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The Risk Opportunity: Using Risk to Build Resilience

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Hello and welcome to The Risk Opportunity. A series brought to you by Zurich Insurance Group. I'm Danni Hewson, a financial analyst and broadcaster. I've been covering finance and business for more than 20 years. We're living in an age of unprecedented change, so much so that permacrisis, defined as an extended period of instability and insecurity, was Collins Dictionary's Word of 2022.

In the Global Risks Report, the cost of living crisis and climate change topped the risk agenda for 2023. Meanwhile, Bloomberg's latest Global Risk Briefing highlighted interest rate hikes, falling employment rates, and currency volatility as risks to watch. Bloomberg Economics also projects that the global economy will grow by just 2.4% this year. Excluding the crisis years of 2009 and 2020, that's the slowest rate since 1993. But, is it all bad? Are we all doomed, or can we use the circumstances to change for the better? What can we learn from the experience? And can we come out the other side a whole lot more resilient? With me today are John Scott, Zurich's Head of Sustainability Risk, and Dr. Sarah Gordon, CEO and co-founder of Satarla.

For the past 10 years, John has focused on global risks, in particular climate change risk, working with organizations including the Bank of England, the UK Government's Green Finance Taskforce, and the UN. And Sarah Gordon co-founded Satarla, a network of award-winning risk management trainers, consultants, and researchers. She's worked across a number of industries including mining, healthcare, energy, finance, and tech startups. John, Sarah, welcome to the podcast. Thanks so much for coming along. John, I'm going to start with you. You have worked in risk management for a long time. How does today's risk backdrop compare to previous years? And we're already smiling at that, Sarah. Yeah. Well, things have changed a lot. If you cast your mind back just over 12 months, the world looked a very different place. We were just coming out of a global pandemic with lots of consequences, economic consequences, supply chain consequences, societal consequences, really revealing the disparities in many societies between the haves and the have-nots and sadly, it's the poorest people and the most disadvantaged people in all societies who were really impacted very badly by the pandemic. But roll on just over a year, and as I said, it feels like we're in a world with almost like a whole bunch of old risks coming to the fore again.

We have inflation at a level we haven't seen since the 1970s. We're in an energy crisis, that was an early '70s risk. We've got interest rates we haven't seen before the great financial crisis, before the credit crisis of 2008. So all these things combined together to really create a very different looking world for us as individuals, as businesses, and for governments too. And Sarah, as we look back, I guess, at those old risks and how they impacted our lives in order to help manage those risks. Absolutely. I mean, I think with regards to inflation, that's a risk, which as John says, it's nothing new, but perhaps we've forgotten a little bit with regards to how to manage it. So there are an awful lot of people going back to their notes from a number of years ago saying, "Hang on, when was this last a problem? When did we last have to think about it?" So I think there's been an awful lot of merging of perhaps traditional ways in managing these risks, together with more modern thinking where perhaps we have new technology where we can utilize that to make decisions a little bit faster or certainly utilize larger data sets. So whilst they might be old risks, there's something really exciting here where we can manufacture new ways of managing them. And has risk management changed over the years, John? Yes, I think it has matured dramatically. One of the challenges for risk is trying to not look backwards all the time, but trying to look forwards and understand how the world may play out. And in fact, that's what the World Economic Forum Global Risk Report 2023 does. It tries to think in a scenario way, there may be different scenarios or how different ways in which the world can develop. And in those different worlds, how may risks and opportunities vary. And that's extremely helpful because a lot of risk reports are backward-looking or they're very short-term in their outlook, then it becomes almost like a forecast. And we know, when we try and forecast things, we inevitably get them wrong.

Because that's the key thing that businesses are looking for, isn't it? They're looking for opportunity in the risk. Yeah, they are. And I think with that is, if you could give somebody a prediction or a map of the future that was a 100% certain, the world would look very different. We don't know what's going to happen in the future. We can just put together our best estimates with regards to where the world might go. And with regards to all of that, that's a case here where, leveraging from the World Economic Forum Global Risk Report, something that's really nice about this year's report is that they talk about both the near term but then also the long term as well, because different risks are going to come to fruition at different time scales. So for example, a lot of the climate change related risks require us to think decades into the future for when we're going to see or potentially going to see those impacts. But the key with regards to all of them is always asking ourselves, okay, so we might not see the impact of that risk for many years, but when do we have to take action to try and address it? Because some of those long-term risks need us to act right now. And so the positioning of when we need to put those actions, those controls, those mitigations in place, that almost determines the prioritization of which are the really big risks that we need to be thinking about, rather than just prioritizing them by what's about to maybe hit us in the face, or be the next opportunity that we can grab.

