49th General Assembly, Venice | Summary
2–3 June 2022
From the Ukraine war and its many, widespread implications to climate change and the pandemic, the world is up against a confluence of serious challenges. People, communities and businesses, however, are not navigating this context alone: insurers are on the frontlines, taking action to mitigate and address crises and support societal resilience.
The Geneva Association’s 49th General Assembly, held in Venice, Italy on 2–3 June 2022 and hosted by Generali and Vittoria Assicurazioni, brought together 44 of The Geneva Association’s insurance CEO members to consider the full implications of today’s challenges and how insurers can best contribute to solutions. Through a series of panel sessions, they deliberated how insurers should tackle climate adaptation, social sustainability, people’s well-being, economic volatility and protection gaps in emerging markets, drawing on The Geneva Association’s investigations in these areas.
These discussions were enriched by keynote speeches from Fatih Birol, Executive Director of the International Energy Agency; Sir John Scarlett, former Chief of the British Secret Intelligence Service; Beatrice Venezi, conductor of the Orchestra della Toscana; European Commissioner Nicolas Schmit and Italian Ministers Giancarlo Giorgetti and Daniele Franco.
The following is a summary of the two-day meeting and the relevant takeaways for insurers.
Philippe Donnet, Group CEO, Generali
There could not be a more appropriate place than Venice to hold a Geneva Association General Assembly dedicated to the topic of sustainability. Venice is an extremely vulnerable city. After battling over-tourism for years, Venice was given a glimpse of life without it when the pandemic hit. But while residents reclaimed their city, the absence of visitors hit the local economy. Now tourists are returning and with them, many of the old problems.
A strategy aimed at promoting sustainability is vital for the protection of the city’s future. Underpinned by its strong historical ties to Venice, Generali is committed to supporting a better future for the city and its ambition to become the world capital of sustainability.
The restoration of the Procuratie Vecchie was Generali’s first step towards realising its vision for the city. Open to the public for the first time in 500 years, the building is home to Generali’s new foundation, The Human Safety Net (THSN). The foundation allows Generali to take a new approach to the European migration crisis by providing resources that enable refugees to create a better life for themselves.
A framework of good practices is needed to inspire the community and visitors to acquire a deeper appreciation of the value of this city – as well as its extreme fragility. As insurers, it is our social responsibility to embody this necessary paradigm shift: from using the city to caring for it.
Keynote speech: Russia’s Invasion of Ukraine – What it means now and for the future
Sir John Scarlett, former Chief of the British Secret Intelligence Service
The invasion of Ukraine by Russia in February 2022 will have significant and long-lasting implications beyond the devastating effects on victims of the war. According to Sir John Scarlett, the conflict should not have come as a surprise. An article by Vladimir Putin from July 2021 laid out the Russian president’s view that modern-day Ukraine was an artefact of the Soviet era, and its people an inseparable part of the ‘All-Russian nation’. Putin also highlighted what he saw as progressively hostile actions by the Western-backed Ukrainian government against Russia, dating back to at least 2014.
Seen through that lens, it was almost inevitable that at some point Russia would double down on its earlier annexation of Crimea and invade other parts of Ukraine, as a defence against the expansion of NATO’s sphere of influence in the region. That the invasion blindsided the West probably reflects a misjudgement of the strength of Putin’s personal conviction to restore Russia as a global superpower. The West may have also underestimated the tactics his regime would use to suppress dissent, spread misinformation and stoke nationalism. We must not be surprised again and should anticipate a period of volatile Russia-NATO relations and heightened geopolitical uncertainty.
Such large-scale destruction and loss has not been experienced since World War II. The fallout on the rest of the world will be no less significant, with disruption to trade and commodity markets already hitting supply and output in many countries still recovering from the COVID-19 pandemic. The conflict has also created serious food security concerns, which could have far-reaching economic and humanitarian consequences. With no immediate prospects for a ceasefire, there is a risk the war could escalate, although the chances of nuclear escalation are seen as low.
