Talent is key

I’ve spent the last several days in Taipei, where I’m attending the 44th Annual Seminar of the International Insurance Society. Not surprisingly, given the conference venue and current trends in local business, much of the discussion has centered on the insurance industry’s Asia efforts.

Beyond even talk of the importance of providing appropriate products for different local markets and the various distribution challenges posed by many emerging markets, perhaps the most frequently cited issue facing the industry as companies look to expand around the globe is the talent shortage confronting them in emerging markets.

Many of the panelists addressing the talent issue spoke of not only the difficulty of finding needed talent locally, but of the importance of retaining it once companies had recruited and trained individuals.

Martyn Parker, Hong Kong-based group executive board member and chief executive officer of the Asia division of Swiss Reinsurance Co., conceded that there will always be employee turnover. That said, “The turnover that really does trouble me is the turnover to competitors, which is always disappointing after you’ve invested in people,” he said.

For Swiss Re, retaining talent in rapidly developing Asian markets is more challenging than recruitment, Mr. Parker said. Meanwhile, Michael J. Cassella, senior vp and managing director Asia-Pacific for the Chubb Group of Cos. in Singapore, took the opposite view, to an extent.

“I’d say our greatest challenge is finding the talent,” he said. Consequently, Chubb puts considerable effort into retaining employees in Asia so it won’t have to devote additional resources to finding and developing replacements.

Whether recruiting or retention is the greatest challenge facing insurance industry companies moving into emerging markets, clearly solving the talent issue is key to the success of their efforts.

“I think there’s a strong correlation between companies making the most progress and their talent management piece,” said Swiss Re’s Mr. Parker.

I’ll be posting more to the blog about the IIS in the days to come, and will be writing about the conference more extensively in the August issue of Industry Focus.

Emerging debate

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.

Made in China?

It’s going to interesting to see what impact the recent flurry of stories of recalled or defective Chinese-manufactured products ranging from toys to toothpaste has going forward.

The most immediate response, it would seem, is likely to come from three sources: businesses forced to decide whether the cost savings they realize by manufacturing in China are worth the potential liability exposure and risk of damaging their brand; consumers, who might look long and hard at the words “Made in China” in the near future when deciding on purchases; and the Chinese government, which no doubt will look to move quickly to prevent having the words “Made in China” come to be equated with poor quality.

Another group likely to respond to the recent developments concerning Chinese made products is insurers. Broker Aon Corp. put out a release recently noting that Chinese manufacturers will need to boost their commitment to quality if they hope to secure product recall coverage.

The insurance industry has been eager to expand into the Chinese markets, but these recent developments have no doubt provided cause for thought. “The issue for insurers and brokers alike is developing recall insurance in a Chinese market that is relatively unsophisticated and only just coming to terms with the concept of product liability, let alone product recall,” Aon said. Insurers will demand testing and controls throughout the supply chain, according to the broker.

Toymaker Mattel Inc. certainly was given its own cause for thought earlier this month when it had to recall millions of toys over the past few weeks. Whether abandoning China as a manufacturing site is even an option for Mattel is open to question–reportedly 65% of the company’s toys are made there. That being the case, it’s likely the toymaker will instead look to ratchet up its quality control process.

It will be interesting to see how consumers respond, especially heading into the holiday shopping season.

And it will be interesting, too, to see what other steps companies selling products manufactured in China might take. I’ve long been interested in Apple’s labeling all its products with the words “Designed by Apple in California.”  Maybe many companies will start stamping their Chinese made products with the words “Made in China, Rigorously Tested for Quality in the U.S.”

Micro-opportunities

I enjoyed listening to a very good presentation this morning on some of the opportunities and challenges offered by microinsurance.

The talk, at the annual seminar of the International Insurance Society in Berlin, was presented by someone very much involved in the microinsurance effort, Nelson Kuria, managing director of the Cooperative Insurance Co. of Kenya.

