideas, whether regulatory or business, can very quickly move from country to country, noted Alex Soto, president-elect of the Independent Agents and Brokers of America, and president of Insource Inc. in Miami, Fla.

The United States will not be alone in setting the agenda. As an agent, Soto is keeping his eye on Europe. “The big movement in Europe right now is net quoting of insurance. Some countries are already there, where an intermediary, an agent or broker, gets a net quote and adds what they perceive to be your value in the transaction in charging the client. Four years ago, this was a little whisper. It is now a central core of discussion at the World Federation of Insurance Intermediaries,” he said.

Yet, Soto does not fear the future. “The bottom line is that I suspect that what this is going to do with the flattening of the world is that there are going to be challenges and opportunities. Others from different parts of the world will come after our clients, and we will have an opportunity to go after their clients,” he said.

Something actionable
Seeing how various forces are reshaping the world is one thing. But knowing what to do about them is something else altogether, pointed out Frederick Eppinger, CEO and president of the Hanover Group.

“What fascinates me is that the companies that are successful are able to take global trends and access skills and insight and translate that down to the local level. That’s the key. There are a lot of people who can think big thoughts. There are very few people who can actually take big thoughts and translate them into something actionable,” he said

Privacy needs something actionable, Eppinger suggested. “The distribution of information today is just so widespread, and so many people have access to it, and there are so many potential ramifications and business risks, that to me, I don’t think we’ve really come to grips with the implications of all this distributing.”

Eppinger was not alone in acknowledging he does not have all the answers.

“[At] the end of day, there are things here that we may or may not be insuring — or may not have intended to insure — and we might have no clue that this stuff is laying there,” commented Steve Lilienthal, chairman and CEO of CNA Insurance.

He said the industry is not developing language that is addressing emerging issues. “We think we get it and then we don’t, and we find out that we didn’t box it, and we didn’t address it, and we couldn’t.”

Dealing with such a changing world and complex issues teaches humility, the speakers admitted.

“I think that we’re discovering that we’re probably not as smart as we think we are, and that’s coming as a bit of a surprise,” Lilienthal commented, noting that the U.S. insurance industry has “underperformed on virtually every index.”

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