Now according to Peter Giger, Zurich Insurance's Group Chief Risk Officer, every risk is an opportunity if it is properly managed. Can you elaborate on how a business can turn risk into opportunity, and what managing a risk well looks like? Well, it helps a lot if we think about how we describe a risk. typically describing a distribution of different types of event that may be called the same thing. So a car accident could be a bump in the garage, it could be an accident out on the road, or it could be a multiple pile up on the motorway. And all of those have different consequences and different likelihoods. So when you look into how we describe a risk, typically we think about the underlying vulnerabilities. What are the things that affect the risk or make the risk likely to happen? Then we look at perhaps some of the controls, some of the things that are helping to manage that risk. And then we look at the triggers. What are the events or things that might happen that make the risk manifest? And then we have a whole set of consequences. Typically, the things that help us understand how to manage risk well are the vulnerabilities and the controls and somewhat the triggers. We can't do a lot about the triggers in many cases because it's about events. Events happen, and often we can't do a lot about that. But what we can do a lot about is, are we well prepared? Can we build in resilience into our business models? You know, can we do things about changing our products and services, for example, that make us not only more resilient, but to increase business benefit, whether that's new revenue or new sources of profit? And with that as well, I mean, I think what's really interesting is, what might be considered to be a risk for one person might not be a risk for someone else. It might be a cause for them or a consequence for them. So everything happens as a network. So if you are trying to become truly resilient or be proactive about managing your risks, we talk about controls being either proactive, proactive, so you're trying to steer whether that risk may or may not happen or reactive. So those reactive controls, they're not going to do anything about the risk actually occurring, actually occurring, but they'll help you to manage the consequences of those risks. So by looking at everything as a network, which might be quite a complicated way of doing it sometimes, but even just at a high level saying how are all these things interconnected, it allows us to say, okay, where am I going to get best bang for my buck in terms of putting those controls in place nice and early so that when those dominoes do fall over or that the risk scenario might actually happen, happen, I've positioned my organization, my team, my family, in the best possible position for that particular situation? And boy, those dominoes have been falling lately. I mean, John, you spoke about triggers, about events, international tension, conflict, we've got all of that at the moment, and they can have a severe effect on businesses. So what can we learn from all those things about managing risk in business? So there's a phrase that's quite popular at the moment, and it's taught about in the global risk report, which is “polycrisis.” And this is a phrase which is really trying to illustrate just what you spoke about there which was there seemed to be a lot of crises around. We have an energy crisis, we have a food crisis, we have societal crises, we have economic crises, and really, that gives many people a feeling that, "Oh my goodness, we're in a world we haven't seen before. How am I going to manage all these crises?" But I think, really, when you go into the vulnerabilities that underpin the risks, these are the sources of the opportunities to fix them as well and to find new ways of dealing with risks. So when we think about global risks, for example, militarization is a theme that comes out of the global risk report, and the militarization driving new technologies as governments invest in different ways of either defending or attacking each other. And that might be in the different domains in the internet space, it might be in space itself. And all the new technologies that come out of that type of advance have dual use, not only military, but civilian as well. So there can be tremendous advantages and business opportunities that drop out from that, and that's where a global risk turns into opportunity for a business.

And a lot of these risks are interdependent, they're linked, aren't they? Is that a benefit or a weakness for companies? Oh, it depends which side of the coin I think you are looking at. Personally, I'm a glass half-full kind of person, so I like to see it as being an opportunity because if you can see some of those links between different aspects, perhaps then you can say, "Well, you know what? We can take this action or put in place that particular investment, and that's not just going to help us with one area, it's going to help us with multiple." So it allows you to really bed down the business case for taking action or changing something within the organization. I think the other thing as well is that whilst when we see crisis after crisis after crisis layering on top of us and we might say, "Oh, this is Sod's Law," it is in these times of stress when people have to become more innovative, more creative. And so you do see people perhaps taking more risk themselves in terms of how they address that situation. So actually there's huge opportunity when it looks like everything is going wrong, actually there's the opportunity to invent the new way forwards. If everything was stable and the same, as human beings we'd probably be quite lazy and we might not see those technological advancements that perhaps we're seeing now. I'm not saying these crises are a good thing.

It'd be much nicer if we lived in a world where everything was stable. But as human beings, we do tend to function pretty well when we are required to think outside the box and to do something a little bit different. You're absolutely right, because during Covid of course, suddenly within 24 hours people were making phone calls to their tech departments and saying, "We need to make this work from home in a way that we never have before." And it's those conversations, it's making sure that your risk management strategy starts from the ground up and from the top down. Is that part and parcel of what businesses really need to be looking at to get this right? Yeah, I think going back to the point about interdependency between risks, and especially global risks, I mean, it is a characteristic of global risk that they have emerging risk characteristics. So they develop over time. And we’ve really, over the last 10 years, but really up until the pandemic, certainly the prior decade to the pandemic, we were living in a kind of slightly strange world in that we had lots of siloed risk events. So in 2014, 2015, we had the Ebola outbreak in west Africa. In 2011, we had storms and flooding around the world. In 2010, we had a volcanic eruption that disrupted air travel in Europe. All those things were kind of thought of, "Well, that's a single risk." "The risk just happens, and that's it, isn't it?" And it kind of masked the reality, which is all these risks are interdependent. So when one thing happens... And the pandemic's a great example, it was a health risk that manifested, the pandemic, but of course it immediately had all sorts of knock-on impacts.

It had societal impacts, it had economic impacts, when the lockdowns were put in place to reduce transmissions. It had business impacts, many companies having to put their staff on furlough, often funded by governments, which in turn created greater indebtedness for governments and for companies. So a real mix of additional risks that manifested. And that's that kind of interdependence is fertile ground for companies to think about how to make the best of that risk landscape. And you work with a lot of companies and you very much like to get involved in those conversations, so you bring in every member of the team because every member of the team might come at risk management from a very different angle.

Absolutely. So almost the worst thing you can do when you're a risk manager is assume that you've got all the risks listed out in your risk register and you understand what's going on. There will always be something that somebody's assuming that somebody else knows about it or is doing something about it, or there might be something that is really sensitive and so people don't quite know how to share it with one another, or they're scared that they might offend one another by mentioning it or discussing it. Or the worst case situation is if you've invented a risk management process that is so bureaucratic and heavy and entrenched in needing lots and lots of paperwork to enter a new risk into that risk profile or that register that everyone goes, "Oh, I don't want to tell you about that, because then I'm going to give myself lots of work." If that's the situation that you are in, and it usually is within most organizations, there being some things that we don't know about, you have to go out and you have to listen to what everybody is saying across the organization. And given that respect, for even if they’re talking about something that you already know about or is already been dealt with somewhere else in the organization, it's their perspective, it's their opinion that gives you that little bit of smoke to that fire, so then you can say, "Okay, is there something that we actually need to deal with here?"

