Guest Editorial: Global Challenges and Solutions

No. 15 , February 2015 Guest Editorial : Global Challenges and Solutions By Mike McGavick+ This is an extraordinary time for our industry, as we face a number of challenges putting the entire sector under pressure. As I see it, they fit into two separate baskets of challenge: the first, challenges facing everyone in the global economy and the second, those specific to o ur sector. And though different, they can be solved with the a few key solutions. Global challenges First, technology. With technology advancing, risks mutate rapidly. This is where the problem lies ?the faster the rate of change, the more challenged our business model is. We?re used to long data sets to gain comfort in a risk, but new risks don?t have the same length of data associated. Second, climate change. Many of the claims we?re engaged in, are events that happen due to weather and climatic events. With this in mind, we know that there is a simple phenomenon about human beings: we like to live in places where geology is interesting ?where the ocean meet s the shore, where the river cuts through, where the mountains are. So we see climate change and other distortions as compounding the already fundamental problem that people like to live where geology is inter esting and inherently unstable. Third, longevit y. It?s obvious that the basic economics of how pension systems are funded have not kept up with our great success in the sciences and the way we have extended longevity. The population designs of the developed world are creating nearly insurmountable pre ssures and we?re already starting to see signs of the same patterns in developing worlds. We have made great progress over decades in seeing that seniors enjoy a better life and now we?re under economic pressure that?s suggesting in the future they won?t . Sector challenges First, globalisation . Any business can operate globally with the Internet, yet insurance mechanisms are set up on a national basis, making it increasingly difficult to create efficient solutions for global clients. This is a tension that exists for every insurer, and the cost of being global burdens the whole system. Second, alternative capital. The challenge with alternative capital is that it?s bent on hollowing out one specific line: the U.S property cat space. The results of this are that people are now seeking how to use alternative capital in other products and situations, as well as searching for new profitable fields wh ile hoping that the alternative capital won?t chase them out. There are so many uninsured challenges? hopefully we can bend this capital to come up with new solutions. Third, consolidation of the broker community. For insurers, broker community control is a great challenge. Though the insurers service the clients and make the products, the control is weighted more heavily within the consolidated broker community. + CEO, XL Group and Chairman of T he Geneva Association.