‘Mega Trends’; Optimism at the EIF 2014 Conference; DIMA CEO Interview

By | May 19, 2014

Ireland has been through some difficult economic times, but this year’s European Insurance Forum, held at the Four Seasons Hotel on May 15 and 16, highlighted the progress that’s been made, and the bright prospects for the future, as well as examining some of the “Mega-Trends” the global insurance industry increasingly deals with.

Attendees also marked a milestone. “We were also noting the 25th anniversary of the international insurance industry in Ireland,” said Sarah Goddard, Dublin International Insurance & Management Association (DIMA) CEO, in an interview. (Available as a podcast)

The EIF identified the following as “mega trends: Climate, Energy & Environment Risks; Geopolitical Risks, including terrorism; Big Data; Regulation, including corporate governance, and Cyber Security.” They are all important issues, and will be examined in greater depth in future articles.

Goddard was kind enough to go over some of the more interesting aspects concerning the trends as well as offering an analysis of the international insurance business, and the streamlined progression of the conference. “We made sure that this year different aspects of the same issue were being covered by people coming at it from different angles,” she said; adding that an important goal was “making sure people had access to their own strategic thinking.”

Questioning and challenging “is what boards ought to be doing, not [be] a world of yes men.” Sarah Goddard DIMA CEO

In the opening session Patrick Manley, Zurich’s general insurance CEO for Europe, the Middle East and Africa (EMEA), as well as the Chairman of Financial Services Ireland, restated the principle reasons why this small island nation has become a major insurance hub, starting 25 years ago. He listed them as: 1) it’s an EU member; 2) it uses the euro; 3) the English language;4) the length of time Ireland has been an EU member; 5) a highly educated workforce; 6) political stability, and 7) a pro-business government. “It was really a pretty easy choice,” he said, for Zurich to set up operations in Ireland.

In his discussion of the effects of climate change Prof. Richard Tol of the Economics Dept. of the University of Sussex, pointed out that even “after 40 years all climate models still aren’t very good,” as the “the weather is no longer stationary.”

This coincides with increased losses, both economic and insured, which are “mostly due to more people, more vulnerability,” in short “more stuff” that needs to be insured, and in return makes managing the risks more uncertain.

BBC correspondent Fergal Keane, who’s been reporting from the world’s hotspots for 25 years, gave a rather chilling exposition of the terrorist mind set, and what leads “ordinary people to do terrible things.” Contrary to what many people believe, “most terrorists aren’t psychopaths,” he said.

He described his “on the ground view of changing political risks,” as Goddard put it, as leading to the conclusion that “self-justification” plays a significant role. “Terrorists buy into a bigger idea;” they “see themselves a soldiers fighting for a cause” that frequently requires that brutal acts be committed if it is to succeed. In many states “we see poverty, corruption and the lack of state control,” he said; all of which create conditions that favor the creation of terrorist organizations.

Big data was the next mega trend to be discussed; however, for Constantin Beier, the CEO of Aon’s Center for Innovation & Analytics, it simply reflects the fact that “bigger, stronger, faster microprocessors” are producing more and more data.

Dana J. Cuffe, Renaissance Re’s Sr. VP and Chief Information Officer, described a world of artificial intelligence, based on quantum computing at super cold temperatures – near absolute 0° [-273.15 °C; -459.67°F] where effects such as superconductivity and superfluidity can be produced.

These advanced computers are able to work on many tasks simultaneously at incredible speed. Their abilities could mean that at some point in the not too distant future human beings would be superfluous. The machines might find us pleasant to be around – “like dogs” – but not very useful.

Friday’s morning session featured a truly remarkable – and frightening – recounting by Michael Woodford, the former CEO of Japan’s Olympus, about his discovery of a massive fraud that the company’s most senior executives, notably the Chairman, had kept hidden. Goddard described him as the “first corporate whistleblower;” adding that his story, now published in a book he’s written, “reads like a real life John Grisham novel.”

Woodford’s electrifying presentation set the stage for a discussion of corporate governance, followed by the closely related fourth mega trend on regulation. Different cultures have different ideas on how a company should be run. Goddard noted that what Woodford had pointed out was that in Japanese business culture “the boss was absolute king, absolute ruler – what he said was never to be challenged, never to be questioned.”

She contrasted this cultural fact with that of most western cultures where absolute rulers are quite rare. Questioning and challenging “is what boards ought to be doing, not [be] a world of yes men.” In the wake of the financial crisis many people questioned Ireland’s regulations, particularly in the banking sector. These have been revamped and updated.

“There are only about three countries in the world in which the corporate governance code is within the legislative arena; Ireland being one of them,” Goddard said.” The Central Bank of Ireland (CBI) has assumed direct responsibility for overseeing the financial sector, including insurance. The new code “sends a very strong message, that it’s “not about checking boxes and saying this is what you do, and this is what you don’t do. It’s actually much more this is what is expected as the responsibility of the board.”

The ability to become the director of a company is governed by a “fitness and probity regime,” which, she explained, delineates the “types of individuals we expect, and the standard of behavior we expect of directors… to have the correct set of skills to be able to properly oversee the organization.” They are expected to run “the company in the best way.”

The regulatory changes have coincided with a strengthening Irish economy and a return to growth. On December 15, 2013 Ireland exited the EU’s bailout program, which Goddard said sent a “very clear message that there is a return to the fundamentals of increasing economic security.” The country also got another boost on Saturday, the 17th, when Moody’s Investors Service raised its ranking two levels to Baa1 from Baa3.

Cyber security and cyber threats were the last mega trend to be examined. It’s difficult to do so, as the whole nature of electronic information gathering and storage is changing rapidly. “90 percent of information is electronic,” said Thomas Dunbar Sr. VP and Chief Risk Information Officer (CIRO) of XL global services.

“Where it’s placed and where it comes from is a business risk.” He explained that databases used to be kept within the company, but it’s becoming more and more common for it to be managed outside the company; i.e. outsourced. As a result the risks of that data being hacked have increased.

Goddard explained that where there had been questions about Ireland’s insurance industry, but these aren’t really asked anymore, as there are “very strong feelings Ireland as an insurance market place is safe.” She noted that a survey conducted by PwC before the conference on insurance in Ireland concluded there was a great deal of confidence and optimism by the country’s international section [non-Irish business]. “Their optimism and their expectation of increasing their business in the next year or so have gone up by 300 percent.”

Such increased confidence is further reflected in the decision by the NAIC, which has “invited Ireland to undertake jurisdictional assessment under the Credit for Reinsurance Model Act, which I think is a very positive way forward,” Goddard said. As for her personal opinion: “I’d say I’m cautiously optimistic, and maybe a little more than cautiously, that we’ll see growth quite quickly.”

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