General Assembly 2021, Zurich | Summary

In this pivotal moment for society, insurers have an important role to play, and insurance CEOs are in a unique position to shape the debate. Against this backdrop, Geneva Association members reconnected in the real world, after almost two-and-a-half years, for our annual General Assembly on 10–12 November 2021. They engaged on some of the biggest issues for the insurance industry and society right now – climate change, AI, economic inequity, and diversity & inclusion.

Discussions also ventured into other disciplines. Professor Shinya Yamanaka, winner of the Nobel Prize for Medicine (2012), spoke about advances in stem cell research, and Professor Paul Krugman, winner of the Nobel Prize for Economics (2008), addressed the state of the global economy. Peter Maurer, President of the International Committee of the Red Cross (ICRC), told how the pandemic, climate change and geopolitical conflicts are effecting the most fragile parts of the world and where instability is most threatening.

The following is a summary of the exchanges that took place at the 2021 General Assembly and the key takeaways for insurers.

Charles Brindamour, CEO of Intact Financial; Christian Mumenthaler, CEO of Swiss Re; Jad Ariss, Managing Director of The Geneva Association.
 

Prioritising purpose, people & governance

The Geneva Association has made notable progress in recent years in improving its governance model, with an emphasis on ensuring smooth leadership transitions. The organisation’s work is now underpinned by purpose – highlighting how insurance can be a force for good – and its seven work streams take a foresight approach in addressing the priorities of the insurance industry. Leading experts have joined the team and enhanced the quality of research outputs.

Honing our outreach for greater impact

Insurers share a set of fundamental values as well as a passion about the positive role insurance plays in society. That role, however, is not always understood. The Geneva Association is well positioned to tell the story of the insurance industry to its stakeholders within and outside the industry.

With an established pipeline of high-quality research, the organisation will invest in strengthening its outreach and impact – understanding who is consuming The Geneva Association’s research and recommendations and adopting more targeted approaches to fill gaps.

Updated Board leadership and composition

Board leadership appointments at the Board meeting of 10 November 2021:

• Christian Mumenthaler, CEO of Swiss Re, new Chairman of The Geneva Association
• Lee Yuan Siong, Chief Executive & President of AIA, new Vice Chairman of The Geneva Association

Statutory voting results related to the Board’s composition:

• Amanda Blanc, CEO of Aviva, new Board member
• Alejandro Simón, CEO of Sancor Seguros, renewed Board mandate
• Joachim Wenning, Chairman of the Board of Management of Munich Re, new Treasurer

Professor Shinya Yamanaka, Nobel Prize for Medicine (2012).

Induced pluripotent stem cells (iPSCs) are derived from blood or skins cells and converted to stem cells using just four genes. These stem cells are then transplanted into humans to become brain, heart or any other type of desired cells, opening a gateway for curing intractable, degenerative diseases such as Alzheimer’s, cancer or diabetes.

While these techniques offer huge promise for overcoming the woes of ailing and ageing societies, the biggest challenge is offering novel therapies at scale, on time and affordably. The five most expensive drugs in the U.S., for example, range from between USD 55,310 and USD 86,040 per patient/per month, which is simply unsustainable. In order to harness cutting-edge clinical research, investors are needed to narrow the gulf between drug development and real-life application – otherwise known as ‘the valley of death’.

Nascent models are designed to lower the costs of delivering such therapies. Examples include the development of a bank of iPSCs from healthy donors in Japan to avoid the high costs of individual-level transplants, or repurposing existing drugs to target diseases such as SARS COV-2. A holistic approach to scalability will require policies that 1) develop financing instruments to keep treatments affordable and 2) promote disease prevention to avoid costly treatments for lifestyle diseases.

Takeaways for insurers:

• While cutting-edge clinical research can reduce the burden of age-related and lifestyle diseases, it comes at a high price. The affordability and sustainability of novel gene therapies remain a concern for society and healthcare purchasers/insurers.
• Innovative financing tools are required to make these accessible to large population segments.
• Disease prevention therefore remains the most cost-effective option and needs to be prioritised as such by insurers.

Joachim Wenning (panel chair), Chairman of the Board of Management, Munich Re; Christoph Gebald, Co-CEO, Climeworks; Jan Jenisch, CEO, Holcim; Robert Schlögl, Professor, Max Planck Institute for Chemical Energy Conversion.

Temperatures are rising due to increasing amounts of CO2 in the atmosphere, causing more frequent and intense weather events. Achieving a maximum temperature increase of 1.5°C by the year 2050 will require three and half times more renewable energy than current levels, and would prevent an estimated 800 million people from losing their homes.

