Allianz UK chief executive Andrew Torrance chairs ClimateWise, the insurance industry’s initiative on climate change. He tells Ellen Bennett why insurers must do more to prepare the country for extreme weather events, and shares his views on other big issues facing insurers.
1. What is the ClimateWise initiative and why have you decided to get involved with it?
The ClimateWise initiative was put together in 2007 and reflects the widespread view, that climate change is a major challenge for the insurance industry. It wants its membership to share best practice and collectively add to the debate. The members have signed up to six principles, which are that they should:
• Look to lead in producing risk analysis associated with climate change.
• Inform public policy and participate in the public debate.
• Support climate awareness among their own customers.
• Incorporate climate change considerations into their investment strategies.
• Reduce the environmental impact of their own businesses.
• Commit to publicly reporting on their actions on an annual basis.
The first reports will come out late this year. They are being drafted now and will be subject to an external review by an independent body.
2. A report commissioned by the WWF in association with Allianz this week revealed that G8, the group of economically advanced nations, is failing to meet its self- imposed targets of cutting emissions of greenhouse gases. What are the consequences of this for insurers?
The results of the report underline that the G8 countries are failing to cut emissions rapidly enough to limit global warming to
20 C. If you draw conclusions from this report, it really says to the industry that we need to be paying even more attention to promoting adaptation initiatives. It’s very clear that we are going to see some significant changes in world weather patterns.
From the UK industry’s perspective, the climate modelling shows particular vulnerability to increased incidences of flooding. Therefore, flood defence measures and investment in those measures must move even higher up the priority list.
We are one of the few insurance industries worldwide that offers flood cover as part of the basic package. At the moment, we would very much like to be able to sustain the provision of that cover to our customers. That is enshrined in the statement of principles which the ABI has agreed with the government. In the light of what happened in the June and July floods of 2007, that statement is currently under review, and one of the things that the industry is looking to come out of that review is a commitment from government to invest in additional flood defences. The government needs to come up with a plan which is going to defend properties adequately against those risks, given that we are going to see more severe weather patterns.
3. What did you think of the Pitt Review of flood defences, released last week?
“Investing in flood defences is very important and we need to pick up on the whole area of surface water defences which we have not done in the past.
Andrew Torrance, Allianz UK
I would like to underpin Allianz’s support, and that of the whole industry, for the Pitt Review. Investing in flood defences is very important and we need to pick up on the whole area of surface water defences, which we have not done in the past.
The report called for a much stronger presumption against developing on flood plains, so that we don’t invest large sums in housing infrastructure in areas which are going to become increasingly vulnerable over the next 30 years. While it may not be possible to completely eliminate development on flood plains, in those exceptional cases where development does go ahead, we need to ensure that adequate defences are put in place. Those flood defences need to be fit for purpose against scenarios of the world as it will be in 2050, rather than as it might be in 2008.
Last summer, we saw the vulnerability of some of our crucial infrastructure to flooding. We need to take urgent action to identify the critical elements of infrastructure and make sure they are fully protected. If we lose those in a flood event, we then get a whole series of additional and unpredictable problems.
4. How do you think the current economic downturn has impacted on the insurance industry, or will do in the near future?
Many of our customers, both in personal lines and in the commercial area, are feeling the economic pressure. One would expect that those individuals and companies are going to be looking at where they can make savings. Too often people tend to view insurance as a discretionary purchase. That’s a mistake in the current environment, because when times are tough, that’s exactly when you need the support of insurance, because you are least able to deal with life’s ups and downs. There are downs which insurance is there to protect, but will tend to reduce the number of policies sold and reduce premium growth. But I’m hoping they won’t have a major impact on our business volume.
The other side of the coin in these difficult economic times is that people sometimes ‘ ‘ think that maybe one way out is to make a fraudulent claim. The insurance industry over the past 12 months has been successful in identifying more fraudulent claims than ever before. I think that not only Allianz, but all major UK insurers, are looking to increase resources to weed out fraudulent claims which are a burden on all honest policyholders.
