Play ball!

March 31, 2008

I’ve used this space occasionally in the past to acknowledge my allegiance to Chicago’s North Side baseball team, and while the weather is making it less than certain whether the Cubs will take the field at Wrigley today, it’s that time of year again.

I’ve got a ticket to this afternoon’s game, but I’m sitting at the office, looking periodically at the rain pouring down outside and checking the weather radar, and it doesn’t look promising.

As the Cubs begin this season, there is for Cubs fans, of course, the usual risk of heartbreak. This year the team marks the centennial of the last season that didn’t end in heartbreaking fashion with the 100th anniversary of the Cubs 1908 World Series win, their last.

Last year, of course, the Cubs did make the playoffs, only to be swept in the first round by the Arizona Diamondbacks. This year, some are actually picking the North Siders to win the National League pennant, which anyone who believes that Cubs history has been shaped by bad luck and curses must believe can’t bode well. I tend to believe the Cubs’ history has more to do with lack of talent or bad health or both, but we’ll see.

There are actually some other interesting risks potentially emerging around Wrigley Field as this season begins. Since purchasing the team’s owner, Tribune Co., last year, Sam Zell has made it clear he intends to sell the team and the ballpark to raise cash.

Part of that plan will no doubt include selling Wrigley Field naming rights, which has led some to suggest that anyone buying those rights best be particularly sensitive to how they apply them, lest they risk the ire of the diehard Cubs faithful. That seems a unique, if limited, sort of brand risk.

Personally, I expect someone to buy the naming rights, and they may well slap their name on the grand old marquee at Clark and Addison. But I’ll still call it Wrigley Field.


Listing the risks

March 12, 2008

It won’t produce the laughs that one of David Letterman’s Top 10 lists might, but a recent Top 10 list offered by Ernst & Young may well get insurance executives’ attention late at night.

The list is the Top 10 Strategic Risks facing the insurance industry, set out in a new study, Strategic Business Risk Insurance 2008, produced by E&Y in conjunction with consulting firm Oxford Analytica. According to the study, the top 10 risks are:

1.   Climate change
2.   Demographic shifts in core markets
3.   Catastrophic events
4.   Emerging markets
5.   Regulatory intervention
6.   Channel distribution
7.   Integration of technology with operations and strategy
8.   Securities markets
9.   Legal risk
10. Geopolitical or macroeconomic shocks

The report notes that risks change over time, and that if such a list had been compiled 10 years ago, it’s arguable whether climate change would have been on it. Today, however, climate change tops the list,  and is “typically viewed as a long-term issue with broad-reaching implications that will significantly impact the industry,” the report says.

As for demographic shifts in core markets, the report notes that with baby boomers reaching retirement age, the insurance industry is well positioned to meet the generation’s new demands, but could lose out to other sectors.

Changing weather patterns, terrorist attacks and pandemics are among the factors driving catastrophic events to the third position on the list, while the report’s authors noted that number four, emerging markets, present both risks and opportunities for insurers, with success in those markets not a given.

Technology factors twice on the list. In the sixth spot, channel distribution, the report notes that technology has changed the way insurance is sold and that the possibility of Internet disintermediation is becoming a major risk for insurers, with companies offering multi-channel access for sales and information enjoying an advantage.

One down the list at seven is integration of information technology with operations and strategy, a risk some companies have become painfully aware of through their own experience in recent years. “Insurers need to view technology as an enabler to keep pace with the competition,” the report says.

The report also lists some “Below the Radar” risks that, while not making the Top 10, have the potential to make the list over the next five years. That list includes over-reliance on model-based risk management, threats to the reputation of the industry, losing the war for talent, increasing corporate exposure to global regulatory heterogeneity and possible emergence of entirely new risks.


Emerging debate

March 6, 2008

As an industry that’s very much interested in emerging markets, perhaps some in the insurance business might be interested in a recently published piece I read on the Knowledge@Wharton site today.

The piece, When Are Emerging Markets No Longer “Emerging”?, examines whether the phrase “emerging markets” has lost some of its meaning as the term is applied to more and more countries. It notes that the term was initially applied to fast growing Asian economies, then to Eastern European countries after the fall of the Berlin Wall. Soon, countries in Latin America and elsewhere were also being tagged “emerging markets.”

The result is that the term has lost some of its meaning, according to Mauro Guillen, a management professor at the University of Pennsylvania’s Wharton School. “While South Korea, Singapore and Taiwan share characteristics, once you put them in a bucket with India, Mexico, Argentina, Indonesia and Poland, it’s no longer meaningful,” he says in the Knowledge@Wharton article. “The term `emerging markets’ has become a victim of its own success.”

According to Wharton faculty, the piece notes, the most important element in defining an economy poised to “emerge” is the strength of its economic and political institutions like rule of law, regulatory controls and contract enforcement.

I found another reason in the Knowledge@Wharton posting to be judicious about using the term “emerging markets,” or at least to begin thinking about a more appropriate term for some “emerging markets’ countries down the road.

It’s in some of the thoughts the article includes from Antoine W. van Agtmael–credited with being the first to use the term “emerging markets” in 1981 while deputy director of the capital markets department at the World Bank’s International Finance Corp. Mr. van Agtmael notes that in the next 10 years there will be one billion more consumers in emerging markets, and that in 25 years the economies of those countries will surpass the combined economies of the developed countries.

Emerging, indeed.

I’ll point out here that we’ve had an annual Cover Focus report on emerging markets in Industry Focus the past couple of years, something we’ll be repeating this year with a look at Emerging Markets & Globalization in our June issue.