Some organizations refer to these as being the elephants or the gray rhinos or the ostriches. We tend to defer to lots of animal expressions at this point in time. And then we talk about black swans and everything else. We have a whole zoo there. But these are things where if you can engage with people at all levels of the organization from the shop floor through to board level and then engage people external to your organization as well, you'll have a much more complete opinion with regards to what is important to them, but also what is important to your organization as well. Is one of the biggest risks in risk management that you just make a list and then don't act on that list? Yes. I mean, people get hung up on taxonomies of risks and so on. But I think going back to this global risk report, one of the really good things about the foundation of it is that it's built on a risk perception survey with over 1,200 risk experts from around the world from a very diverse range of backgrounds and disciplines giving their views on what they think these risks are about.

And that's extremely helpful because it provides that kind of diversity that Sarah was talking about in terms of understanding different aspects of risks. I think going back to the zoo of different explanations for risks, if you like, a gray rhino risk is, is a risk that is actually in full sight like a gray rhino out on the plains in Africa. You can see it there. It looks threatening, but you don't necessarily do anything about it. And that's the other characteristic of global risk. There's a lot of lack of action taken on global risk for all sorts of reasons. And if we take climate change as an example, we're in a moment I think with climate change where there's a clear scientific imperative to do something. The IPCC climate scientist tells us we need to keep global warming within a 1.5 degree threshold. We're emitting greenhouse gases at a rate at the moment which means we're going to exceed that very likely before the end of the decade. So the hope of net zero by 2050 already gone. And that's massively challenging. And why it's challenging is because although there's a scientific imperative, there's actually a political expediency going on. So there's many other things that, I mentioned it earlier, the energy crisis, the food crisis, inflation, which are distracting leaders in business and in governments in addressing these longer-term risks.

But they're all interconnected, aren't they? So with regards to, say, the energy crisis and climate change, our need to go through a just energy transition. So we've away from the non-renewable like oil, gas, coal into the renewables. Most of the materials that are needed for wind turbines, photovoltaics, et cetera, still need to be dug out of the ground, which therefore requires a massive escalation in terms of the volume of material that we provide. That comes from the mining sector, not the oil and gas sector. And so this is something here where you've got the opportunity for a sector that has had many disasters in its own right to actually work out how can we dig this material out the ground in the most responsible way possible so it goes into that supply chain. And then also as well work with people who are really good at recycling to say that when we've gone to that effort of producing those materials, we can keep them within our stock. So we keep them going round and round in circles. So that's an area there where coming from both the energy crisis, but then also mixing climate change in with that, at the same time, you've got a double reason for saying, "Okay, how are we going to do this right to actually serve our needs that we've got to be able to deal with right now?"

I guess that brings us on to regulation because in many ways, regulation is important. It's another area where risk and opportunity are closely linked. So how can businesses which might see regulation as a burden or as a box-ticking exercise turn those regulatory demands to their advantage? I'm going to be intentionally provocative here and say that all regulation is behind where we need it to be at the present point in time. That is generally because when a regulation, whatever kind of document it is or whatever kind of understanding it is gets put in place, there's fantastic justification for it being there. There usually has to be some sort of data set to validate that it is the right sort of regulation to have. That's fantastic for managing the present. But remember, we're trying to build a future that's coming at us really fast at the moment. And so where you look at some of these areas that are changing incredibly quickly, the poor people who are holding the pen on various regulations, it’s very difficult for them to be able to keep up. And also they are constrained within certain rules, so they can’t just go out on a limb and say, "Hey, I think this might be the best approach." Actually, there needs to be a little bit of thought that goes in behind the scenes there as well. Yeah, and I think we have to look at it in the broader perspective.

It's not just regulation, but it's legislation as well. If you put that all together in a sort of policy landscape, it's really challenging for policymakers to create a set of policies that drive the correct behavior or the behavior that you want to make a change and climate change is a really, really good example. So the transition away from fossil fuels, which we need to do over the next 30 years, is very difficult because we live in a world where we are all dependent on fuels in virtually every sector, whether it's for power generation, whether it's for transportation, in heavy industry, in petrochemicals, in agrichemicals, in agriculture more broadly. We have to feed more than 8 billion people on the planet. And at the moment, all agriculture is essentially oil-based, and we have to move away from that. But how do we do it? How do we encourage or incentivize that behavior? And of course, we could put in regulatory or legislative controls in place, or taxes, for example, that might create a higher carbon price that incentivizes people to move away from carbon-intensive goods, but then all of a sudden that distorts everyone's perception of what's in the economy. And it might change people's jobs. It might shut down industries tomorrow, which creates enormous challenges of unemployment and retraining and early retirement for governments which are already extremely indebted after the pandemic, and now with the situation with high interest rates that have come as inflation has surged after the events in Ukraine and the responses to that. So really I think legislation and regulation are very, very powerful tools and we need to handle them carefully, and business needs to work with government in a sort of giant team game, really. I think it's finance, it's government, and it's the real economy all working together to make these changes happen. Because change is a funny thing because it can happen incredibly quickly, or seem to, and yet it has been coming for years and years. And one of the big issues is that businesses, governments tend to plan maybe two, five years down the line where actually they need to be thinking 10-15 years.