Microinsurance is seen by proponents as one tool to help address global poverty, helping emerging businesspeople, entrepreneurs and the working poor to protect their income, the assets they’re just beginning to accumulate and their well-being. We ran a cover story on the topic in the June issue of Industry Focus, noting that a number of major insurers and reinsurers are becoming involved in the effort, seeing it not just as an opportunity to do good, but a chance to do good business.

Aside from micro-health insurance efforts, microinsurance products have thus far proven profitable and sustainable, Mr. Kuria said. But, he noted, for the effort to be successful, insurers have to consider a market that could generously be described as skeptical of insurers’ sales efforts, and make sure they take the steps needed to build a trusting relationship with those new insurance buyers.

“You’re dealing with a highly sensitive sector of the population and a sector that is skeptical of insurance,” Mr. Kuria said. It’s not unusual for the working poor in many Third World or emerging market countries to view those selling insurance as “con men or con women,” he said.

In those markets, even a $5 claim “can be a matter of life and death,” Mr. Kuria said. “So delaying a payment does a high disservice to the development of microinsurance.”

And while insurers are still working on crafting a sustainable micro approach to health insurance, Mr. Kuria noted that the potential value of health insurance to microinsurance buyers “is not micro,” but hugely significant to improving the quality of life.

“The challenge here,” Mr. Kuria cautioned, “is if you come with the same exclusions that are used in conventional health insurance you’re not going to go anywhere.” If you present the buyer with a list of exclusions, he said, “you will be con men.”

The challenge for insurers venturing into microinsurance is to build products that will be simple and sustainable, and will encourage buyers to renew their policies.

And, Mr. Kuria noted, “This is not the kind of market segment that is given to dealing with bureaucracy. They are not patient, so you’ve got to be flexible.”

I’ll post more later from the Berlin gathering, and will cover this year’s IIS seminar in greater depth in an upcoming issue of Industry Focus.

What’s Knut think?

With top insurance executives from around the world gathered in Berlin as the European Union prepares to release a framework directive on its Solvency II proposed risk-based capital regime for European insurers on Tuesday, it’s little surprise the new insurer capital adequacy approach was the subject of considerable discussion today at the 43rd annual seminar of the International Insurance Society Inc.

While most of the European industry panelists addressing the issue praised Solvency II as a step towards needed regulatory harmonization in an increasingly global market and, potentially, a source of competitive advantage for European insurers, attendees responding to an instant poll at the end of the day were less certain the measure will live up to its hype.

Asked whether Solvency II was likely to reduce the amount of capital their companies would require, 47% of those at a session on the proposed regulatory measure responded “no.” The results clearly perplexed Karel Van Hulle, head of the European Commission’s unit on insurance and pensions.

Mr. Van Hulle was a participant in this afternoon’s IIS Solvency II panel, during which he predicted that Solvency II’s emphasis on risk management would reduce capital requirements for E.U. insurers that demonstrated quality risk management efforts.

Mr. Van Hulle said he was disappointed with the poll results because a goal of Solvency II is to reduce capital requirements in exchange for better risk management.  “Does that mean you think you can’t do that,” he asked conference attendees.

While they weren’t sure Solvency II would benefit them by reducing their capital requirements, 56% of the insurance executives participating in the instant poll said they thought the new regulatory regime would improve the international competitiveness of E.U. insurers. A smaller percentage expect the regime to benefit consumers, with 43% saying Solvency II would benefit insurance buyers vs. 33% who said it wouldn’t and 22% who predicted no change.

And attendees were nearly evenly split on whether the measure would lead to increased consumer trust of insurers, with 35% saying yes, 30% saying no and 30% anticipating no change.

While IIS attendees appeared somewhat uncertain Monday about the anticipated benefit of Solvency II, there appears to be less ambiguity in Berlin about Knut, the celebrity polar bear cub at the Berlin Zoo. A visit yesterday found a huge queue waiting for a glimpse of the cute little Eisbar gnawing on his handlers’ forearms during the afternoon hour he was made available for public viewing.

