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Paris International Conference on Risk and Insurance Economics Strategic Vulnerabilities of the Insurance Industry Patrick M. Liedtke Secretary General The Geneva Association www.genevaassociation.org Key Areas of Strategic Vulnerabilities • • • • Organisation Regulation Finance Communications Communication and Image • Insurance image dichotomy: – Important increases in economic and financial performances and reliability due to insurance solutions. – However, the perception of risks and vulnerabilities – as a consequence of a higher level of knowledge – has increased to the point of producing feelings of insecurity. – Inadequate understanding of the insurance function: every system needs to be controlled, guaranteed, and financially protected when it fails. – Underestimation of the importance of insurance for the development of a modern society and economy. Immediate Insurance Communication Challenges • Since 11 September 2001 and the decline of the equity markets, the industry’s financial strength and reputation has suffered. • The industry failed to deliver on some of its promises, in particular in the arena of life insurance. • It still has to rebuild its capital base and has to restore investor confidence. • The relationship with rating agencies is still tense and further debates on methodologies and instruments will have to be solved Immediate Insurance Communication Challenges • The industry’s reputation with consumers and the media has been eroded, despite a laudable performance in the non-life sector under difficult conditions. • The operational environment is changing rapidly and insurers have to adapt to new processes. Adequate transparency is needed. • Insurance regulators and other standard setters will/have introduce/d tighter frameworks that are more demanding on companies and have to be explained to stakeholders. • The investigations of the US State Attorney General Elliot Spitzer have also effected the industry's image. Insurance and Communication Management The insurance industry will have to consider more intensively the follwoing questions: • • • • What is the role of insurance communication in the public domain beyond its own operations? How can and does insurance interact with the global dialogues in our modern democratic media-driven societies? Which mechanisms exist to push the understanding and knowledge about insurance matters in the public space? What transnational mechanisms exist to lead risk management, disaster prevention and relief discussions and are they adequate? => Why do we often have such difficulties in leading public risk debates? Often Cost Absorbtion of Large Disasters by the Nation-States, but.... • Regularly no systematic and comprehensive breakdown of all concerned objects and systems, and especially a neglect of consequential losses, opportunity costs, and nonmonetised efforts. • Absence of stock indicators of national wealth and wellbeing: e.g. an earthquake increases GDP in the following periods due to reconstruction rather than reduce it. • Prevention and the political economy are often at odds: wrongly designed decision-making processes, differences in responsibility and concern, long-term versus short-term problems, etc. => Where is insurance in all this? Insurance and the modern society • Need to overcome entrenched misconceptions about role and function of insurance in a modern economy: – Functional misconception: Ignorance about limits of insurability and insurance methodologies and instruments – Fiscal misconception: Misuse of insurance mechanisms to solve financial or redistributional problems. – Social misconception: Misunderstanding of insurance as a mutuality for the benefit of the weak and socially disadvantaged Challenge: Insurance Communication beyond the Immediate • Pre-Disaster sensibilisation and information is almost as important as post-disaster communication • Overcoming the lack of information and understanding about insurance and risk management in the broader public is a necessary precondition for efficient media and public relations work as well as for functioning markets • Necessarily stronger penetration of insurance issues and problems in non-sectoral national and international (financial) organizations (BIS, IMF, WB, OECD etc.) Paris International Conference on Risk and Insurance Economics Strategic Vulnerabilities of the Insurance Industry Patrick M. Liedtke Secretary General The Geneva Association www.genevaassociation.org