Executive Interview
Changing the World One Habit at a Time

You're following Stephen Catlin as the chairman of the Insurance Development Forum. Interesting organization. It's still fairly new. What are their objectives, and how is it going?

The Insurance Development Forum brings together the representatives of the insurance industry and reinsurance industry and the large global brokers together with the World Bank and the United Nations Development Program.

The idea is to contribute to the resilience agenda of the InsuResilience adopted at the G7 and contribute to insuring 400 million more people in emerging markets affected by climate change, with 300 million of those people covered through the medium of what we call sovereign programs and 100 million people through micro insurance, emerging customer types of insurance. I think it's a very valuable organization because it helps bring together actors that are not necessarily used to working together.

There is, I would say on the part of the multilateral institutions, sometimes a reluctance to work with the private sector, on the part of the private sector, a hesitation to work with multilateral organizations which are quite complex, have complex decision-making mechanisms.

I think both work more easily through the IDF, and I think it's already yielding some results.

What types of coverages are you targeting through the IDF?

When I talk about sovereign programs, you have a number of examples already in place. You have the African Risk Capacity covering nine countries in Africa against either flooding or droughts, climate events.

You have the Caribbean Risk Insurance Facility in the Caribbean covering also those types of situations—typhoons, hurricanes. You have a program in Southeast Asia, which is being built along the same lines.

It's natural events that affect countries. If countries decide to insure themselves, the benefit is that that recovery would be much faster than if they are waiting to get public support once the event has occurred without insurance. That's the first type, the 300 million indirectly insured through sovereign and sub-sovereign schemes that I talked about earlier.

The second type is micro insurance. We are talking about the insurance of what we call the emerging customers. The customers that have gone out of poverty but could easily go back into poverty if an event occurs. It can be a life event like a pregnancy or an illness. It could be weather events that could destroy their small business as an example. Those are the two types of programs we're looking for.

How do you measure the impact of those initiatives? Are there metrics?

This is a young organization. We will rely on the methodology that will be built by the InsuResilience organization that is being led by Germany.

We will count the number of additional people that are insured through either of those programs—either the sovereign programs, or the micro insurance programs.

A lot of reinsurers are talking about the protection gap. What's a reasonable expectation for narrowing that, say, in the next five years?

It's a very tough question. Insurance penetration in some of those markets is below 1% of GDP, when the insurance penetration in the Organisation for Economic Co-operation and Development markets is 6% to 8%. There is a huge gap which cannot be covered in five years.

We would expect that more countries will consider taking insurance at the country level against those risks as a good idea. There are currently programs being discussed in Sri Lanka, Pakistan, and Bangladesh as an example on the macro side. On the micro insurance side, we will overcome a number of obstacles that quite often we find in the local regulations.

Local regulations are not necessarily conducive to developing micro insurance. When I talk about local regulations, it's not always insurance regulations, per se. It can be insurance regulations, but it can also be regulation of the telecom industry. For a micro insurance program, the distribution cost is the big obstacle. We cannot afford to sell policies one by one through an insurance intermediary.

You have to build different kinds of distribution. It can be distribution through cell phones. It can be distribution through fertilizer manufacturers. It can be distribution through supermarket chains, and so on.

We need to find a way to overcome those obstacles of distribution. Sometimes a regulation that is difficult to overcome is not an insurance regulation.

How do you prevent corporate social responsibility initiatives from being driven by or being involved in political agendas?

I think what has emerged in the last several years is that at the global level, at the U.N. level, at the U.N. agencies level, there is recognition that insurance is a condition for development. Insurance will fuel development.

It's not because a country is developed that people buy insurance. Insurance is a precondition to economic development. I think it's not a political agenda. It's an economic development agenda.

I don't see any particular political issue. Sometimes you get into politics when you talk about climate change. I believe that you can very easily avoid touching the political terrain if you think that on the investment side the issue is to avoid investing in assets that will become stranded eventually.

Really, it's an economic decision. It's both good governance and corporate social responsibility. It can also be driven by pure economic drivers.

Having said that, at Axa, we say that our mission is to help people live a better life. It's not difficult. It's our mission because we are protecting people's lives, assets, and that's what we are aiming for. The corporate responsibility agenda sits very nicely with this mission.

Axa appears to have been early to those causes of corporate social responsibility. Where did it start in your organization, and where is it today?

It started a very long time ago with the founder of Axa, Claude Bébéar, who was already committed to the social progress of the company. He created more than 20 years ago an internal NGO called Axa Hearts in Action, which was supporting the Axa employees who are volunteering in philanthropic organizations. There is this thread within Axa that has existed since the foundation of the company.

This was then amplified with our previous CEO, Henri de Castries, who decided a number of years ago to create a stakeholder advisory panel, which was advising management on corporate responsibility issues. Our stakeholder advisory panel was very good at advising us on some of those topics, for example, our divestment from coal ahead of the COP21 in Paris on climate.

It was really significantly influenced by our stakeholder advisory panel, which is made up of people who are working broadly in the corporate responsibility space, coming from all continents, and are influential people each in their own area.

Has your involvement in corporate social responsibility cost any business to Axa? Is there a downside?

I will talk first about the benefits. I think there is a very significant benefit for our reputation. We are not seen just as a company that is trying to make profits.

Our customers more and more, and our employees I think, are more inspired by a company that is pursuing more than just profit, but also working for the public good of society. I think it's very important for the reputation of the company.

It's very good for the motivation of our staff and the engagement of our staff. Our staff are also not just motivated to come to work for a salary, they are also motivated to work for a company that is contributing to the public good. There is obviously some downside. For example, when we decided to exit coal or tobacco as investments and to stop insuring coal manufacturers or tobacco manufacturers, we did lose some business voluntarily.

I believe that the benefit that we get on the other side by being inspirational to our customers is much larger than the loss of business that we get.

Lee McDonald is a group vice president at A.M. Best. He can be reached at bestreviewcomment@ambest.com.