And, while Knut is still pretty darn cute, it’s clear he won’t be a cub forever. He already appears to be considerably larger than in most of the photos and posters you see inviting visitors to the zoo.

A little extra wurst

Folks traveling to Berlin in a couple of weeks for the International Insurance Society’s annual gathering have a couple of things to be happy about.

The first, of course, is the fact that the annual seminars are in Berlin, a city I thoroughly enjoyed on my last opportunity to visit there about eight years ago. The second is that Berlin ranks towards the bottom of a new ranking of the world’s 50 most expensive cities.

Moscow tops the list, compiled by Mercer Human Resource Consulting. Second on the ranking from Mercer’s Cost of Living Survey is London, followed by Seoul, Tokyo and Hong Kong.

Rounding out the top 10 on Mercer’s ranking are Copenhagen, Geneva, Osaka, Zurich and Oslo.

And Berlin? It comes in 45th in Mercer’s survey, tied with Abu Dhabi and Dusseldorf.

Due to the dollar’s weakness, only two U.S. cities made the top 50, New York at 15 and Los Angeles at 42.

Mercer’s annual survey covers 143 cities, comparing them on the local cost of more than 200 items including housing, transportation, food, clothing, household goods and entertainment.

Mercer noted that 30 of the 50 most expensive cities were in Europe, adding that strong currencies contributed to the higher relative cost of living in most European cities.

More fear than action

While businesses are increasingly concerned about the threat of political violence is increasing,  only 37% of those surveyed for a new Lloyd’s of London study believe they have a solid understanding of the risks their companies face.

What’s more, 22% of those surveyed said they don’t systematically assess the political violence risks their companies face. And 23% of respondents said their companies have no business continuity plan, while 14% said their existing plan has not been updated, despite the need to do so in the face of growing political violence exposures.

Lloyd’s conducted its study, Under attack? Global business and the threat of political violence, in conjunction with the Economist Intelligence Unit, surveying 154 executives from companies of various sizes and industries from around the world, then following up the survey with interviews of senior executives, terrorism experts and others.

The survey found that 37% of those companies polled had made decisions to avoid investments in some overseas markets as a result of political violence, while 23% of those surveyed said they have increased insurance levels and/or spending over the past five years in response to the threat. And 20% said the possibility of political violence led them to “not pursue an otherwise promising business activity.”

Lloyd’s said its survey showed companies particularly focused on four key emerging threats: supply chain risk is an increasingly important consideration for companies; the risk of IT systems becoming the target of cyberterrorism has led 40% of those surveyed to increase spending on IT security; “home-grown” terrorism has forced companies to tighten their procedures in such areas as employee vetting, choosing sub-contractors and selecting locations for operations; and an increased recognition of chemical, biological, nuclear and radioactive attack risk is leading companies to develop and test continuity plans for addressing CBNR exposures.

As companies look to address the political violence risks they might face, Lloyd’s says they aren’t always investing their time and resources appropriately. “The main reason seems to be that they are not doing enough to analyze and understand the real risks against their business,” the report said.

Most companies, 65%, rely on international news media as their source for information on political risks, Lloyd’s said, a “sensible start,” though “too few go any further,” with only 43% looking to local media in troubled areas for information and only 49% taking advantage of business-to-business information sharing and forums.

“Most worrying,” the report states, “only 39% have a mechanism for employees to feed information they have learned into political risk analysis, yet someone working long term in a strife-torn country will often have a better sense of changing risks than international reporters who jet in and out.”

Guarding the links

Back in Chicago following this year’s RIMS conference in New Orleans, and I’m going through my notes and the various business cards I collected, remembering the many interesting discussion I had there about a variety of industry trends and new business developments.

Among those conversations was one with Stephen W. Connor, vp of the Logistics Industry Practice at ACE USA in Roswell, Ga. It was actually a bit of a followup on a conversation we’d had at a prior RIMS about some of the issues involved with the development of the third-party logistics business and businesses’ increased reliance on them to provide needed supplies and deliver finished product.

