Theis: 2006 was challenging and exciting. We merged two companies and began a process of embedding various other units like the Allianz Center for Technology [AZT] and Allianz Risk Consultants that used to be organized in a complex matrix structure with overlapping activities.
We also included Allianz Risk Transfer [ART] in the AGCS family to enhance our product offering to clients. This will create additional opportunities for AGCS and ART. We’ve been smoothing that out to facilitate a clear focus on clients. It shows. We’ve exceeded our plans in virtually every area and were able to greatly reduce our combined ratio.
Booth: Of course, part of that success is thanks to a pretty calm commercial insurance year, even with all the competition. The hurricane season wasn’t nearly as bad as 2005, and the world economy was buoyant.
Theis: Sure. It was a good year generally. A lot of insurers used 2006 to retrench. What will really make the difference, though, is how they face problems down the road.
Global business, diverse coverage
Prepare for challenges
Booth: Right. The recent UN Intergovernmental Panel on Climate Change report reminded us that we can expect a lot more weather volatility in the near future. I can’t stress climate change enough. Insurers need to keep the initiative here. But the world economy is also about to face some shocks, like the end of the liquidity glut, and it’s going to get squeezed by tightening resources, particularly as more economies emerge.
Theis: Then there are specific challenges with global ramifications. The AZT is really concerned about aging electricity grids in developed countries. The Financial Lines people are already dealing with the spread of a kind of class-action-lawsuit legislation in Europe. To name just a few. A lot’s happening at once.
Booth: They’re all issues that concern us as insurers but also as partners for our clients. As you say: Insurers can’t just rely on the good years. You need a solid, global system of risk assessment to deal with what’s coming.
Risk management strategies
Theis: That’s why we use an internal risk capital model that lets us calculate capital and allocate it to products. It gives us a lot of transparency: We can clearly see capital costs and returns per line of business. It’s a very efficient way to plan business strategies, model capital demand and buy reinsurance in order to stay in the market over the long term and provide clients with a stable partner.
Booth: But assessing credit risks is only the starting point. We’re also diversifying our risk. In the past it was property-heavy, which you don’t want in the storm-heavy world of climate change. Now we’re putting more emphasis on other lines, such as liability. And the company is also going to expand in emerging Asia-Pacific markets as well as in the North American general aviation market, which still has so much growth potential.
Theis: We live in the same complex, globalized world our clients do. They all face all these worldwide challenges, whether they’re a large multinational company with branches in lots of countries or a factory with international suppliers. And, of course, aviation and marine clients have always been global. That’s why we’re "on the ground" all over the world, so we know both the big picture and how it affects local conditions.
Booth: Not to mention our huge team of risk management experts in fields from engineering to transportation to IT. It’s thanks to these guys that we can take a strong position as a lead insurer focused on service and longevity for our clients.
Theis: When you’re the lead insurer, you have more control, but this only works when you have the experts behind you.
A true one-stop shop
Booth: With all this diversity, the goal has been to make the company a true one-stop shop for clients.
Theis: Yes, the term gets used a lot, but for us it is both a reality and an ongoing project. Developing a global market management approach and being a global company are part of what supports this vision.
Major accounts are noticing the change. They’re saying how pleased they are that in addition to property, they get other coverage from a single source - such as directors and officers, transportation or alternative risk transfer. Our company is also one of the few insurers in the world who can provide network management of international insurance policies for clients with global operations to assure them of the same quality of coverage wherever they are.
Keeping it all together is the nuts and bolts of dealing with global risk. Constant renewal in pace with today’s changing world. We’ve got a lot of exciting years ahead.
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