echo-interview with Urs Berger, President of the Swiss Insurance Association

elipsLife echo: Mr Berger, The Swiss Insurance Association (SVV) was founded in 1900. Can we talk of a success story stretching back almost 120 years?

Urs Berger: Yes, I believe we can. Especially when I consider the position the insurance industry is in today, one can definitely call this a success story. Each individual company needs to play its part if an industry is to flourish, but the Association has to make its contribution as well. Over the years, the SVV has succeeded in creating common positions for the insurance companies and representing their interests. In addition, the share the insurance industry has in the financial sector value chain has risen from 30% to 43% over the last 15 years. This fact, too, highlights the industry's success story.

What are the Association's main tasks?

Its work is divided into three main areas. Firstly, there's the monitoring of legislative processes and the preparation of joint policy positions on economic and social issues. This focuses on representing the interests of the insurance industry vis-a-vis legislators and the government. In its broadest sense, this is a lobbying function; we use the term "campaigning". The second part of our job has to do with the provision of services for our member companies. Examples in this connection might be real estate evaluations or cross-sectoral IT solutions. The third area is education and professional development. We organise trainings at all levels, from basic commercial courses to higher vocational training and courses for middle and senior management.

Can you give us an example of your campaigning activities?

The 2020 Old Age Provisioning Project (AV 2020) would be one example. We're representing the interests of the private insurance industry in respect to the upcoming reforms of the first and second pillars of Switzerland's pension system. Here we're not only campaigning for the country's internationally recognised 3-pillar system but also for the preservation of the insurance industry's competitiveness, in the interests of the insureds. We must continue to be able to run insurance business along economically sensible lines, so that we're able to provide the kinds of guarantees people expect. These days, numerous technical parameters are determined politically. For example, the conversion rate is actually a technical value which should be driven by logical, mathematical parameters. But today, the perception holds sway that by lowering the conversion rate, something is being taken away from the insureds. These questions are being discussed not on the basis of technical arguments but rather in an emotional context. It is up to us to ensure that this debate is founded on the facts and that proper attention is paid to the technical parameters.

How representative is the SVV of the private insurance industry as a whole?

The SVV has approximately 80 member companies that generate around 90% of the premium volume from the over 200 insurance firms operating in Switzerland. This share of total premiums shows that the Association is highly representative of the market in Switzerland.

What are the major challenges for the SVV right now?

At the forefront right now, without a doubt, is the question of regulation or over-regulation. By this I mean the strong intervention into our business plans and business activities not only by Switzerland's Financial Market Supervisory Authority (FINMA) but also by legislation which is constantly imposing new restrictions on our operations. These developments hamper the innovation we need for the benefit of our customers. Other topics include digitalisation which is going to break open our value chain, demographic changes and the record-low interest rates on the financial markets. The ''third contributor'' in the system dropping out of the occupational pension scheme equation, combined with a high conversion rate and the politically motivated minimum interest rate, creates difficulties for our life insurers. And our relationship with the EU is also under strain at the moment: The implementation of the Initiative on Mass Immigration means we could face a shortage of skilled workers. In addition there are the new risks posed by climate change. As insurers providing coverage against natural perils, we are directly affected by the impact of climate change on permafrost, hot- and cold-weather periods as well as the frequency of storms.

How do you see your function as SVV President from a personal point-of-view?

This is a leadership role. On the Board we discuss important topics, set priorities, approaches and strategies as well as develop the necessary policy fundamentals. It's my job to make sure the Association adopts a concerted approach when interacting with public policy-makers. It would be fatal if I as Association President articulated one opinion on a certain subject and individual insurance companies different ones, on the same topic. It’s only when the industry speaks with one voice does it have the necessary clout to be properly understood by its counterparts.

How would you describe the cooperation between the SVV and the European Insurance Association in Brussels?

Since Switzerland is not a member of the EU, we have a special position as a member of Insurance Europe. Our cooperation with Brussels is very good. We play an important role in the work of the European Insurance Association. On two occasions in the past, our representatives in Brussels have also been EIA Presidents. We are official observers and are given the opportunity to monitor which solutions the EU is currently working on and the direction it is moving in with respect to insurance questions. The EU is a body characterised by the inflow of different opinions. We can benefit from watching how this process works. At the same time, we see the contrasts compared to our system in Switzerland. We have also noticed how crucial the role of our Swiss Solvency Test (SST) has been in respect to the life insurance requirements imposed by Solvency II. Our system, after all, provides less flexibility and demands far higher capital requirements and stricter handling.

Do these higher capital requirements create competitive disadvantages?

There's no question - Swiss life insurers operating both in Switzerland and Germany are obliged to define their risk capital in compliance with Solvency II in Germany and the SST in Switzerland. For the Swiss Regulatory Authority, Swiss companies have to fulfill their capital requirements according to the SST, that is to say for their total business, including their business in Germany. In other words, Swiss insurers need to put aside 150% to 200% more capital for their business in Germany than their German counterparts who can run their numbers according to Solvency II.