Panel session 1: The Expanding Role of Governments and the Return of Inflation
Seiji Inagaki (panel chair), President & Representative Director, Dai-ichi Life; Natacha Valla, Dean, Sciences Po School of Management and Innovation; Nathan Sheets, Global Chief Economist, Citigroup; Charles F. Lowrey, Chairman & CEO, Prudential Financial.
In response to a succession of major economic shocks – including the global financial crisis in 2008–2009 and more recently, the COVID-19 pandemic – many countries increased borrowing to maintain spending and support employment in their economies. The war in Ukraine is adding yet more pressure on governments to take budgetary measures to offset increased energy and food costs. However, swollen sovereign balance sheets raise important questions about long-run fiscal sustainability as well as the interaction with monetary policy. This panel considered the challenges policymakers may face if economies enter a period of prolonged stagflation where output decelerates (or even declines) and wage/price inflation shifts persistently higher.
There is no magic number for the optimal level of fiscal debt. Some countries have prospered even with elevated debt-to-GDP ratios while others have struggled under high debt burdens. Ultimately, all governments must persuade creditors to buy their bonds and/or credibly commit to raise future taxes. To the extent that concerns about sovereign debt levels push up long-term market interest rates – as bondholders demand additional risk compensation – some countries could face serious borrowing constraints. On top of higher interest costs, any cyclical downturn would reduce fiscal headroom to implement structural reforms and investments, such as transitioning to net-zero emissions, upgrading critical infrastructure and adopting digital technologies.
Against that backdrop, central banks are navigating a difficult path. They need to unwind earlier monetary accommodation to counter the recent pick-up in inflation without tipping their economies into recession. Their success will depend heavily on developments in labour markets; in particular, how far the post-pandemic surge in spending and staff shortages enable workers to secure higher wages not matched by productivity improvements. If inflation expectations shift permanently higher, and these become embedded in wage bargaining, monetary policy will need to be tighter for longer to suppress aggregate demand and bring inflation down. That would only add to the strain on public finances.
Takeaways for insurers:
- At a micro level, insurers face similar issues to other sectors in their efforts to attract and retain staff. If the great resignation/rotation spurred by the pandemic is permanent, this will have important knock-on effects on insurers’ costs.
- At a macro level, an unexpected shift to a high-inflation ‘regime’ is usually problematic for insurers. This is especially true for P&C insurers who face rapid rises in claims costs beyond those factored into insurance premiums.
- Insurers play an important role alongside governments in financing structural adjustments that economies need, both through their investments and underwriting. Creativity will be required to design appropriate long-dated financial instruments as well as policies/regulations to foster, rather than stifle, such innovation.
Jad Ariss, Managing Director of The Geneva Association; Beatrice Venezi, Principal Guest Conductor, Orchestra della Toscana
Like the insurance industry, the world of classical music grapples with the issue of gender parity and a shortage of women role models. Examples of great female composers and conductors are missing almost entirely from music history books.
Gender discrimination is apparent in music schools and in the auditioning process, with women perceiving the need to be much more prepared than men in order to be seen as competent. Holding ‘blind’ auditions, where judges do not know the candidate's gender, are a way to work around bias, but the ultimate goal is for women and men to perform on the same stage; for them to be treated equally.
Directors of institutions are particularly conservative when it comes to female conductors. Orchestra musicians, on the other hand, may be unaccepting of a female and/or young conductor at first, but this dissipates when they see the conductor's value and make a human connection. The public is generally appreciative of the novelty of female conductors.
The media can be a tool to expand and diversify the audience for classical music beyond the traditional, older demographic. However, the objective to try and make classical music appealing for everybody can be controversial. There is renewed debate about whether or not geopolitics should influence the arts in light of the war in Ukraine.
Insurance CEOs and classical music conductors are both trying to build something that is greater than the sum of its parts. Classical music conductors who tour internationally and conduct international orchestras must know how to adapt to different cultures quickly. Doing this effectively means being able to listen and observe. The impression the conductor makes at the first rehearsal is critical to gaining the orchestra’s trust. It is important for the conductor to clearly communicate what s/he wants, be honest and admit mistakes.