One of the developments since we’d talked last, according to Mr. Connor, was an increased recognition among top executives of just how important a role those “3PLs” play in their businesses.

“I think one of the exciting things for everybody involved in supply chain and the 3PLs and the service industry surrounding 3PLs is that at long last C-level executives of corporate America understand and get that supply chain has a direct impact on their business and, more important, has a direct impact on their financials,” Mr. Connor said.

As corporations’ grow ever more reliant on third-party logisitics providers to support just-in-time inventory processes and deliver products from manufacturing sites around the world to consumers’ homes or offices in speedy fashion, the challenge of addressing the risks those 3PLs face is a complicated one.

In fact, a number of different exposures potentially dovetail in a 3PL, Mr. Connor said, among them property, wet marine, casualty and professional liability, as well as such risks as cyberliability and political risk. “Supply chain, it covers all areas,” he said.

Mr. Connor’s recently written a white paper on risk management in the logistics industry, which is available for download from ACE.

Risky times

According to one index of world political risk, these are particularly perilous times. A look at the morning paper is probably sufficient evidence of the accuracy of that assessment.

Yet, according to executives of Alliant Emerging Markets, the political and credit risk insurance broker responsible for the index, despite the high level of risk, it remains a good time to be a buyer of political risk insurance.

Chicago- and New York-based Alliant Emerging Markets’ Political Risk Index rose nearly 5% over the past 12 months, the largest 12-month increase since the Sept. 11, 2001 attacks, according to Michel Leonard, the firm’s chief economist and head of consulting. What’s more, the index currently stands at an even higher level than immediately after Sept. 11, Mr. Leonard said.

The increase has been driven primarily by rising expropriation risks in Latin America, regulatory uncertainty in Central Asia and worsening credit conditions in Eastern Europe and Southeast Asia, according to Alliant.

That combination of political risk, credit risk and market risk “have driven the index up to the strongest increase of any 12-month period since Sept. 11 and to a point where it’s at the highest level since Sept. 11,” Mr. Leonard said.

Given the current climate of risk, “We’re seeing more and more companies taking systematic steps to manage their political risks,” said John Minor, president of Alliant Emerging Markets. “We’re also seeing a rise in companies’ interest in political risk insurance again.”

While there is a perception of increased political risk in emerging market countries–and even claims being filed against political risk policies, “there continues to be a soft market in the political risk market and we don’t see that abating any time soon,” Mr. Minor said. “Barring a Sept. 11-type event happening, we don’t see that trend reversing.”

There are some exceptions to that soft market, notably power projects and exposures in Venezuela, but, “If you’re a risk manager, now is a good time to be buying political risk insurance,” Mr. Minor said.

When China sneezes. . .

This isn’t of course, a reference to flu pandemic worries, but rather to  Tuesday’s dramatic stock market sell-off.

If anyone needs any further evidence of the globalization of business and economies, it’s right there in stock market analysts’ assessment that Tuesday’s 3.3% drop in the Dow Jones Industrial Average had its start in a 9% drop in the Shanghai stock market earlier in the day.

Preceding the downturn in the Dow was a rolling wave of stock market losses that made its way west with the sun from China after Tuesday’s market close in Shanghai.

Of course, what the title of this post does make reference to is the once popular saying that “When General Motors sneezes, the whole country catches a cold.” As it turns out, another item in today’s business news addresses Toyota’s announcement of plans to build a new $1.3 billion auto plant in Mississippi, and the fact that the Japanese automaker likely will overtake GM this year as the  world’s largest car manufacturer.

 The insurance business has been a global business for quite some time, and industry interest in emerging markets like China and India show it will become even more so.  A global marketplace offers a world of opportunities, though attempts to tap them obviously must involve careful scrutiny of the local risks inherent in various markets.