“Insurance is a fundamental economic pillar and has come through the crisis well. That said, in five years the sector will be very different from today and there will be both winners and losers along the way,” José Miguel Andrés, president of Ernst&Young, told the 3rd Insurance Sector Meeting held last week on IESE’s Madrid campus. The event, coordinated by Prof. Jorge Soley, was jointly organized by the CIF-Center for International Finance del IESE and Ernst&Young.
The fall in household spending has had a direct effect on the insurance sector, in spite of which “it got through 2012 pretty well” according to the secretary general of UNESPA, María Aránzazu del Valle. “This is a crucial moment. In general the sector is doing well and making money but it has had to make some significant adjustments of its margins,” she said. Looking ahead to 2013, she said that most insurance companies expected business to grow by around 3% thanks, above all, to the increase in life insurance. This branch, along with health insurance, has weathered the storm better than others.
Challenges for the Sector
For IESE Prof. Jorge Soley the sector faces three challenges: the aging population, low interest rates and the need for efficient management.
“The current state pension system is not viable. It is necessary to take some unpopular measures which will have a significant social cost, but there’s no alternative,” he said.
Prof. Javier Díaz Giménez said that minimum and contributor pensions need to be completely separated. “We should see minimum pensions as an expression of our solidarity with the elderly. They must be funded out of the state budget and should be fixed according to the income and wealth of those receiving them,” he said.
He said that the Spanish pension system had been reformed six times in the past 27 years, each time “with the aim of reducing this size of public pensions.” He added that not even hypothetical economic growth would be a solution to this question.
Taking Care of the Insured
Miguel Ángel Zarandona, director of management of risks and insurance at El Corte Inglés, said that “we’re not going to get what we’re looking for unless we offer quality, confidence, stability and continuity.” He said that it is a moment of truth in the relationship between the insured and the insurer.
“We have to manage risks without forgetting that we have to offer the client value. We have to offer solutions faced with the demand for guaranteed returns. We have to bring our experience to bear in the management of commitment to long-term profitability and be able to offer to supplement state pensions,” said Jordi Arenillas, the deputy director of economics and finance at the VidaCaixa Grupo.
The Challenges for Companies
Antonio Huertas, the president of Mapfre, commented that internationalization had strengthened his company’s growth, with foreign operations now representing 63% of business. “The business is 10 times bigger than it was 20 years ago,” he said.
He believes that Mapfre’s success is based on their investments in Latin America, diversifying the business, flexibility in adapting to local markets and improving efficiency, among other aspects.
The CEO of Zurich España, Julián López Zaballos, said that “Zurich’s mission is to help clients to understand the risks and to protect them.” The company manages risk through integrated management to protect its capital base, strengthen value creation and defend its reputation and the brand.
The president of Pelayo Mutua, José Boada, said that “in recent years the sector has become more concentrated. The 10 big insurance companies cover 76% and 63% of life and non-life insurance respectively.” Furthermore, these 10 groups were the ones that had grown the most and were most profitable. “Companies that are more specialized in particular activities are performing better than the rest,” he insisted.
In his opinion, the trend is for insurance companies to make larger investments “but the risk is that the mistakes they make will also be bigger.” “What really matters is the ability to offer the client something different, regardless of size. This value differential is key,” he concluded.
Iñaki Ereño, CEO of Grupo Sanitas, admitted that being a big company helped them do business. “Size allows Sanitas to offer a business model that is unique in the world with healthcare. As a result we have managed to grow in an adverse climate,” he said.
Jaime Kirkpatrick, CEO of AEGON, said that “specialization and the ability to adapt” are more important than the size of the company. Kirkpatrick gave the example of his own company which specializes exclusively in life insurance and which has had to reinvent itself twice in less than 10 years because of, among other things, the disappearance of the savings bank model. “We’re a small but dynamic company when it comes to generating business,” he said.
There will also contributions from the Spanish Minister of pensions, María Flavia Rodríguez-Ponga; the director-general of CASER, Ignacio Eyries; the director-general of the Consorcio de Compensación de Seguros, Sergio Álvarez Camiña; the director of Riesgos Patrimoniales at ENDESA, Juan Rincón; the manager of Riesgos Corporativos at Ferrovial, Daniel San Millán; and IESE professors José Luis Suárez and Juan José Toribio.