Panel session 2: Redefining Wellbeing After COVID-19 from a Health and Financial Perspective
Michel Khalaf (panel chair), CEO, MetLife; Jane Barratt, Chief Advocacy Officer, MX Technologies; Nhlamu Dlomu, Global Head of People, KPMG; Wolfgang Seidl, Partner & Workplace Health Consulting Leader, Mercer; Jennifer Tescher, President & CEO, Financial Health Network.
This session explored the way in which COVID-19 has affected people’s financial and emotional circumstances. From everyday ‘professional’ corridor conversations at work, to people being confined to their homes juggling all facets of their lives, the pandemic gave a rare glimpse into the interconnected nature of work, wealth and mental health.
Not all people feel comfortable talking about their mental and financial health at the workplace, yet research across geographies highlights the dire state of financial and mental wellbeing. While COVID-19 has brought these longstanding issues to the fore, the ongoing uncertainty posed by a war in Europe and the macro-economic consequences may now worsen or prolong the crisis. To address it, insurers should focus on the holistic wellbeing (financial, mental and physical) of their staff and customers to help them deal with shocks, meet daily obligations and improve their work-life balance. The economic case for such investment is clear, with evidence of a reduction in absenteeism, in the number of sickness-related insurance claims and in the average cost of claims.
Takeaways for insurers:
- Insurers need to be in the driver’s seat in developing innovations that wrap services around user needs and steer away from a product-driven approach
- It is high time to create organisational structures to break down the silos of life vs. health vs. technology. A focus on consumer engagement is more likely to bring together the right mix of solutions.
- Technology should not be seen as either a substitute to human interaction or a low-cost alternative. Its potential can only be realised as a combination of both.
- Businesses will need to engage with governments to better understand their role in improving financial and mental wellbeing as part of overarching public policy.
Giancarlo Giorgetti, Minister of Economic Development, Italy
Although the Italian economy is experiencing a strong post-pandemic rebound, the challenging geopolitical situation has brought the 2022 estimate for economic growth down to 2.2% from the initially expected rate of 4.1%. The post-pandemic recovery plan – to deliver the biggest boost to the Italian economy since the Marshall Plan – aims to make Italy greener, smarter and more digital. The recovery plan is also expected to add 3% to Italy’s GDP by 2026.
The war in Ukraine is having a significant impact, not least as nearly half of Italy’s required gas is imported from Russia. As a result of the high energy prices, Italy’s total energy expenditure in 2022 is expected to reach EUR 37 billion, more than quadruple the total of 2019 (EUR 8 billion).
Citizens and businesses are receiving government support in the form of tax credits to dampen the impact of high inflation. In addition, the Italian government is ramping up its investments in green energy and easing regulations to help speed up renewable energy projects.
Panel session 3: Are Climate Adaptation Efforts Sufficient?
John Neal (panel chair), CEO, Lloyd’s; Matt Rogers, Chief Executive Officer, Mission Possible Partnership; Charles Brindamour, CEO, Intact Financial Corporation; Geoff Summerhayes, Senior Advisor, Pollination Group; Chair, Beyond Zero Emissions.
Natural disasters occur four times more often now than 40 years ago. In California, for example, what used to be ‘1-in-100 year’ extreme weather events are now 1-in-3 year events. With every 0.5-degree increase in temperature, 400 million more people are at risk of dealing with water scarcity; 200 million more people become exposed to heatwaves; and coastal cities may be subject to sea-level rise by as much as one foot.
Preventing a temperature increase above two degrees will require a global reduction in carbon emissions by 15% each year, every year, starting in 2023. In 2020, a year that brought economies all over the world to a halt due to COVID-19, emissions were down just 6%. The potential success of mitigation initiatives is therefore debatable. We need to focus our thinking and efforts on adaptation as well.
Encouragingly, stakeholder resolve to fight climate change and reduce carbon emissions is strong and growing, even across the insurance industry. Many businesses have made ambitious commitments and put forward detailed plans on how to reach them.