Fighting climate change requires a global master plan. Governments need to create a global market for renewable energy so that it is transportable by pipelines and ships, and they need to fund related infrastructure. Without this, efforts to address the crisis will fail. Systems efficiency is possible by using what exists to support renewables, but it is also important to invest in new technologies. Scaling up is both a challenge and a great business opportunity.

The building materials industry is responsible for 38% of carbon emissions. Of this, 30% takes place during the building phase and 70% during operations. De-carbonising is a top priority for this industry, not least because it is an increasingly important factor for customers. In the absence of international building standards, companies are cooperating to take steps on their own, e.g. electrifying fleets of trucks and de-carbonising factories.

Companies in many sectors will – or plan to – count ‘CO2 removal’ toward their net-zero targets. This process involves separating CO2 from the air and sending it deep underground, where it mineralises and turns to stone. Though expensive (USD 1,000 to capture one ton of carbon), it is comparable to the cost of electric vehicles and wind energy.

Carbon pricing is widely believed to be a promising mechanism for addressing climate change, but the current global average price is far too low to be effective. Here too, stronger international dialogue and alignment are needed. 

Takeaways for insurers:

• Offer insurance solutions that support innovation, e.g. the underground storage of carbon
• Help to remove coal from electricity generation through investment and underwriting practices
• Support ‘green winners’ in investment decisions, rather than focusing solely on reducing CO2 in portfolios, generally
• Leverage their large amounts of investments to ‘push politics’

(Top) Adrian Gore, Chief Executive, Discovery; Peter Lee, Corporate Vice President, Head of Microsoft Research. (Bottom) Yuan Siong Lee (panel chair), Chief Executive & President, AIA; Jane Sun, CEO, Trip.com.

Artificial intelligence (AI) is one of the most defining technologies of our time. COVID-19 has accelerated its adoption in many industries, including insurance. AI can help insurers enhance their efficiency and offer more innovative, personalised products and services. Despite its advantages, however, there are also widespread concerns around the elimination of jobs and data privacy. Harnessing the opportunities afforded by AI while simultaneously balancing the risks will therefore be crucial.

The huge amounts of consumer data generated by AI systems will be of limited use if not used to effectively induce behavioural change to prevent or mitigate risks. The complexity of AI technologies may also lead to suspicion among customers and reduce their willingness to hand over personal data. For the potential of AI-powered insurance business models to be realised, it needs to be obvious to customers that these new systems are not at odds with their needs and that they can offer access to more tailored solutions that are, in fact, intended to keep them healthier and safer. 

Takeaways for insurers:

• AI can increase the value proposition of insurance offerings by facilitating the shift from purely transactional business models towards ones based on risk prediction and mitigation.  
• To retain customer trust, insurers must be clear on what they are trying to optimise with AI. Transparent regulations and governance structures as well as fair, explainable systems and algorithms will help to combat concerns over discrimination, bias and data misuse.
• Insurers should juxtapose the complexity of AI with simple, accessible and positive messages to customers to increase engagement and encourage behavioural change.

Professor Paul Krugman, Nobel Prize for Economics (2008).

COVID-19 clearly remains the biggest single influence on economies, but compared with initial phases of the pandemic, when spending and output collapsed, economic activity has remained resilient to successive outbreaks and new variants of the disease. This is not least due to the rapid rollout of vaccines that has enabled governments to relax lockdown restrictions and supported consumer confidence and business sentiment.

However, inflation has picked up sharply in both advanced and emerging economies. For example, the annual rate of consumer price inflation in the U.S. hit 6.2% in October 2021, the highest in more than three decades. This reflects the combination of pent-up demand and supply bottlenecks, especially in the automotive sector where computer chip shortages are a key constraint. The global rebound in economic activity has also prompted a surge in commodity prices, which is pushing up factory gate and retail goods prices. Provided expectations of future inflation do not materially increase and feed sustained upward pressure on wages, however, the inflation spike should prove temporary.

Overall, the macroeconomic impact of COVID-19 will likely be muted. Pandemic effects are expected to dissipate by around 2023/24 and the familiar challenge of secular stagnation – a chronic shortage of aggregate demand relative to productive potential – will likely come to the fore again. The world remains awash with savings compared with desired investment, which will keep long-term real interest rates very low.

Takeaways for insurers:

• Insurance premiums should continue to rebound as economies recover and the effects of the pandemic recede.
• Provided the inflationary impulse is transitory, the implications for insurers are relatively limited; if this is not the case and claims turn out to be persistently much worse than originally expected, chronic under-reserving and underpricing could result, which would ultimately impair insurers’ profitability and potentially their solvency.
• The prolonged weakness in long-term real and nominal interest rates remains a challenge. Not only do they limit achievable returns on investments, they strain insurers’ balance sheets since their liabilities are typically much longer duration than their assets.

