Leader's Edge Global Scale Return to Table of ContentsTell the Editor
Leader's Edge

 

Brave New World

By  Coletta Kemper

The world economy is shifting toward Asia. What does that mean for our future?

I love a new year. It gives a sense of new beginnings, a chance to leave past mistakes behind and shape the future.

What are the challenges for the insurance industry in 2007? I see a few trends that will have a significant impact on the industry. All give pause for worry, but also opportunity. A recent survey of corporate executives by Accenture found that “risk” was at the top of their worry list for the first time. What’s interesting is the survey underscores just how international risks are today. CEOs from the U.S., Canada, Britain, Germany, France, Italy, Spain, Japan and China are facing similar concerns.

It seems competitive risks are only half the problem. More than ever, executives are realizing just how inter-linked the world is and how an event in one region has an impact on the rest of the world. In today’s global society, when Shanghai sneezes, New York catches the bird flu.

The executives also know that they can’t afford to miss out on innovations in the global market. When Wal-Mart launched its $4 generic prescription drug program in response to the growing controversy over high drug costs (particularly for seniors), some competitors were blind-sided.

The center for economic activity will shift to Asia. Excluding Japan, Asia today accounts for 13% of the world’s GDP, while Western Europe accounts for 30%. The consulting firm McKinsey & Co. predicts that within the next 20 years the two economies will have nearly equal shares of world GDP. Information technology and manufacturing will shift faster than other sectors.

With China growing at a rapid clip of more than 9% annually, it’s expected to overtake the U.S. by 2030 as the world’s most powerful economy. As worrisome as that sounds, it also presents business opportunities for brokers and insurers. As China’s economy grows, wealth patterns will shift dramatically to that region and insurance demand will grow.

The costs to insurers from natural catastrophes are soaring. The number of catastrophes worldwide doubled between the 1960s and 1990s, while insured losses increased nearly sevenfold. 2005 was the worst year ever for property insurers with claims totaling $83 billion. While the debate over global warming continues, the insurance industry is taking action. Lloyd’s, AIG, Fireman’s Fund, Swiss Re and Munich Re, as well as Berkshire Hathaway’s Warren Buffett, are raising the alarm about the industry’s increasing exposure from climate change. As a result, a number of insurers and brokers are developing products to create greater awareness and to help mitigate losses from climate change. The products cover the gamut from “green” buildings to hurricane-resistant construction, carbon emissions trading and renewable energy.

Fireman’s Fund recently launched a certification program for making buildings environment-friendly by using non-toxic paints and carpeting and energy-efficient products. Rutherfoord is the first in the insurance industry to go carbon neutral by reducing its greenhouse gas emissions and setting a new course for the future. Stephen Myers, vice president and practice leader for environmental risks at Rutherfoord says “…events such as Katrina coupled with the high price of petroleum make us all aware that we live in a fragile environment.”

Protectionism forces are running high in the U.S., Britain and elsewhere in the world. Fear over immigration, outsourcing and the loss of jobs is fueling the protectionist fires. In response, some countries are making political decisions that appear to be self-preservation but are—as U.S. Treasury Secretary Henry Paulson points out—“self-defeating.” With the new Democrat-controlled Congress in place, we can expect to see some battle lines drawn between saving American jobs and free trade. As rational people know, it doesn’t have to be a trade-off between the two.

The collateral damage from closing markets to trade is severe. No country has escaped poverty without opening to trade. Nations with open markets grow faster than those with closed and isolated economies. Services, including insurance, account for 50% to 60% of economic activity in most developing countries and more than 70% in some developed nations.

The insurance industry is right to support trade liberalization. Not only is it good for the industry, it’s good for our economy and for developing economies around the world. Knee-jerk reactions are short-sighted and won’t produce the long-term opportunities and economic gains vital to sustain the world’s economy.

< Prev1 2 Next >
 
(2 pages)
 Return to Table of Contents

Email PagePrint PageArticle reprintsArticle tools sponsored by


Full Leader's Edge Archive. Previously published articles, listed by subject below.

arrow Industry Leaders    arrow Wholesalers    arrow Legal Issues   arrow Regulatory Issues  
arrow International Risk arrow Management    arrow Industry News    arrow Regulatory News
arrow Market News   arrow Cartoons