Oh yeah, absolutely. When you talk about the energy transition and the provision of raw materials that needs to go into that, the country that is miles ahead of everybody else is China. In part because they’ve had a very stable government for a long period of time that hasn't required changes on quite a regular basis. Now I'm not necessarily condoning different styles of governance or anything like that, but when you are talking about things that require decades to be put in place, actually having that stability with regards to that government level is very, very helpful. And so then what's going on at the moment, for example, with regards to the UK, Europe, America, is the Americans recently put in place the Inflation Reduction Act. And that's driven huge change, immediately, with regards to where people are positioning their businesses, the opportunities that they're looking for. There are big discussions with the Europeans in terms of, okay well what does this mean in terms of the allocation of budgets to different areas around the world? And of course here in the UK we are having all of those types of discussions as well. So what you’ve got is you’ve almost got the need for a more nimble approach to some of this change. But also in terms of the legislation and the regulation that is being drafted, people are doing it very quickly at the moment, because we're trying to keep up with one another. It is a race, it is a competition. Will global markets sort everything out? No, not in the near term. In the long-term, yes. But that's not close enough for us. We need governments to draft the correct sort of regulation and put it in place fast enough, so it therefore drives the rest of the change that we need. And businesses also need to be thinking longer term. They need to be thinking strategies which will take them into the next 15 years so that they can grab opportunities, not just the ones that are there now, but the opportunities that are coming down the tracks. Yes, I think that's true, but it depends on what kind of industry you're in. Some industries are very long-term by their very nature, they're capital intensive long-term bets, if you like. So if you think of the oil and gas industry, how that’s developed, to the mining industry, those are classic examples of really long-term thinking types of sectors, because their investments pay out over decades. Other industries, fast moving consumer goods, that's how you position goods that get sold every week, and they change every week. World and planning five or 10 years is a nonsense in that kind of sector.

So I think there's a real mix of this long and short term. And I think, I think it's really about business and government working together on these things. So if we go back to the pandemic and think about one of the great successes in the pandemic, which was essentially the vaccine development, that was a real collaboration between the pharmaceutical industry, and business, and governments. And that worked incredibly well. You know, in past decades, it took 20 years to discover and prove out a new vaccine. We did it in a year. So I think allocating different tasks to private enterprise and to governments, building on their skills and capabilities that are separate, but working together is the way to go.

Before I let you both go, because I could talk to you about this stuff for hours, Adaptability, resilience, crucial. So how can an institution build a resilient mindset and encourage this idea of resilience in its people?

So I think the first key to that is diversity of thought. The more ideas you've got in the room adds to that creativity. You can create, different options, it therefore means that actually you can go with your best bets. Also within there as well, not being afraid to say that you're wrong.

So actually saying, "Well, you know what? I'm going to try this, and if I then realize actually this doesn't quite look like the right path, let's stop here or let's change direction. Let's pivot." That's incredibly important. If you just stick to your path and assume that everybody else is wrong and you are the right one, we know that that doesn't necessarily lead to the desired outcome at the end of the day. John was nodding there.

Yeah, absolutely. I think, going back to the global risk report, these global risks, not only are they highly interdependent amongst each other, but also the solutions to them tend to lead people think about a global approach to managing a global risk. But I think actually when you look at many of these global risks, how they play out is in an intensely local way. So if you think of things like flood, building flood resilience is a very complicated thing to do because it’s a very system-wide issue. So it depends on where the floodwater is coming from, how uplands are managed or farmed, how rivers are managed in terms of whether they silt up or not, where you do or you don't build flood defenses, all of that is often intensely micro local in terms of how it's managed. And so I think a lot of the solutions to these global risks are actually local.

John, Sarah, thank you so much for talking to us, and thank you for listening to The Risk Opportunity. Please do, follow, rate and review the Podcast. It really helps others find it. Head to zurich.com/globalrisks to discover more about risk resilience and download the latest global risks report.

The Risk Opportunity: The Business of Net-Zero

Transcript

Hello and welcome to The Risk Opportunity, a series brought to you by Zurich Insurance Group. I'm Danni Hewson, a financial analyst and broadcaster with over 20 years of experience covering finance and business. In this episode, we will be exploring how businesses can help the world achieve its goal of reaching net-zero and mitigating the impacts of global risks while harnessing technology to create business opportunities for a sustainable future. We will be taking inspiration from Zurich Insurance's recent report, "Accelerating the Climate Transition: Long-term thinking for near-term action," to explore how corporations are playing their part in reaching net-zero and mitigating global risks.

And harnessing technology to create business opportunities for a sustainable future.

With me today are Anita Horgosi, Zurich Insurance Group's Sustainability Business Development Director for Zurich Resilience Solutions, and Fabienne Serfaty, a strategic consultant and private investor with a long-term commitment to net-zero and decarbonizing the grid.

Anita, Fabienne, welcome to The Risk Opportunity Podcast.

Thanks so much for joining us.

Thanks for having me.

Delighted to be here.

Anita, how did tackling climate change become part of your professional life? Because clearly you're passionate about it.

My father is a forest engineer, so I also grew up actually with a very close connection to nature and forests.

So, this has always been very important for me that we have to do something to protect the environment and then you start looking for opportunities that what you could do and how you could contribute.

And Fabienne, what about you? How did you get involved in tackling climate change?

I got involved with environmental lawyers at the beginning, and it was Client Earth in the UK, and at the time they were tackling litigation cases against the EU and against European governments to force them to put the existing environmental laws in place, which was not happening.

And I came from a perspective of helping small companies who I thought were game changers. In the context of social entrepreneurship, I was looking for those that were really bringing about systemic change to the industry they were operating in and started working with them. I understood the power of the rule of law to make change happen in the climate space.

And Anita, what you're doing at Zurich is about making those changes happen.

Exactly. And this is something which is an extraordinary topic, I think, and it's really a big opportunity because we are working with customers and we are implementing change together. I've worked in startup environments in the social sustainability and financial inclusion phase, as well as mid-sized companies in the energy sector, and definitely, you feel the drive. But what I really appreciate now in the corporate environment is the scale that we have and the impact that we can have with other large-sized companies. Net-zero is an absolutely massive feat to achieve, and it's clear that business can't do it on its own. Government can't do it on its own.