Charles F. Lowrey (panel chair), Chairman and CEO, Prudential Financial; Hannah Grant, Head of the Secretariat, Access to Insurance Initiative; Stewart Langdon, Partner, LeapFrog Investments; Preeti Sinha, Executive Secretary, United Nations Capital Development Fund.

Widening economic inequality is one of the most pressing issues societies are facing today. It has been significantly exacerbated by the pandemic, both in developed and developing markets. Against this topical backdrop, the panel explored ways for insurers to support financial inclusion and to mitigate economic inequality based on the mutualisation of risk.

Gargantuan protection gaps expose the most vulnerable segments of the population to impoverishment after calamities such as catastrophic out-of-pocket expenditure for hospitalisation and treatments or natural catastrophes such as floods or earthquakes.

The scope for insurers to promote financial inclusion has improved considerably over the past 10 years. Technology-based distribution, e.g. through digital payment platforms, has slashed the cost of providing insurance coverage to lower-income groups. With smart phone penetration increasing among those groups, there is now sufficient data to underwrite the vulnerable and the spectrum of available ecosystem partners has expanded significantly. At the same time, regulators increasingly focus on market development, e.g. through sandboxes and innovation hubs, in addition to their traditional remits of protecting customers and maintaining financial stability.

In order to maximise their contribution to financial inclusion insurers need to further simplify products and offer more basic coverages. Underserved customers require different and tailored distribution approaches, and insurers need to do more to partner with governments, NGOs and multilateral organisations to promote economic equity.

Takeaways for insurers:

• Simplify and tailor products to meet the needs of the vulnerable.
• Harness technology and ecosystem partners to further slash the cost of distribution.
• Leverage the growing availability of data for low-income group underwriting.
• Partner with governments, NGOs and multilateral organisations to design and run risk mitigation schemes.

Our first Women in Insurance Award ceremony took place at the General Assembly dinner: Geneva Association Chairman Christian Mumenthaler, CEO of Swiss Re, presented Garance Wattez-Richard (AXA) the 2020 award in the ‘inclusive insurance’ category; and Charles Brindamour, CEO of Intact Financial, presented Nina Arquint (Swiss Re) the 2021 award in the climate & environment category.

Nigel Brook, Partner, Clyde & Co; Maryam Golnaraghi, Director Climate Change & Environment, The Geneva Association.

Climate litigation is a recent and growing phenomenon. It goes far beyond the recovery of climate change-related damages and has become a key tool for those seeking to push for climate action and policy change. This is known as strategic litigation. Both governments and corporates are now being targeted around the world – for causal contribution to climate change, miscommunication and/or mismanagement of climate risk, failure to fulfill a duty of care towards citizens, and more – and the potential knock-on effects for insurers are significant.

Various factors are driving this upward trend in climate litigation, including increasing public awareness of the climate crisis, the materialisation of physical and transition risks, and companies’ growing commitments to net-zero targets. Claimants’ success in courts is also inspiring a whole range of new cases in several jurisdictions, and new regulations and legislation will likely spur more climate claims going forward. The U.S. accounts for the majority of cases brought to date, but Australia and Europe –particularly Germany and the Netherlands – are emerging as hotspots for future disputes. Though the ramifications of cases brought against governments may not appear to be substantial for insurers at first glance, they have the potential to change the environment in which insureds and investees operate and must not be underestimated.         

Takeaways for insurers:

• Climate litigation may impact insurers on both the asset and investment sides of their balance sheets, as well as through direct litigation against their boards of directors, executives and officers.
• Insurers can take steps such as putting a framework in place to monitor this evolving area, raising awareness of the issue at the board level and among insureds, instituting appropriate climate risk governance, and including litigation risk in their approach to climate risk management.
• Insurers can become a part of the solution by insuring or investing in new technologies that will be key to the energy transition – taking care to conduct careful assessments of the risks associated with new developments beforehand.

Jonathan Dixon, Secretary General, International Association of Insurance Supervisors (IAIS).

As a global regulatory standard setter, the IAIS influences global risk management practices, such as the adoption of the holistic framework for the assessment and mitigation of systemic risk in the insurance sector and the development of the Insurance Capital Standard (ICS). The ICS aims to create a common language for the assessment of insurance group solvency and is currently being tested over a five-year monitoring period until 2024. The Aggregation Method (AM) and Solvency II can be seen as the U.S.’s and European Union’s implementation of the ICS, respectively.

