This year's World Economic Forum provided the re/insurance sector with an opportunity for the industry to tell the world about the challenges it is facing at the moment.
It was probably not too much of a surprise that this year's World Economic Forum (WEF) meeting focussed on global issues such as the war on terrorism, the likelihood of war with Iraq, ending poverty and ideas on how to ensure that capitalism benefits not just top-ranking capitalists. And, like the Davos weather, the meeting was reportedly characterised by a certain frostiness between the US and European contingents over how to deal with Saddam Hussein's Iraqi regime.
But it appears that there were no such divisions between members of the insurance community who gathered for `Insurance in Crisis', the only insurance-focussed event of the 270 sessions that were held at the six-day meeting in January.
The World Economic Forum website (http://www.weforum.org/) reports that session moderator Victor Halberstadt, Professor of Public Economics at Leiden University in the Netherlands, set the tone with his opening remark: "Insurance is in a serious state."
He was followed by Marsh & McLennan Cos chairman and CEO Jeffrey Greenberg, who described the current state of the industry as "austere" because people had been "so burned" by their experiences. Mr Greenberg went on to remind the industry of its poor underwriting performance during the 1990s and its over-reliance on investment returns, adding that although matters had improved in 2002, companies were seeing nothing more than a profitless recovery.
Following Mr Greenberg, new Lloyd's chairman Lord Levene of Portsoken said: "Natural and man-made catastrophes such as 9/11 showed that we can cope now." He added the question: "Can we cope in the future?" This depended on how well we had learned from the past. Such events had, at least, led to improved modeling and estimates of future such events. But, he said, it was not just the cost of premiums, but the cost of coverage that had to be adjusted, and there had to be an arrangement with government to set limits to insurance companies' exposure. Asked whether he agreed with government regulation, the WEF report described him as emphatic in his response: "Yes. You can't be both promoter and regulator at the same time - have your foot on the gas and brake simultaneously."
The only life insurer on the panel, Donald Stewart, the chairman and CEO of Sun Life Financial Services of Canada, opened his remarks by noting the "big sweep of demutualizations, which has not played out yet" and the strong trend towards consolidation. Life insurers were subject to a struggle for distribution of long-term savings, and they needed to come up with better product design and pay more attention to risk management in order to grow a more comprehensive life business, he said.
And Paul Achleitner, a member of the board of management at Allianz, said the West now had something to compare with the oil crisis of 1973.
"Risk, our product, now costs many times more than before," he said. "There is a fundamental change in the management of risk. Risk perception is different." He added that management had become aware of totally unknown, new potential risk. This risk - and profits - had to be spread across more than one client, he said.
In an email interview after the WEF meeting had finished, Prof Halberstadt told Global Reinsurance that the global insurance industry was going through a very serious crisis, which seemed to be "much more threatening than just another cyclical bad period." He added: "It faces many challenges, (including) very low returns on investment portfolios, fear of policyholders, capital adequacy concerns, regulatory pressure, accumulation of negative property and casualty events and dwindling reserves."
Although this year's forum held no specific lessons for the insurance industry, he continued, it had at least brought the industry to the world's attention by highlighting it as a sector with many current and important concerns.
He added that it was also necessary for the industry to raise its profile within the global economy: "(The industry) must be transparent at this stage about the risks to all of an industry crisis or even major failures."