There has been three times more private investment in the energy transition over the past three years, and the rate of innovation is also remarkable. Half of the technologies needed for the climate transition are in production and another 40% are under development. To attract the capital needed for the rollout and uptake of these technologies at scale, governments are well-positioned to send signals to the market to trigger demand. Public capital may be better suited to financing adaptation, rather than mitigation, measures.
Takeaways for insurers:
- Insurers can leverage their significant investment capabilities to finance innovation, sustainable infrastructure projects and nature-based solutions, but it will be important to have conducive regulatory regimes in place.
- Rather than raising prices or curtailing coverage, insurers can move from defence to offence; for example, revamp products, expand coverage, improve data collection, offer restoration services, improve customer service and double down on prevention.
- Insurers can also help governments, regulators, banks and bank regulators understand risk by sharing their risk intelligence.
Keynote speech: Global Energy Crisis – Implications for energy markets and climate
Fatih Birol, Executive Director, International Energy Agency
Right now we are in the middle of the first global energy crisis. The energy crisis in the 1970s was only about oil, whereas today we are facing major challenges in gas and coal markets as well. Another major difference to the 1970s is the availability of cost-competitive green sources of energy and the fact that more than 130 countries have made carbon emission reduction commitments.
Despite the gloom in global energy markets there is reason for optimism. The world might be at a historical turning point for energy policymaking which could lead to a safer and greener energy future. This policy shift is driven by a powerful combination of economic, climate and national security considerations.
Investing in new fossil-fuel projects is associated with two main risks: First, it would undermine the world’s carbon reduction agenda. Second, there are major economic and business risks. As such, investments would take decades to add to the supply of energy. By then, the business case may no longer exist given the rapid growth of electric mobility, for example. In addition, those who back such investments face major reputational risks.
Therefore, in the short run, the world, and Europe in particular, can do the following to substitute for Russian sources of energy without investing in new fossil-fuel projects:
- Increase production from existing oil and gas fields
- Expand U.S. shale oil and gas production
- Remove the red tape for renewables projects
- Boost energy efficiency, for example by saving energy and introducing speed limits on highways
- Delay the phasing out of nuclear energy
It is in the insurance industry’s best interest, including commercial, to address climate change in these ways:
- Steer clear of new fossil fuel investments
- Fund clean energy – not only to save the planet, but also to benefit from the future energy economy which is set to be profitable
- Drive innovation in renewables underwriting
- Incentivise policyholders to become more energy efficient
Nicolas Schmit, Commissioner for Jobs and Social Rights, European Commission
In his keynote address Commissioner Schmit pointed to rising inflation as a major threat to social cohesion. Low-income households, paying a disproportionately high share of their income on energy and food, are particularly exposed. The main, short-term policy challenge right now is to manage the wage price spiral while avoiding an economic stagflation or even recession.
Another major, more long-term challenge for mankind is climate change. If unchecked, it is set to massively impair economic growth and take a huge social toll. At the same time, the green transition needs to take the social dimension into account; for example, the need to retrain and reskill employees in sectors such as automotive and steel.
Through investments in social impact bonds for instance, the private sector can play an important role in managing the trade-offs of simultaneously pursuing climate and social objectives. In order to facilitate this contribution, provide guidance to investors and reduce ‘social washing’, the EU is currently evaluating a Social Taxonomy, modelled along the recently introduced Green Taxonomy.
In conclusion, Western countries are at a turning point. The confluence of the pandemic, the war in Europe and accelerating climate change make it imperative to reinvent the social contract and to rejuvenate welfare states. At the end of the day, it is about the survival of Western democracies.
Panel session 4: The Social Dimension of Sustainability – How can insurers make a difference?
Philippe Donnet (panel chair), Group CEO, Generali; Christian Mumenthaler, CEO, Swiss Re & Chairman, The Geneva Association; Mariana Mazzucato, Professor in the Economics of Innovation and Public Value, University College London; Nicolas Schmit, Commissioner for Jobs and Human Rights, European Commission
ESG is an increasingly important consideration in assessing investment risks and opportunities. Whereas pre-pandemic the focus was on the ‘E’, it has now shifted to the ‘S’, the social dimension. For any social impact strategy to succeed, the most vulnerable groups must be taken care of, too; this requires effectively addressing protection gaps.
