Brian Duperreault on the acquisition trail
Another highlight of the afternoon was a fireside chat with AIG president and CEO Brian Duperreault. Here are some highlights.
What are your thoughts on the new initiatives announced by Singapore’s minister for finance?
I have to acknowledge the enlightened approach that Singapore is taking in these issues we’re all facing globally, whether it’s Nat CAT or cyber. They don’t lend themselves to a solution only by the private sector. There has to be public and private sector collaboration to deal with them. Singapore is showing great leadership on a global scale, and I find a lot of creativity and innovation here.
When you look at Nat CAT exposure, when an event occurs, particularly in ASEAN, the insured loss is so much smaller than the real economic loss. How do you close that gap? There has to be a pooling of resources across all the ASEAN countries, government-wide. The next thing is to address the exposures themselves and the resilience of the country. The countries themselves have to look at risk management, in other words, urban planning, positioning populations. Do they put their people
in a position where they are extremely vulnerable to Nat CATs? A lot of work has to be done around where the countries position populations so they mitigate that risk by taking exposure away
We, as an industry, have been working with ASEAN. We’re also involved in the Insurance Development Forum (IDF). We are good at understanding the modelling of these risks, taking data, and using data science to be more precise about what the exposures are. We’re assisting the countries to understand their own exposures and, to some degree, helping them with mitigating and transferring risks.
The long-term solution is not rebuilding again and again, like in a place that floods.
The minister also mentioned cyber threats. How should the industry approach cyber risk?
It’s a growth line in the industry and yet it scares all of us to death as it’s so hard to figure out. Cyber attacks are not limited to any place in particular; it’s a global exposure. When you think about accumulations, you can’t zone in as a single malware could affect anyone, anywhere. How do you model that? We’re working on models that can help understand risks better
There’s also the ILS market, which is a necessary ingredient to the solution. The capital in the industry can’t handle that kind of risk (in the trillions). So you need to bring in other forms of capital, where you can spread that risk across the broader base of capital and the ILS market is an essential solution to this cyber problem that we have where the accumulation across geographies, industries, individuals and governments is enormous.
Where do you see the ILS market over the next three to five years?
The ILS market is a natural place for us as an industry to place risk that is beyond our capacity to handle. It has a great potential in the long term for us – I don’t see it as a threat. I see it as a great opportunity for us as risk managers, as another tool. I hope we can find a way to really make it work in the cyber space as it’s needed there.
What are your views on InsurTech?
There’s the InsurTech group that tries to disintermediate and replace the intermediaries using technology and digitalisation, and there’s the InsurTech that’s looking at taking risk. We don’t see a crowd on the risk-taking side.
If we can go to market more efficiently by having interactions that are efficient, we’ll do that. I think the biggest value for us as an industry is in AI, data science and algorithmic decision-making – the use of data to make this whole process so much easier for you as a buyer. I think that’s the future of decision-making. You can see a time when there are few underwriters and there’s a lot of work that can be done by machines, making triaged decisions about risks, while harder risks fall to the underwriter. That’s where the real InsurTech revolution should take place in our business.
What I do know is so far no InsurTech wants to ‘take’ risks, that’s good news for us risk-takers.
Where do you see the InsurTech industry over the next five years?
I think it will look like the last five years, concentrating on software to help you make a decision, trying to replace brokers with other kinds of exchanges. And I think we, as an industry, will be spending more of our time on the AI (decision-making) side.
What do you think about M&As? Is consolidation a trend or a new direction? (AIG bought Validus Re this year.)
I’ve been in business 45 years and there’s been M&As all this while. It’s not that hard to start a reinsurance business. You need a lot of money, but you don’t need a lot of people. It’s cyclical – it starts around big events like 9/11, earthquakes and things like that. There’s a flurry of activity, while others run away from the risk, so there’s a constant renewal. New companies form, some blossom, some don’t make it and don’t get past a certain size, and get absorbed.
So M&As are not new, or old, it’s the natural way of survival. Company formation comes in waves. The activity today is based on the fact that we had a number of companies formed 10-20 years ago and some have decided they just can’t get to the size they want.
Is AIG still looking at more acquisitions?
Yes. Some 18 months ago we were in a selling phase, but not anymore. I’m buying. My rule of thumb is I want a company that will make me better not the other way round where I have to throw resources to bring them up from the bottom. I’d rather have a company that I don’t have capabilities in. Validus is a great example – it was in reinsurance, in Lloyd’s, they were in the crop business, they had ILS capability – and AIG had none of those. If you can get a complementary business with great people – not just economic but also people, capability and technology synergies then you got a win. It’s not easy to find them, but I’m constantly looking.
What are your thoughts about Asia? Where’s the biggest growth in Asia?
It’s the one place you can really point to in terms of growth. You have the GDP growth, and secondly, society has very low insurance penetration, so this is growing. The growth rate is compounded by an increase in penetration so that’s a wonderful penetration.
Asia is not easy, it’s quite competitive and there’s a barrier to entry in some places. But if you don’t have a strategy around Asia, there’s something wrong.
China is so big, in absolute terms, it will have to be top of the list. India is also massive, a much less developed insurance market over the years, so it has greater potential. The ASEAN countries generally have good growth rates. Interestingly, the Japanese insurance market has been growing.
How do you see China’s insurance market developing?
China’s insurance market is probably the second largest (both general and life). It’s the second largest economy in the world… The insurance market is still protected and foreign insurance companies are not allowed to operate in the same way as local ones. We have been operating for about 25 years in China, with our origins there a hundred years ago, but we have a really small market share. All the foreign insurers combined have almost no market share.
If you look at the largest insurance companies by market capital, of the top five, two are Chinese and one is Hong Kong-based. They’ve done a great job of developing their own capabilities and industry. What I think they are missing, though are the innovation and competition that the global insurance market could bring to them. They have protected their marketplace but I think it’s now time for them to open it up and let the competition begin. It would make all of us better – I’ll learn something from them and they’ll learn something from us. I’m ready to go toe-to-toe