• Date: 4/23/2014

Insurance industry looks ahead to a rosy future 

Interviewpartner: Bruno Pfister, Group CEO SwissLife

Halfway through this year, you will hand over as CEO of SwissLife to Patrick Frost after six years in the role. What developments have had a significant influence on the insurance industry in this period?

Bruno Pfister: The most significant event during this time has undoubtedly been the financial crisis and its consequences. Two megatrends that the insurance industry will have to contend with have also become more firmly established over the past few years. The first is an aging society, which will have an effect on pension provision, pension funds and life insurance. The second – whether you believe in it or not – is climate change, which will bring as yet unforeseeable consequences for property insurance and, ultimately, also for reinsurance.

So, what trends in foreign and domestic policy are SwissLife and non-life insurers most concerned with as a result of the financial crisis and these megatrends?

Bruno Pfister: It is generally acknowledged that major events do not come out of the blue. In other words, some factors were already bubbling away under the surface before the crisis struck and then came to the fore as the situation escalated, bringing corresponding consequences. Combined with the financial crisis, these ultimately foreseeable scenarios prompted the legislator to introduce a whole series of drastic changes in the law, such as the capital backing requirements for banks and insurers. The government and the industry are united in their efforts to ensure that scenarios similar to those we have experienced must never be allowed to happen again. In particular, the government does not want to have to bail out any more ailing financial institutions. Instead, it will allow an institution to file for an orderly bankruptcy if necessary without risking the collapse of the whole system.

Will the measures in the pipeline be effective enough to prevent another financial crisis in future?

Bruno Pfister: Typically, crises tend to erupt in unexpected places. The response from the legislator is always reactive as it deals with something we already know. This means that problems and crises for which we are unprepared can arise time and again. However, some of the new regulations certainly make sense and are on the right track. For instance, the Solvency II requirements to regulate capital backing have their origin not in the last financial crisis but back when the dotcom bubble burst in 2001-2002. At the time, of course, Solvency I failed to represent balance sheet risks adequately, which led to the formulation of Solvency II. Looking at the bigger picture, however, you have to remember that risks can ultimately only be reduced, not eliminated entirely.

Coming back to the megatrend of an aging society, what is the right way to finance pension provision in a sustainable manner?

Bruno Pfister: Here in Switzerland, too, we will not be able to avoid adjusting the retirement age in line with our increasing life expectancy. In the coming year, there will already be more people retiring in Switzerland than young workers entering the job market. As well as the problem of funding pension provision, we in Switzerland will face a shortage not only of skilled labor but also of labor in general. Businesses will have to rethink and increasingly offer jobs to older people as well in future. Immigration alone will not cover the country’s future needs, especially not after the plebiscite on 9 February 2014.

Other European countries, such as the UK, have already developed more flexible models for old-age provision and drawing pensions. Can Switzerland learn anything from this?

Bruno Pfister: As things stand, our pension system in Switzerland, with its first and second pillar, remains healthy and soundly financed. You will scarcely find any other country in which this is the case to a comparable extent. Inevitably, however, therein also lies the great challenge, as the need for change will have to be explained to the people even though there are not yet any visible strains on the system. And our model of direct democracy requires a political majority before changes of this kind can be made, something which we do not yet have at present.

You mention climate change as the second major factor exerting significant influence on the insurance business. What changes can we expect to see in your industry?

Bruno Pfister: The frequency of loss events and the course they take are different now from in the past as a result of climate change. For instance, think of the frequency and intensity of hurricanes or increased flooding. Naturally, the industry is keen to prevent and contain changes in the climate insofar as they are the real reason behind the phenomena I have just mentioned. Given the current political situation, however – in other words, the division of the world into individual countries with widely divergent, sometimes even conflicting, interests, measures like this are not easy to implement.

What impact will these megatrends have on SwissLife’s business model?

Bruno Pfister: In addition to the demographic and climatic changes I have already talked about, we are seeing other pertinent changes, particularly in terms of regulations. At this point, I would like to mention some new approaches in consumer protection, the debate on corporate governance and the issue of senior managers’ pay. And then there is the increasing criminalization and prosecution of tax offenses in cross-border business. These wide-ranging changes to the entire economic system and the framework conditions have certainly had an impact on SwissLife’s organizational setup, structure and business model. This begins at company level with adjustments to products and extends in macroeconomic terms right down to the interest rates that the central banks are keeping artificially low to stimulate the economy. Ultimately, all of this has a direct, negative influence on the business models of financial service providers but also on the business activities of both private and institutional investors.

How have you strengthened SwissLife’s capacity for innovation? Do you also involve your employees in developing innovations?

Bruno Pfister: Innovation does not only mean upgrading your products; it also influences changes to systems and processes. In addition, we place great value on innovation in our advisory and client focus. Nowadays, innovation does not just depend on the quality of a solution but also on the speed at which an idea is made market-ready. We have managed to shorten this cycle from around 12 to between one and three months. Whereas complexity often used to be seen as a sign of quality, nowadays we hope to impress with the simplicity of our platforms – something we do with some success. Ultimately, however, our company’s employees are the decisive factor in all of this.

How have clients’ requirements changed over the past few years?

Bruno Pfister: The biggest change has been the record-low interest rates, which makes it much harder to meet targets for savings and building up capital. For instance, the business model that would see capital saved up and then 3 to 6 percent interest earned on it for years and decades no longer works. But we are also seeing changes in our clients’ behavior, given that it is now much easier to compare different offers and products on the market. In addition, the regulator now requires us to be more transparent in providing information to our clients. In other words, our clients today are much better informed than they were even 20 years ago. This has to spur us on to focus our strategy even more clearly on the interests of our clients. 


In specific terms, what does this mean for the work your relationship managers do?


Bruno Pfister: The requirements made of client advisory have increased considerably because the straightforward logic of guarantees and surpluses from returns on investment that worked in previous years is no longer sufficient. Thanks to long-term investments, however, our assets still deliver healthy, sustainable profitability well above the statutory minimum. This means that the erosion of returns caused by the fall in interest rates is only affecting us very slowly. On the other hand, investors cannot assume that rising interest rates will mean an immediate increase in the return on their portfolio. Our strategy smoothes out the effects and thus reduces the risk for our clients.


How important do you think digitization and data management are? What opportunities and risks can you see in this area?


Bruno Pfister: The handover to the new generation of ‘digital natives’ will mean speeding up the digitization of our services. For a long time, life insurance policies were traditionally sold in a face-to-face discussion with one of our agents, a broker or a financial advisor. This will change. Digitization will allow client information to be recorded more systematically and more comprehensively. Only by logging and analyzing client data can we offer the right products and services at the right time and in the right place. Of course, the other side of this particular coin is the issue of data protection, something that is also making demands of the international community in particular. After all, there is still too much mobile and electronic communication data being collected and stored across the world whose protection and use remain shrouded in uncertainty. This development certainly has some way to run yet.


What do you think the biggest challenges will be for the industry in the future?


Bruno Pfister: Overall, I’d say that the insurance industry’s future is bright, as people all over the world will become even more aware and more willing to bundle life and property insurance risks for a reasonable price and thus keep themselves protected. The fact that it is becoming increasingly easy to access these products via electronic sales channels will in turn help the insurance market grow.


And finally: What are your own plans for the future?


Bruno Pfister: After I leave here at the end of June, I shall first of all take a long vacation with my family. After that, who knows?



Bruno Pfister

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Group CEO SwissLife