Everybody needs to be involved in this. I think definitely there is a need for collaboration between the public sector and the private sector as well, and then we can work together on finding solutions to the challenges that we might face in our individual attempts. Look, I think the big areas where we are now working together is obviously environmental regulation and legislation. I do think this is more cooperative than it was in the past. Another way in which that cooperation is working is subsidies. So the US, because the US doesn't like to regulate things with taxes, they do that normally with subsidies, and the IRA is an incredible example of how business is benefiting from government intervention in the form of these huge subsidies. And the other one obviously is taxes. The whole taxonomy and the existence of a carbon tax in all European legislations, but not in the US, for example, or the broader carbon tax adjustments between European countries. All of these things are ways in which the government is giving positive incentives for companies to move in that direction and to invest in climate change technologies.

And Anita, are you seeing changes in companies' attitudes to making sure that they're on the right side of regulatory changes, that they are looking for subsidies and trying to avoid tax risks?

Companies are acting, so even if we are looking at setting up transition plans to reach net-zero by 2050 or which year they're taking as their target, there is some movement and there is action. And we also see actually this financial element that you might be pointing to, that definitely now, climate risk is impacting the bottom line, the revenues, and the profits of the companies. So definitely there is a move towards integrating climate risk into the core business and also into the strategy of the companies.

And we also see, which of course as an insurance company is delightful for us because it's in our DNA and in the focus of attention, is that a lot of companies are putting more and more effort into the adaptation measures to introduce and implement adaptation measures.

Companies, in general, are pretty nimble organisms and they adapt quite well to what they need to do to survive, as opposed to sometimes larger entities like a government.

Because Fabienne, without mitigating against these risks, without planning, without factoring in what needs to change to make companies resilient, it will impact their bottom lines, it will impact their relationship with their consumer, and it will impact their ability to hire skilled workers.

What I do see is a growing understanding of companies in their DNA, that to stay competitive, they need to develop an approach to managing the risk and developing the resilience around climate change issues.

So that manifests in different forms of sophistication. At least they will prepare for risk, but the most sophisticated ones are now really developing scenario planning, and I'm helping some of them do that, scenario planning to convert uncertainties into narratives of the future.

Anita, you must be part of that.

What we see with some of the companies that we are working with is that only compliance is no longer enough. Of course, it's mandatory and you have to do it, but at the same time, you must leverage your data and ESG data and your actions to actually drive financial and operational value as well within the companies.

And we see it via the stakeholders with whom we are working, that more and more stakeholders are entering the discussions because certainly implementing any kind of actions related to managing climate risk within an organization requires a very broad collaboration across the different internal stakeholders in a company.

I think we are definitely seeing that risk managers are stepping up, or we see that they are having more and more importance and space to influence the efforts of the company and actually also shape it, how they want to implement and of course also integrate valuable input and insights into the actions which are taken.

It's absolutely my experience. If you look at which companies have made which kinds of net-zero commitments across the landscape of the largest companies in the world, for example, until such time as it is a voluntary commitment that you do for compliance reasons really, we will not get the traction that we need to meet the numbers we're trying to meet. Accounting for our emissions and that have a direct impact on the balance sheet is what we need, and as long as we don't dare go that way, there will be little accountability and little consequence for those who don't meet their target.

Because we have had some pretty big commitments, net-zero targets, but how do we know how genuine they are and how achievable they are, and also if they're being achieved, Fabienne?

So at a country level, I believe there's about 27 countries or a little more, who have passed laws to embed their net-zero commitments in their legislation. And those are believable because there's a number of budget agreements, multilateral agreements, etc., around them that would need to be broken if you break your targets. So I think that has some solidity to it.

But in the corporate space, it's a different story.

There's an initiative of the UN, which is called the UN Race To Zero, that about 8,000 large companies have signed up for, but we have no way of enforcing those. It's a voluntary commitment. Having said that, I still think it's a very good thing to have and I still think the role modeling is very important and establishing industry standards is very important. So, I'm not saying forget corporate commitments. What I'm saying is we need to go one step further. We have to take more action and we have to go one step further.

But at the same time, I would also like to highlight that I think if we are looking at numbers, then there is a large proportion of large corporates and companies who are actually taking their net-zero plans and transition plans, and they are also taking actions on implementing them.

And one element that I would also like to mention is the influence that these companies can actually have on their own supply chain or value chain. Zurich is also working with its own suppliers to actually try to educate them, provide climate-risk-related training, and we are also working with an external partner who is giving access to our suppliers to a carbon accounting software and helping them in that way.

Because innovation must create huge opportunities, Anita? Technology is a key enabler of delivering on the transition plans that the companies have in space. At the same time, as an insurer, we also see that innovation is very important for us as well because we want to accompany companies, we want to work with them in implementing their transitions. However, I imagine, Fabienne, that these conversations must differ depending on the size of the company, depending on whether they're a startup or they're incredibly established. Small companies do have a very specific challenge in that space. First of all, they have one big advantage, which is they tend to be more nimble and better at adaptation in general, but they also have a lot of disadvantages. They suffer more from externalities, maybe, such as the change in the price of energy, which very often affects the bottom line that doesn't have much reserve. They are more affected by changes in taxation.

They certainly have less influence on a supply chain. They get drowned by climate regulations more than large companies do because they don't have the capabilities or the staff. They tend to be more dependent on a few large customers or on a few investors, etc.

But I think by and large, the biggest differences are really by industry. If you are in a classical production company that is very materials-intensive, the transition hits you much harder than if you are in the service industry, let's say software, where all you're managing is maybe the data costs, so you switched the energy sources for that, and you've already really reduced your emissions.

