“The world is changing at an exponential rate but this is not something we should fear. It is something that we should embrace and be prepared for,” Lloyd’s CEO Richard Ward told his audience at the Xchanging Conference in Brighton,yesterday, Nov. 7.
While Ward may be as concerned as anyone about the future, he has confidence that that given the right tools and direction the insurance industry can “adapt to meet the challenges created by ‘mega-trends’ such as the technological revolution, climate change and increased terrorism risk.”
He reminded those present that “as insurers we need to understand what the future holds in the next ten, 20 and 30 years so we can meet the resulting challenges and be able to capitalize on new opportunities as they arise.”
He continued his remarks with a discussion of the many small, “‘microtrends’ that have the potential to act as ‘societal atoms’.” Marketing experts have defined them as “an intense identity group, that is growing, which has needs and wants unmet by the current crop of companies, marketers and policymakers.” They are part of the larger changes in society wrought by “an explosion in communication and the electronic revolution,” which have greatly expanded the lifestyle choices and the “sense of individualism -” at least in the developed world.
“As insurers we need to ensure that we have the tools at our disposal to understand these trends,” Ward continued. “We need to have access to the right data and research and respond to the changing needs of our customers. As specialist insurers, creating niche bespoke products is what we do, so these developments are to be welcomed.”
Turning to the mega-trends, Ward first addressed climate change, noting that it is happening more rapidly than had been predicted, and that this has created an even more uncertain future. Temperature increases – the most rapid in 10,000 years – will raise sea levels and heighten the incidence of floods and violent storms.
Ward cited the Stern Report’s rather dire conclusion that “if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5 percent of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 percent of GDP or more,” The threat to global stability, he stressed would “‘vastly eclipse’ that of terrorism.”
Terrorism, is however, still very much an industry concern. Citing Lloyd’s recent conference on the subject in New York (See IJ web site Nov.5), he noted: There was an overwhelming view that terrorism remains a key threat that we need to prepare for.” He indicated that “as political violence risks evolve four new threats are emerging – threats to supply chains, cyber terrorism, home grown terrorism and the threat of chemical, biological, nuclear and radioactive attack.”
Turning to the “technological revolution,” Ward cited some amazing statistics from Google, indicating that “an iPod by:
2012 – will be able to store a year of video clips
2015 – will be able to store all commercial music ever made
2019 – will be able to store 85 years of video content
2020 – will be able to hold all the video, audio and text ever produced in the world
The insurance industry along with everybody else will be affected as the use of the Internet implacably replaces older forms of communication, marketing, social and commercial interaction.
Ward also addressed health care concerns, notably the increasing levels of obesity in the industrialized world, particularly in the U.S. and the U.K. He also noted the rise of a new middle class, with greatly increased purchasing power, led by China and India.
Ward also gave a sobering assessment of the increasing need to attract talented people into the insurance industry. He said a “skills gap is already having a significant impact on the insurance sector,” which now faces a “severe skills shortage that has the potential to undermine our recent reform efforts.” Recruiting talented people isn’t helped by what Ward and others have called “the serious image problem that our industry has.”
The UK’s insurance industry alone “is worth £100 billion [$210 billion] and is our second largest export,” he reminded his audience. “The sector employs over 330,000 people in a diverse range of roles and an additional one million people in related fields. Yet nearly 90 percent of graduates won’t consider a role in insurance and 75 percent of recruiters in the industry struggle to attract quality talent.”
In conclusion Ward noted that, while the exact shape the future holds is largely unknowable, this should not prevent the insurance industry from addressing the need to face it.
“We must anticipate,” he continued, noting the steps Lloyd’s has taken. Then he said, “we must adapt: We have to have the confidence to change the way we conduct the business of insurance, so that we are at the leading edge of new technology and the new business models which it brings about.”
Finally Ward told his audience that “we must be ambassadors: as has already been the case, the insurance industry must continue to be ambassadors of change within the economy, and increasingly, in wider society. Building on our expertise, our research and importantly on the action we take, we must become a leading force in talking intelligently about the future, to ensure that we remain a leading economic force in that future.”
The full text of Ward’s remarks is available on the Lloyd’s web site at: www.lloyd’s.com, under the heading “Briefings & Speeches.”
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