Zurich’s CEO Discusses Industry Issues in Davos Interview

January 26, 2006

Zurich Financial Services has released an interview with the Group’s CEO, James Schiro, to coincide with the ongoing conference of international business leaders, being held in the Swiss resort of Davos.

Schiro, an American, who is widely credited with turning around Zurich’s fortunes, indicated that “after having focused on operational excellence during the turnaround, the big challenge is now to double our effort and focus on operational excellence and growth.”

He also said a major priority for 2006 is to “unify Zurich Financial Services’ brand in a dynamic market environment and harness the increased brand awareness for profitable growth.”

Turning to the issues facing the global insurance industry at present, Schiro put them in the following order:
1 – Over-regulation
2 – Natural catastrophes
3- Terrorism
4- Climate Change
5- Pandemics
6- Oil Shocks
7- US dollar decline
8 – Stagflation
9 – China
10 – Proliferation of weapons of mass destruction

After having put “Regulation” as his number one priority, Schiro noted that it is “absolutely necessary to set a framework for business transactions and consumer protection. But current regulatory activism pretends to provide cures for all ills. This regulatory overstretch imposes a costly burden on businesses. It also stifles risk taking, which is the engine for growth and future prosperity.”

Commenting on the growing presence of China and India, Schiro observed: “The relative importance of China and India in the global economic order and their impact on industrialized countries tends to be exaggerated. Low wages in China and India are offset by low productivity and a woefully inadequate infrastructure. This means that the production in these countries does not pose a competitive threat to high-income countries with their capital-intensive and highly productive economies. If anything, China and India are competing against other emerging markets. Having said this, the economic potential of India and China is huge, and participating in their development will be beneficial for all.”

Analyzing globalization, he stated: “The issue is not so much the global landscape – the world was already globalized at the turn of the 20th century – but the force of competition. The creative and destructive forces of competition have posed perennial business challenges. Survival depends on our ability to analyze how the forces of competition are affected by innovation as well as by shifts in consumer taste and by regulatory intervention.”

Turning to Europe, Schiro cited the “lack of leadership in addressing the structural deficits [low growth, unemployment, high costs, etc.] in the European economies” as major issues. He added that there’s “too much defensive posturing by European leaders in the Doha Round of the WTO.” Schiro said he has a “more pessimistic view for the prospects of Europe in 2006 and 2007, as he sees “no convincing strategy to tackle the challenges posed by global competition.” Europe is also likely to be affected disproportionally by what he sees as the”coming economic slowdown in the United States.”

Schiro also took issue with the view that globalized business is somehow escaping effective government controls and losing the confidence of the public. “The public-private trust deficit is based on the (false) premise that the business sector is promoting a special interest which is opposed to the public interest and that businesses have undermined the power of the state to act,” he stressed. “The opposite is true. Corporations are not malfeasant. Their economic activity is necessary for our societies to prosper.”

He went on to explain: “Since the days of Adam Smith it has been recognized that businesses operating in an open and competitive environment will further the general interest – by responding to customer demand, by producing goods and services at the lowest costs, and by being innovative. In short, it is the essence of dynamic markets that they are able to offer economic opportunities to all, and that is precisely the argument the business sector should make more forcefully. This requires propagating a better understanding of the forces driving our economies and of the profound moral quality of our market economies.”

Schiro concluded with a nod to the Davos Conference, indicating that it “brings exposure to new ideas and contacts across a wide spectrum of people with different interests and varying backgrounds,” and “can be a catalyst for change, and that’s the value for all stakeholders participating in the Annual Meeting.”

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