We're talking about a new bit of research that Zurich has put in place, and that is focusing very much on these opportunities, on places where investment and expansion are going to be key and are going to deliver dividends and results. Zurich Insurance has recently published a paper on climate transition, based on the insights from our Sustainability Executive Survey. We definitely see that the energy sector's transition to net-zero is an absolute key and very important, not just because of their own transition and because they have the largest share of global greenhouse gas emissions, but also because other sectors and other industries are dependent on their transition and the new solutions that they can bring.

One thing that we see is also around the electricity and the grid capacity, which definitely needs improvement and further expansion, especially in some of the developing world.

We also see battery cost and performance, which is definitely clearly in the area where additional interest is needed because we see that energy density and charging speeds are improving, but also still, we are not there yet to actually supply, for example, heavier long-distance transports.

You've done this bit of research and there are huge opportunities, huge issues to deal with in terms of the climate change transition, but fascinating times for the companies that you're working with.

Yes, definitely fascinating and a lot of challenges and a lot of opportunities at the same time.

I think also from the survey, one of the key challenges that we see relates to investments. This is something that we see that there is such an amount of investments needed that neither the private sector nor the public sector can do alone.

The other point that we saw from the survey and also from the discussion is exactly the technology point. This is high on the interest of the companies and they are looking for new ways that can help to reach their net-zero goals. Of course, some of these technologies are already available today and they can be further scaled and improved in the short term, but there are some other things which are not available today, but we will need in the long term in the next decades.

Fabienne, I'm sure that’s something that you're talking about with companies all the time. So it's getting the tech to scale and it's also getting it financed. There must be frustration, Fabienne, among some of the businesses that you work with, that this transition isn't happening fast enough, that they're ready to go and there are hurdles in their way? Many of the hurdles are financial. These are these are big transformation processes. Even in industries where the technologies exist, you’re, in most cases, talking about completely setting your business system upside down, particularly in the aftermath of the pandemic and other crises that have happened.

A lot of businesses are cash strained. I try to help businesses raise funds and so I struggle with them around that. And the other one, sadly, I'm going to say is cooperation of governments. The number of permits and planning authorizations and compliance with regulations that you need to invest in a new technology can be really paralyzing. Yes, I think we always go back to this right, the turbocharging innovation and technology and how we have to play together because in terms of innovation, of course, there are these enablers around which also policymakers can help with. And one other topic I wanted to mention, I think it relates to technology, is data. Because we see that actually customers and companies, they are needing data-driven digital solutions. And also we have to invest. Our technology needs to play a role in reducing the cost of data as well because to identify, analyze, mitigate climate risk, this is a very data-driven effort that we need to do. And for this one, it's absolutely crucial that technology is also playing a role, and better data and modeling will also increase the confidence in risk assessment and quantification and ultimately also support decision making. We've spoken about differences in industry, but are there differences in regions in how this is being dealt with? The IRA has been a game changer and now the US stands out. It's been a game changer for many of the climate-related industries and it's put the US in a league of its own.

It's also creating unwanted effects, distortions among industries and technologies. And as always, with intervention, it's also creating a regional shift in global resources and global finances, for example, away from Europe that's very problematic and it's creating a huge pack of debt for the US. But still, in terms of technologies, it's been an absolute game changer. So for example, green hydrogen is almost at a negative cost in the US today because of the subsidies. So everybody's rushing into it and investing into it. But I would still say Europe has the most advanced frameworks in terms of public policy and good solid regulation, sadly, too much of it in certain fields, so it is also paralyzing some of the capital flow. And then you have very big differences within Europe, and that's holding us back.

So if you take the example of, let's say, carbon tax, all of the European countries, including the UK after Brexit, now have some form of carbon tax that they levy through ETS schemes, emissions trading schemes. The UK has fallen behind everybody else in the EU in recent months because they've let the price be regulated by market dynamics. And now there's no longer an incentive for investors to finance green energy. But even within the other EU countries, Sweden has the highest carbon price, carbon tax. It's about 117 euros per ton of carbon emitted. Poland is less than one euro per carbon ton. So, we end up having these very fragmented, little markets and then we try to regulate what happens at the border when goods get imported with different levels of tax rates at the basis. So it gets very complicated, it gets very slow and China is an interesting case.

So as you know, many autocratic regimes, the policy and execution are very close together and once the decision is made, things actually get done. Also in terms of environmental regulation, in certain parts of it, they are way ahead of anything that we have developed in the US or in Europe. So I think where we land is the US will have all of the big climate tech companies, all the unicorns, all the giants, all the ones that make a lot of money on their technologies. In Europe, we're going to have the best infrastructure and China will be the place where the technologies get scaled. So they have the mass markets and the big technology developments, the second stage. But I think there is also some commonalities and something that we can be happy about that climate change is becoming increasingly important everywhere at the same time. And it's also getting integrated into the overall global risk landscape. It sounds like from what Fabienne said, that what we really need is for all those disparate pieces of the jigsaw puzzle from different regions of the world to come together. So how do we create a landscape which allows that to happen, which makes investors want to put their money in? And I think also a very important point is again, collaboration. This should be cross geographies and also cross industries, cross sectors, because then that's how we can foster further innovation and actually also connect to each other and make sure that we are fitting the puzzle pieces together. To Anita's point of the importance of cooperation, some of the very large initiatives that I go back to when I'm working closely with Xlinks, are completely blind to geographies and Xlinks is trying to tap one of those dimensions, which is how to really scale renewable power at a level that will make a difference in the transition.