5. Your peers, such as Zurich and Norwich Union, have recently announced large scale cost cutting measures. Is Allianz likely to follow suit? What pressures does the business face?
We have no plans to make the sort of changes that were announced by Norwich Union and Zurich over the past three weeks. All insurance companies keep their expense position under constant review. I’m very happy with the expense base that we have in Allianz UK at the moment. Equally, we continually look for opportunities to become more cost efficient.
6. Chief executives including Norwich Union’s Igal Mayer and AXA’s Philippe Maso, have warned that they would rather walk away from business than pay sky high commissions. What is your stance?
The stance I would take is to say that we have a number of very important broker partnerships with different brokers in the marketplace. I have always said that in any business partnership, both sides have to have the ability to make an economic return from that partnership, and that is exactly what we will be looking to achieve with all our broker partners. We are in constant conversations with our broker partners and, obviously, remuneration levels are part of those conversations. But I would say that this is business as usual.
7. You recently spoke publicly about the rising cost of credit hire cars for motor claims. Have negotiations with the credit hire industry made any progress?
Credit hire is a very important element of driving up the cost of settling motor claims, both in the private motor market and in the commercial motor market. I am perfectly satisfied that the agreement reached with credit hire companies for 2008 fees will hold. The issue for the industry is about looking at ways to mitigate the impact of those credit hire claims. The industry is getting much more effective at capturing third party non-fault claimants so that we can handle the claims ourselves rather than see them passed into the hands of credit hire companies and accident management companies, which inflate the cost of claims. Third party capture gives the customer a quicker settlement, which is just as good as what they would get from involving a third party.
8. You set a target of a 5% year-on-year rate increase in commercial property and liability. Are you on target to meet this?
We have not achieved that during the first half of the year, but I am very confident we will get there in the second half. The market has been very competitive, but it is turning. You can see a very positive trend month on month. Fleet and commercial motor is the most advanced, but we are seeing rate increases sticking across both the commercial property and liability classes. I can see a consistent uptrend, which is what gives me the confidence we can meet these targets.
G8 countries missing climate change targets
Industrialised countries are lagging behind emissions targets designed to offset global climate change, an independent research body has said.
Renewable think tank Ecofys has lambasted G8 countries for policy failures, lax regulation of carbon markets and uncommitted politicians.
Ecofys, in partnership with Allianz and the WWF, a global conservation body, has released a report urging G8 nations to showcase their commitment to renewable energy sources.
The report, G8 Climate Scorecards, warned that weather damage such as last summerâ€™s freak floods, when record downpours across England and Wales elevated river levels and burst bank defences, will become more frequent in the next 30-40 years.
Repeats of last years floods, which cost insurers 3bn pounds, imperilled thousands of businesses and affected up to a million people, can only be prevented with immediate action, the report said.
Yet, with the notable exception of Germany, other G8 nations have done little to cut
emissions by switching to renewable sources of power. The US, Canada and Russia showed least resolve, leading climate experts to
condemn the G8s ability to honour Kyoto targets.
The ranking of G8 countries took into account key indicators such as emissions trends since 1990, current emissions levels and policies for tackling climate change in future.
The UK was bestowed the number one spot and remains most likely to reach Kyoto targets despite its very low renewable energy share.
In second place, Frances dependence on nuclear energy contributed to low emissions, although levels are forecast to increase in the country.
The report claims that far from cutting greenhouse gases, existing schemes have not yet reversed the trend of rising emissions in developed and developing countries. However, the study sounded an optimistic note after highlighting improvements in the EU emissions trading scheme, such
as introducing new financial resources to mitigate climate change.
Even in the US, inertia at federal level is partly counterbalanced with progressive policies at state-level, Ecofys said.
But the report continued to call for action on energy efficiency, saying: Although large potential exists to save energy and money at the same time, all G8 countries have insufficient policies in place to overcome barriers to energy efficiency.
It said efficiency reforms in transportation are woefully under-encouraged across the G8 group.