The regulatory authorities in Brussels and elsewhere are demanding ever stronger tranparency. Does this pose problems for the insurance industry?

We support the efforts to achieve greater transparency. Customers want to know, and have to know, where they stand. And we've already achieved a great deal in this connection. A consumer protection study published by the University of St Gallen in October 2015 confirmed that the level of protection for insurance customers is high compared to other industries. However, the study also pointed out that information provided for the customer needs to be simpler and easier to understand. We take this point seriously.

With the arrival of FinTech, the digitalisation in the world of work has also reached the insurance industry. What concrete impact does this development have on your industry?

Nowadays, new competitors are challenging the established insurers. If someone books a trip via the Internet, you can use Google, Yahoo or other providers to offer him or her travel insurance at the same time. Digital distribution breaks down barriers and opens up new ways of selling your product. We have to deal with this development. Another aspect of digitalisation is the handling of personal data. Cyber risks are very real, and in our industry especially require that we adopt a highly responsible approach towards usage of personal data.

Solvency II and the SST make insurance coverage more expensive. Do adherence to these requirements give the consumer greater security?

These solvency regimes make the coverages more secure because of the stricter oversight of how insurance is capitalised and how a company's liquidity is impacted by major claims. The SST and Solvency II give the system greater stability, even though this does not mean that risks are actually removed from the system. Having said that, I do not believe that the customer is directly aware of these aspects when looking at his or her insurance policy.

What are the biggest challenges for occupational pension plans in you view?

I see three areas: Firstly, demographic development. Because we're living longer, pensions have to be paid out for longer periods. Secondly, the low interest rate environment which is leading to the disappearance of the "third contributor" in the system. And thirdly, there are the technical parameters like the conversion rate or the minimum interest rate – the latter standing currently at 1.25% – both of which are too high in my view. Here, the SVV is pushing to have the technical parameters depoliticised.

Understanding the proposed changes to the retirement and benefits system in Switzerland (AV 2020) will need a communications effort. How is the SVV supporting companies in this context?

The SVV is already active here, and is communicating in a number of different ways. Within the Association, we're working on policy statements and content. We send our member companies regular press reviews on this topic. We also drive knowledge-building with media outlets not only by speaking to them but also by providing them with films, factsheets and position papers. In addition, we stage information forums twice a year for all CEOs and presidents of our member companies. These sessions cover a wide range of topics, also on the subject of the AV 2020. On top of these measures, we focus on the subject in insurance journals and in articles on our homepage. The question, however, is whether this effort is sufficient.

Should pensioners also have to play their part in the recapitalisation of the retirement benefits system in Switzerland, or are already acquired pension rights a taboo topic?

Our goal in regard to the AV 2020 is to help ensure the financial stability of the system and maintain the level of benefits at the same time, in other words without cutting pension amounts. Perhaps this sounds like a mission impossible. But there are numerous possible ways to secure and recapitalise the retirement benefits system. People can decide to work longer, or the scope of the voluntary accumulation of additional retirement assets can be widened. There's still a lot of unused potential here. By adjusting the conversion rate, pensions would shrink, it is true. However the benefits package overall should not suffer. We don't want to cut benefits for pensioners. Promises have to be kept. Having said that, should value-added tax be raised to recapitalise the system, pensioners would have to shoulder some of the burden as well.

Full coverage private life insurance is a variation of the occupational pension scheme, with the life insurer assuming the entire capital investment risk. Does full coverage insurance have a future in the long term, given rock-bottom interest rates and demographic changes?

Yes, full insurance coverage does have a future because, for small and medium-size companies (SMEs), it can assume all the risks associated with occupational pension schemes, should these firms be unwilling or unable to do so themselves. Full insurance coverage guarantees a 100% payout at any time. Over time of course, given the demanding low interest environment, this is going to be a real challenge. The demand for full coverage insurance is still strengthening. Almost half the Swiss SMEs opt for this solution. But this is where we come full circle: The technical parameters I've already mentioned need to permit a feasible business model, because otherwise full insurance will no longer be financially sustainable.

It's often said that "when I reach retirement age, I'm not going to see any of my money, either from the Old-Age and Survivors Insurance (AHV) or from my pension scheme." How can we strengthen people's trust in our retirement benefits system?

In my opinion, we have to approach this issue on two levels: On the one hand, the technical parameters need to be adjusted in line with the shift in demographics. We have no other choice but to try and stabilise the system. On the other, we have to ramp up our communications efforts. People must understand how the retirement benefits system works and realise where the problems and possible solutions lie. Up to now, we haven't done enough in this connection. To reach out to the general public on the eve of a vote is not the way to do it. Instead, you need an ongoing awareness-building campaign. And we as providers of occupational pension schemes are confronted with an especially tough challenge here: In the debate over how best to recapitalise the second pillar, our arguments focus on the conversion rate and minimum interest rate. The political opposing camp counters with talk of "plundering pensions." We're faced with the task of combatting emotions with fact-based arguments. We have an uphill battle to fight.