And just very quickly about the project, it's generating solar and wind in Morocco, in North Africa, and it's transporting it to the UK, directly into the UK grid through subsea cables that have yet to be built and installed. Sometimes the corporates are way ahead of the game in terms of legislations and governments and all that. It slows you down because you have to deal with different settings, but the business model is one that is not bound by geography in any way. As being part of a large multinational organization, I think we can feel it and we also benefit from it, because some of the support and services that we can offer to our customers or we can work with them, it doesn't matter where they are based. Globally, we are able to help them. Are conversations changing? Because we’re now seeing very clearly the impacts of climate change on all of our lives. Does that change the conversations that you're having, Anita? People see it and people feel that there is something which is changing. And of course companies also feel within their own businesses that they have to be prepared. So while they are talking a lot about mitigation and transition plans, at the same time, we definitely have to make sure that we are also building resilience and we are implementing adaptation measures and being prepared for the impacts of climate change. But we see that our customers are also becoming more and more aware of it and they request and want some support. What does the future look like, Fabienne? Future, future? Or 2050? Let's start with 2050. I think we've missed our 1.5 target, but we've made something short of 2%. We have a world population in 2050 that's going to be about 10 billion people. And in my scenario, everybody has their basic needs covered in terms of food and water and basic living arrangements, and our carbon footprint has become ridiculously small. And why is that? So I think we're living in homes that are fully self-sufficient in terms of energy and then built with recyclable materials. We have heat pumps and integrated solar panels et cetera.

All the big industry processes, a big part of them has been electrified and all of them are powered by renewable energy or some type of biofuel, let's say, for those where electricity is not an option. We’re transporting our people and our goods in ways that are 80% electrified and also renewable. So we fly net-zero, we ship net-zero. Transportation in general is going to be radically different. And the last one of the big topics of basic need for the world population, which I have a hard time with, is food. I think we are moving through a GMO world. In any case, there is no more meat-based protein or at least not live animals. We've changed the protein intake of the world population and we have synthetic meat and other forms of food. We've completely integrated AI in the regenerative farming and processes, and so we use less water and fewer resources to produce the food we need to feed 10 billion people. That is an awful lot to achieve in 27 years. Anita, what about you? 2050? Fabienne's future idea might be correct that we don't meet the 1.5-degree warming, however, we should not abandon and should not drop this threshold. I think it is absolutely important that we are continuing to work towards it. I try to keep my climate optimism. I think we must not lose hope and we know what needs to be done. We know how to get there. We just need to accelerate and solve the challenges that are in front of us, so I really hope that we will manage to do that. Fabienne, Anita, thank you so much for joining us on The Risk Opportunity podcast. I think it's been absolutely fascinating to talk to you both, and clearly this is a huge issue to tackle, but collaboration is happening. And though there is obviously a long way to go and frustration that things are taking an awfully long time in some cases, there's still a huge amount of optimism that we are on the right track. Thank you for listening to The Risk Opportunity. Please join us again soon for the fourth and final episode in the series. In the meantime, please do follow, rate, and review the podcast. It really helps others find it. Head to zurich.com/climate to discover more about accelerating climate transition and climate resilience and download the latest reports. The Risk Opportunity was brought to you by Zurich Insurance Group.

The Risk Opportunity: How to power climate resilience

Transcript

Maintaining a society that is safe, equitable and equal for everyone is becoming more and more of a core issue with corporations. Everything I work for every day is precisely to ensure that society continues to function and even thrive despite shocks. We should adopt a mentality of – what if it happens here?

Hello and welcome to The Risk Opportunity, a series brought to you by Zurich Insurance Group. I'm Danni Hewson, a financial analyst and broadcaster with more than 20 years’ experience covering business and finance.

Countries around the world are committed to the Paris Agreement, which aims to limit global warming to two degrees Celsius or less. But our survival doesn't just depend on reducing emissions. What's essential is learning how to adapt and become more resilient to climate change.

In this episode of The Risk Opportunity, we'll hear from experts like Dr. David Lallemant, who's worked with the likes of Stanford University and the World Bank to develop models to better understand and reduce disaster risk.

And Amar Rahman, Zurich Insurance's Global Head of Climate Resilience for Zurich Resilience Solutions. Amar, welcome to The Risk Opportunity. We're going to be talking a lot about resilience when it comes to climate change in this episode. So could you just define resilience for us?

Depending on who you ask, resilience can have many meanings, but fundamentally it's the ability of an organization, of a society, of individuals to withstand any impact that comes and disrupts their day to day operations or way of life. It's also their ability to learn from these events and to improve and be prepared for the next event that could potentially impact them.

How important is it that businesses are part of this, that they adapt for a changing world?

It's crucial.

You can't separate a business from the society or the community in which it operates. So we talk about a dynamic risk landscape. Every day, you turn on the news and you see something else happening. Companies and societies need to work together to mitigate the impact of these events that are not only increasing in severity and frequency, but interacting with each other in different ways.

Well, thanks so much for setting the scene for us. We're now going to have a listen to what David Lallemant had to say.

So, David, you're in Singapore, you're just back from Indonesia. I imagine that you do an awful lot of travel. What has been the most impressive place that you have been to, and where do you think that you have made the most difference in terms of mitigating risk?

Yeah, thank you for that question. So a lot of the work that I do is on natural hazards and their impacts on communities. So I study earthquakes and typhoons and floods. Most of my work now is focused perhaps more on how to prevent these events, how to build our resilience for those events. But a lot of that is informed actually by work and research in post-disaster settings and post-disaster crises, which is fundamentally what we're trying to avoid.

But in fact, I've been quite active in that space and it's always a source of learning and inspiration for a lot of work that I do. Yeah, I guess you have to go there in order to see what happens, in order to learn from it.

But you must have seen some terrible things in your time.

Yes. So unfortunately, witnessing the impacts of these catastrophe events on communities, it's very troubling. I spent two years working in Haiti after the earthquake. Clearly, that event was absolutely horrifying. And the number of people and communities and the entire city, the entire country was deeply affected.