A key issue impacting the insurance sector is climate change. A recent IAIS report has demonstrated the clear benefits of an orderly transition in terms of insurer solvency and financial stability. As investors and risk managers, insurers have a critical stewardship role to play in the transition to net zero. Enhancing global risk assessment and climate scenario analysis will be critical, and the Geneva Association Task Force on Climate Change Risk Assessment for the Insurance Industry will be a key partner for the IAIS in this regard. Cyber is also a topic of increasing importance to the IAIS, which will soon explore the financial stability impact of cyber risk and the role of cyber underwriting in mitigating this risk.

The strategic agendas of the IAIS and The Geneva Association are well aligned, and the advisory role of The Geneva Association is considered beneficial in terms of contributions to the work of the IAIS.

(Top) Julie Sweet, Chair and CEO, Accenture; Brian Duperreault (panel chair), Executive Chair of the Board, AIG. (Bottom) Oliver Bäte, Chairman of the Board of Management, Allianz; Segun Osuntokun, Partner, Bryan Cave Leighton Paisner.

Though there is evidence that diversity among decision-makers makes institutions bolder, more innovative and more resilient, insurance is trending behind other industries in making diversity in the workplace a reality.

Why does diversity, equity & inclusion (DE&I) matter for companies?

To start, it is an ethical and socio-economic imperative; businesses should do the right thing. Employees, customers and societies increasingly expect companies to reflect their values. DE&I also makes good business sense, with proven links between diverse management teams and higher revenues due to innovation.

How to advance the DE&I agenda?

Company top management should make DE&I a business priority, rather than a ‘to-do list item’. Companies’ DE&I priorities need to run through all stages of employee engagement – from recruitment to retaining and promotion.

Employee resource groups (ERGs), or ‘affinity groups’, foster empathy and understanding, providing a safe psychological space for employees to share experiences. ERG leaders are strong internal change agents and their contributions could more often be recognised and rewarded similar to business performance.

The virtual work environment may support inclusion of those with disabilities – physical and mental (‘invisible’) – more than the in-person one.

Spotlight on gender equity

The insurance industry in particular would need to attract twice the number of female talent over the next 10 years in order to have a gender-balanced work force. However, in countries like Germany, where most top government officials are male, family and childcare policies are not conducive to all parents working long hours, and usually women take on the extra family responsibilities. They also often consciously decide not to pursue more demanding management careers. A pre-COVID survey revealed that 30% of women desired flexible work, yet 91% of businesses did not want to offer it.

Takeaways for insurers:

• Be ‘courageous but careful’: stay true to core, global values, and transmit them through ‘allies’, who can foster effective local programmes.
• Focus not just on putting women in management positions but in business leadership and CEO positions.
• Change approaches to talent: build a fresh, next generation of leaders by promoting based on potential, not years of experience.

Peter Maurer, President, International Committee of the Red Cross (ICRC) in conversation with Christian Mumenthaler, CEO of Swiss Re.

The ICRC works predominantly in hyper-fragile regions of the world where war, internal conflict and structural poverty are pervasive. Compared with such chronic societal issues, COVID-19 has not been a major and direct source of problems, but the pandemic has created severe, adverse knock-on effects. Trade and travel restrictions have disrupted economic activity in these vulnerable countries, which has fuelled further fragility. Moreover, radical groups have politicised the pandemic to foster resentment against advanced countries, who are portrayed as exploiting globalisation and imposing their own cultural, religious and commercial norms and standards.

Other factors are also undermining stability in certain regions. In particular, climate change is increasing pressure on scarce resources like arable land and water supplies, fuelling conflict and violence. The current civil war in Ethiopia, for example, is largely rooted in competition between rival groups over resources impacted by changes in climatic conditions. The humanitarian crisis in Ethiopia has the potential to destabilise the African continent, with serious global implications.

Longstanding sources of political instability also persist. Afghanistan in particular remains a rogue state, a situation that seems likely to worsen in the wake of the Taliban takeover. Ironically, western governments’ decision to not recognise the new government in the hope of forcing the new regime to adopt global values is adding to security tensions. If international diplomacy fails, the country may slip back into the hands of tribal factions who rely on opium production for income and foster increased radicalisation of a largely youthful population. This will blow back on the rest of the world if it leads to mass migration and/or the harbouring of terrorist organisations.

Takeaways for insurers:

• Re/insurers have little influence over the political determination and conflict management in countries.
• However, they have a part to play in enabling fragile countries and their citizens to mitigate the risks they face from, say, climate change. Examples include insurance products that provide risk protection against changing rainfall patterns and shifts in crop production.