In his keynote address to the UK’s Association of Insurance and Risk Managers (AIRMIC) Joe Plumeri, Chairman and CEO of Willis Group Holdings, said that risk managers have never been more important than they are today in helping their companies evaluate risk and access capital.
He was speaking to more than 650 risk managers and members of the insurance industry at the Royal Lancaster Hotel in London in an address called “finding the silver linings in the financial clouds.”
In Plumeri’s view of the current economic environment, “risk managers will emerge as heroes. The failure of investment banks and capital markets means that today insurance may be the only capital available for risk,” he continued. “Companies are quickly realizing that strong risk management can help them gather that insurance capital at a lower cost. There will also be a renewed appreciation of Enterprise Risk Management with CEOs wanting to know what’s on their balance sheets and where all the risks in their business are.”
He indicated that in times of crisis, the insurance industry has an opportunity to shine, as he urged his audience to be proud of their profession. “The only stable capital has been insurance capital,” he stressed.
Plumeri added two more positive aspects to the financial crisis – increased transparency and regulation. “If everyone was transparent, off balance sheet issues, Structured Investment Vehicles and Credit Default Swaps would have been found,” he stated. “Financial institutions and insurance companies will now have to be transparent. That’s a good thing because you can feel secure about where you put your risk.”
Plumeri praised the UK’s Financial Service Authority’s (FSA) stance on mandatory contract certainty – the timely delivery of policies to clients. He called on the US to follow the UK example, observing that “this is the only industry I know where you shake hands before deciding what you have agreed on.”
Looking forward to 2009, Plumeri predicted that insurance capacity and rates will probably stay static but added that due to a lack of money in the credit and stock markets, the rates will have to go up eventually. “In a recession, there is a gradual upswing of rates instead of a sharp increase like that which occurred in 2002 after the World Trade Center attacks,” he explained. However, he urged insurers not to push their rates up too quickly to the detriment of small to medium sized businesses. “If the market is hardening it should be on a slow basis to give people a chance to afford it.”
He also predicted that the strongest companies will get stronger by right sizing and sticking to their core business. An overall positive to emerge from the crisis is the fact that the world is now working together to solve the problem, he observed.
Plumeri concluded by saying that the stock market will bounce back and that this typically happens about five months before the end of a recession. “I’ve always admired the resiliency and the courage of the British people and have no doubt that we will all get through this crisis. As an industry we need to see the opportunities in the adversity and make a parade out of a financial riot by getting ahead of the game and capitalizing on these opportunities.”
Source: Willis Group Holdings – www.willis.com