Insurers can seek impact through business by putting less emphasis on shareholder value and instead, for example, reinvesting surplus capital, rather than returning it to shareholders.
However, legal frameworks vary widely across jurisdictions. Whereas in the U.S., boards are responsible to their shareholders, in many European and Asian countries boards are responsible to their companies. Shareholder capitalism is a U.S.-centric notion.
As far as the ‘S’ is concerned, insurers are very much at the beginning, with little clarity on definitions, scope and KPIs. In order to tackle this, it might help to apply the scope 1, 2 and 3 framework for carbon emissions to the ‘S’, with scope 1 capturing social impacts on employees, scope 2 looking at communities and scope 3 addressing the major source of insurers’ social impacts: underwriting and investments. Here in particular, insurers have a powerful story of resilience-building and shock-absorption to tell.
A more active and modern welfare state needs to be designed to manage the social challenges ahead. One area of priority is more employment stability for young people. There is a role for the private sector, too, including the insurance industry, in promoting social mobility. Livelihood insurance is one example.
Takeaways for insurers:
- Redouble efforts to close protection gaps for the most vulnerable
- Improve measurement and communication of social impacts with a focus on Scope 3
- Drive innovation in insurance approaches to employment risk
Daniele Franco, Minister of Economy and Finance, Italy
Policies that prioritise short-term over medium- to long-term impact will negatively affect future generations. When it comes to the environment, public debt and pensions, timely actions and prevention are more effective and less costly than ex post emergency measures. Pandemics are also a threat to the sustainability of societies, as seen by COVID-19, which worsened learning outcomes and negatively impacted demographic trends.
Financial sustainability (of public debt and of spending programs such as pensions and health) is very much intertwined with other dimensions. There is a growing realisation that climate change is a source of financial instability, as it could lead to ‘green swan’ events and be the cause of the next financial crisis.
Furthermore, the green and demographic transitions will absorb a large amount of resources. Investments in renewables will need to come from the private sector, as public budgets have to deal with the impacts of ageing. Countries with already high public debt may face more difficulties. The impact of climate change may widen inequality and income distribution gaps between countries.
International cooperation and coordination are key to addressing climate change and pandemics, and there are recent examples of successful initiatives that focus on medium- and long-term objectives (e.g. NextGenerationEU, REPowerEU). There is wide consensus that tax policy and the regulation of emissions are powerful tools and could be deployed effectively. Financial regulation can also play an important role in smoothing the impact of shocks and in facilitating the transition. Well-articulated analyses of the available options are necessary, because while the final objective is clear, the transition path (e.g. role of natural gas, the role of hydrogen) is still open for discussion.
Panel session 5: Emerging Markets – How to close the protection gap
Alejandro Simón (panel chair), CEO, Grupo Sancor Seguros; Recaredo Arias, former President, GFIA; former General Manager, AMIS (Mexican Insurance Association); Roy Gori, CEO, Manulife; Bhargav Dasgupta, Managing Director & CEO, ICICI Lombard; Ekhosuehi Iyahen, Secretary General, Insurance Development Forum.
Protection gaps exist in both emerging and mature economies, but the effects are more strongly felt in emerging economies. In recent years, nearly half of the losses caused by natural disasters occurred in these markets. The more pronounced protection gaps become clear when comparing the average number of insurance policies in 2021 per 1,000 people: 360 in emerging markets versus 1,400 in mature economies. Protection gaps are in effect a function of low insurance penetration and often driven by a lack of financial literacy, the inability to afford insurance, the complexity of insurance products and low accessibility due to distribution capability. Tackling these root causes is a complex task, largely because policymakers in emerging markets do not consider insurance as part of the solution to their countries’ problems.
Takeaways for insurers:
- Insurers need to better articulate the value proposition to communities in emerging markets through financial literacy programmes.
- Distribution through digital channels can help to lower costs and therefore improve affordability.
- Insurance regulation – such as capital requirements and distribution regulation – needs tweaking to help insurers reach customers at their convenience, with products that serve their needs.