One day in Michael Kerner’s three-decade career in insurance stands out from the rest – September 11, 2001.
He was working in Zurich’s offices in downtown Manhattan, across the street from the World Trade Center. “In addition to the personal impact that kind of an event has on you, being that close to it … it reinforced for me, frankly, that you always have to expect the unexpected,” he says. “The things that you can’t even imagine could happen, actually could happen. And that’s actually why we’re here as an insurance industry – to help people through those times – and we need to be prepared to respond. I think that’s very much ingrained in the way I think about risk management for an insurance company.”
In the beginning
Kerner’s first foray into the industry was via a summer internship back in 1986 with Insurance Services Office, an organization providing actuarial and other services to insurance companies. “It was a great experience,” he says. “When I graduated from university, I wanted to work for the company.”
He secured a full-time role with Insurance Services Office and worked there for three and a half years before deciding to move on. “[I] decided that I’d like to work for a real insurance company that was actually selling insurance policies,” he says. Kerner went to Continental Insurance Company, and then on to Zurich.
His rise through the ranks at Zurich has seen him achieve much while learning valuable lessons. When Hurricane Katrina hit in 2005, Kerner was Zurich’s head of ceded reinsurance in North America. “Essentially, my responsibility was to make sure we had a reinsurance program in place that protected the North America balance sheet. When you have a responsibility like that, you plan for adverse things to happen, but you hope you never get tested as to whether it really is going to work or not.
“In the end,” he continues, “the reinsurance we had in place protected the balance sheet and did exactly what it was supposed to do, and the company came out of it the other side in reasonably good shape, and it was my team that had put that all together. We were very proud of the result we were able to deliver for the company.”
Aside from the success, Katrina offered a key takeaway. “We had analytics; we had models; we had a way of thinking about things. But, of course, the models were not exactly correct, and I think even as we move forward with big data …we always have to remember that models are actually not facts. When you get the result of a model, it isn’t exactly the truth. They may be useful and help you make some judgments and decisions, but they’re not necessarily 100% accurate.”
At the end of the same year, Kerner packed up his family and headed to Europe to run Zurich’s group reinsurance – in Zurich. “This was a very, very different kind of experience, and I really learned quite a lot about how to work with people with different backgrounds, different cultures, different communication styles, different approaches to different things, and still be successful in that environment.”
The global perspective
Thinking globally is vital at Zurich, which works to create multinational insurance products. “It is still and will continue to be important for us to continue to consider risks both locally and regionally,” Kerner says. “There are differences around the world in terms of work environments, customer behaviour, building codes, the local standard around loss control and engineering …and it’s important that we have teams of people based locally who actually understand those things and help us understand customers’ risks.”
But he adds that the key is being able to take that local knowledge and bundle it together to assist customers to have true global enterprise risk management. “I think the focus we have on global risks really is a matter of following our customers. We see the economy expanding a lot more in terms of customers who are doing business internationally.”
He says customers starting out in building global businesses will buy a number of local insurance policies, only to discover inconsist-encies between policies, program gaps and that their policies won’t perform as expected. “They begin to realize that more of a global enterprise approach is the right approach to take for their risk management, and driving that kind of an approach generates more consistency, better standards in terms of the risk management program ...”
As to global challenges, Kerner sees regulation, particularly around consumer protection, as a major pressure for the industry in times ahead. “I think the regulatory environment will continue to evolve, and that will be a challenge as we have to adapt our business models to comply with those regulatory challenges,” he says. “I think regulators are very much focused on making sure the consumer is protected, and that makes a lot of sense. But often, it can go a bit too far. Often, as well, one jurisdiction’s regulation conflicts with a regulation from another jurisdiction, and as a global company, it’s very challenging for us to deal with conflicting regulations.”
Kerner also cites the new capacity coming into the market, and the pressure it will place on margins, as another key challenge for insurance.
He also sees great opportunities for the industry, especially in emerging markets in Latin America and Asia. “As the middle class grows, people accumulate assets, those assets wind up needing insurance, and we are in a position where we can provide that insurance. It’s the same products, but just for different people and different geographies.”
According to Kerner, there are also plenty of opportunities arising from the increasing occur-rences of extreme weather events. “While it’s a challenge for the industry to be able to deal with those … events, it also creates a lot of demand for insurance, and as an industry, if we can deal with those challenges and provide a product that’s valuable, clearly we would expect to see revenues go up from that kind of product.”
One opportunity Zurich has taken up, about which Kerner is particularly excited, is the micro insurance venture incubator project (MVI), announced earlier this year at the World Economic Forum in Davos. “I think it’s a real example of how the industry can step up and do something that’s transformational and really innovative around this particular issue of micro insurance,” he says.
The Bermuda-based MVI entity was formed for the purpose of delivering insurance solutions to very low-income individuals in developing countries. Zurich is one of nine companies involved in the MVI. “We think it’s pretty critical that more and more people have the opportunity to participate in the financial services industry. Often, those who are most exposed to losses that really would impact their lives on a very detrimental basis are those who are least able to access the protection mechanisms that are in place in society, that those kind of financial services would provide.”
Manufacturing, realty, security industry liability, business and personal services logistical challenges, and Kerner see the partnership between these organizations as key to being able to create the necessary innovations. “We’re going to work together to really try to develop the right innovations to make this something that works more holistically for that part of the population that’s really exposed to adverse events.”
Kerner expects that Africa, emerging Latin America and emerging Asia will be the prime areas of activity for the MVI.
He reinforces that the MVI is not a charitable endeavour, but a business. “Charities get cut when budgets get cut. Businesses that make money get continued, whether there’s a soft market, a hard market … so it’s not a charity. It’s a business.”
He’s also buoyed by the impact it will have on Zurich employees, both current and future. “We will help the MVI with seconded resources; we’ll give employees opportunities to rotate through that organization … so it’s not just those who are getting access to the financial services that benefit. It’s our employees who get to contribute to something that they feel is really meaningful from a social responsibility perspective.”