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The virtual, global economy challenges, humbles insurance leaders

Insurance agents and executives have a lot to worry about as the fast-paced virtual economy takes hold.

According to futurist Edie Weiner, they are right to be worried. She says there are a lot of unfamiliar risks ahead and given the speed of change, those that now appear to be remote could be on insurers’ doorstep sooner than many think.

“Are we prepared over the next five years? Because that’s when these things are coming down. Are we prepared, with the people we currently have, to understand the risks …as we go forward?” Weiner asks.

Weiner, president of Weiner, Edridge and Brown, a futurist consulting group, sees risk in just about every trend in the virtual economy. Her insights framed a recent panel discussion sponsored by the Independent Insurance Agents and Brokers of New York, Inc. in Manhattan.

Software pollution

Start with software. Weiner contends that brownouts, identity thefts, viruses, hacking and software glitches are not yet seen as the “pollution” they are. Imagine society telling a chemical firm to build a plant now and worry later when pollution and diseases start to manifest themselves. “You can’t build a plant on that basis today. But we are introducing software on that basis today. There will be latent liabilities that you have not even begun to see because those glitches and abuses in software are the pollution of the coming economy,” said Weiner.

This new “pollution” is just one potential exposure for insurers and their customers. Another is stress. “We know already that stress will probably be the number one cause of pulling down workers comp claims in the 21st century. Yet we have not even begun to deal with that risk effectively.”

While most worry about “Big Brother,” Weiner is more concerned about “Little Brother” intrusions on privacy, where individual citizens gain access to private information, often legally. “As we go into the future, neighbor will be able to know everything and spy on neighbor, coworker against coworker, spouse against spouse. We will have a situation where, while you protect your information systems from unauthorized access, authorized access will become a major risk because of blackmail, which is becoming probably the number one white collar crime in the country,” Weiner told her insurance audience.

Weiner’s warning list goes on and on: climate change, outsourcing, supply chain management, suburban sprawl, water issues, global disease, life extension, alternatives in energy, nanotechnology, genetic manipulation, remote employees, centralized networks of energy, finance, and transportation patterns and more, all the way down to the reality that U.S. teens are spending more time online than they are driving cars.

The insurance leaders at IIABNY’s meeting cited their own priorities among the looming threats while candidly acknowledging they do not have all the answers about what to do about them.

Worldwide catastrophes

Tom Motamed is most worried about the “potential for a whole new generation of worldwide catastrophes.” Along with floods, windstorms, earthquakes and even terrorism, one of the main challenges is going to be global diseases such as SARS, Mad Cow disease and the avian flu, according to the vice chairman and CEO of the Chubb Corporation.

Motamed suggested that something like the avian flu could bring workers compensation claims brought by employers infected on the job. There could also be negligence claims against farmers, processors, restaurants and others. Boards of directors could be exposed for lack of a disaster recovery plan and, ultimately, even employment practices may be tapped as employees fear being let go because they decide not to show up to work amid an outbreak.

Globalization is going to have an effect on how insurers spread their risk and where they do business, he added. Whether they are in the U.S. or abroad, carriers are going to be pressured to follow their clients. Carriers are also going to try to improve their spread of risk through “uncorrelated risk,” meaning if they have a lot of Florida wind business, they’re going to look for non-weather business.

Net quoting

Change is communicated quickly and new ideas can very quickly move from country to country, noted Alex Soto, president-elect of the Independent Agents and Brokers of America, and president of Insource Inc. in Miami, Fla.

The U.S. will not be alone in setting the agenda. As an agent, Soto is keeping his eye on Europe. “The big movement in Europe right now is net quoting of insurance. In some countries they’re already there where an intermediary, an agent, or broker, gets a net quote and adds what they perceive to be their value in the transaction, in charging the client. Four years ago this was a little whisper. It is now a central core of discussion at the World Federation of Insurance Intermediaries.”

Yet, Soto does not fear the future. “The bottom line is that I suspect that what this is going to do with the flattening of the world is that there are going to be challenges and opportunities. Others from different parts of the world will come after our clients, and we will have an opportunity to go after their clients.”

Something actionable

Seeing how various forces are reshaping the world is one thing. But knowing what to do about them is something else altogether, pointed out Frederick Eppinger, CEO and president of the Hanover Group.

“There are very few people who can actually take big thoughts and translate them into something actionable,” he said

The privacy area is in need of something actionable, Eppinger suggested. “The distribution of information today is just so widespread, and so many people have access to it, and there’s so many potential ramifications and business risk, that to me I don’t think we’ve really come to grips with the implications of all this distributing.”

Eppinger was not alone in acknowledging he does not have all the answers.

“(At) the end of day the fact matter is that there are things here that we may or may not be insuring – or may not have intended to insure – and we might have no clue that this stuff is laying there,” commented Steve Lilienthal, chairman and CEO of CNA Insurance.

The industry is not developing policy language that addresses emerging issues, he maintained, explaining, “We think we get it and then we don’t and we find out that we didn’t box it and we didn’t address it and we couldn’t.”

Dealing with a changing world teaches humility. “I think that we’re discovering that we’re probably not as smart as we think we are, and that’s coming as a bit of a surprise,” Lilienthal commented.

Topics USA Agencies Pollution