Part of the experience of being and working in these places, obviously, is witnessing the horrible consequences that these events have on communities. One of the more uplifting things, though, that we see as well is that the communities impacted by these events demonstrate overwhelmingly pro-social behavior. So I think while there's always a lot of talk about violence and looting and things like that, following these catastrophes, all the research, all evidence and certainly all my experience demonstrates that that doesn't happen. And when it does, it's extremely rare. Communities come together in amazing ways to support each other.

The work that you do is to mitigate risk, to prevent these kinds of things from happening. How do you go about that?

So managing risk starts really from understanding the risk. One of the things that we really stress in our work is that risk is the combination of three things. The hazard, the exposure, and the vulnerability, and you need all three to create risk. So hazard really describes the physical, natural, environmental process. So that could be the earthquake, that could be the flood, that could be the typhoon, the drought.

Then you also need exposure. And that describes really the built environment or the people or the infrastructure that is potentially impacted by these hazardous events. And then vulnerability describes really the propensity of that exposure to suffer impact or loss or damage or some kind of consequence from these hazards.

And when you recognize that those are the three things that are needed to create risk, that's quite empowering because then you also realize the breadth of tools that you have to try to mitigate these. You can try to put together water retention systems to reduce flooding in various communities. You can control exposure through smart city planning and better kind of guided development practices to avoid people building in hazard-prone areas to begin with. Or, very importantly, you can also address the vulnerability and that can be done through physical strengthening of infrastructure, or you can reduce community vulnerability through various means as well.

So there's an awful lot of work that's going on at the moment to make these communities more resilient. We don't tend to hear about the good stuff. We don't tend to hear when a tragedy has been prevented. Do we need to hear more of that?

Yes, absolutely. It's really interesting working in this space of disaster risk management because the overwhelming focus is always on the catastrophe and the destruction and the number of buildings destroyed and so forth. But the whole goal of disaster risk management, everything I work for every day, is precisely to ensure that society continues to function and even thrive despite shocks. So, in short, it's to ensure that nothing happens. And this creates a dilemma because, by definition, you don't see nothing happening. No one notices or hears about the typhoon that impacted no one. Or the earthquake that shook houses, but none of them were damaged or collapsed. Is that why you created the Averted Disaster Award? Why you’re part of that?

Yeah, absolutely.

So we created the Averted Disaster Award to address this exact issue, to highlight, celebrate successes in risk reduction so that these lessons could be shared more broadly and replicated elsewhere.

I would imagine you use a whole load of data in order to deal with this, to generate some of the ideas to mitigate risk. Just talk us through how you use the data.

Yeah. So it's very exciting. Just the sheer amount of data that is increasingly available to conduct very complex analyses on climate and disaster risk. Remote sensing produces so much data at higher resolution than ever before. It's still computationally very challenging to transform that into proper information. But we've been working on global scale models of climate risk and we're running millions of simulations of potentially damaging events. Part of what we might generate are wind maps and flood maps, but that's still one step removed from what's truly useful, which is, what are the impacts of these events on communities?

What are the cost implications? Are there any technologies in the field that you're particularly excited about beyond that sort of data modeling?

Perhaps what's been the most exciting when it comes to technologies, at least in my field, is more the coverage that we have now. There are some places where we've had good data for a long time, places in Europe and North America, Australia. What's exciting though, is that there's a lot more data now coming from the rest of the world where we critically need this information, because I think the stakes when it comes to climate and disaster risk are huge in Asia, in Africa, Latin America, and a lot of the world that has historically not had very good coverage when it comes to data.

Why is that? Why are we getting more data?

So remote sensing has been really helpful. We can now use remote sensing to get much more accurate digital elevation models, for instance. We can deploy these technologies at a much greater scale in covering every region of the world. So that's been a big, big one. But perhaps the other one is, there are these institutions such as the World Bank, where I’ve worked for a while, that have been very active in working with governments to collect more data, to collect better data. They've been very active in open data programs as well. So the data is also accessible to researchers and users both locally and globally to turn that into useful information. And I think that's had a really big impact.

When you look at risk management, when you think about resilience and the lessons that we are learning, are you hopeful about the next ten years?

Yes, I am very much an optimist when it comes to the ability of communities to build resilience in the future. I think in large part because I'm excited about what these resilient communities will be. I think these will be fundamentally nice places to live in.

I think a lot of the discussions around resilience is also about equity, because we have witnessed time and time again the impacts of disasters are deeply unequal. Building resilience also means tackling inequity, but those are good things to do regardless of climate and disaster extremes.

So I think the fact that we are taking very seriously these goals of building resilience is very exciting because I think what will come out of it are places that will be better for everyone.

David, thank you so much for talking to us.

Thank you.

Some incredible insights from David there, Amar. I think I was really struck by his passion and the fact that he has experienced the worst possible time for communities, and he's then gone in and used those insights that he's got from those times to really make a difference, to try and prevent those kind of crises from happening.

I couldn't agree more. I mean, there's a very important thread through what David said, and that's education. Our preparedness to implement any measures, whether on the adaptation side or mitigation, which means protecting ourselves from the environment and protecting the environment from our activities. Our readiness to implement these measures depends a lot on our level of awareness, what we call our risk appetite, our risk tolerance.

So education plays a very important role in sensitizing communities, sensitizing corporations about the potential consequences and encouraging them to act. Do you think it's harder when many of us in the Western world only see these disasters on the television, on news bulletins? Do you think it's harder to get people engaged, to get people prepared to engage?

Yes, there is an element of ‘it can't happen here’. But what we're noticing – droughts, heat waves, cold snaps, events that we normally, historically haven't seen in our lifetimes are taking place. They are happening.

So preparedness is key. We should adopt a mentality of, what if it happens here? It's never happened before. But what if it happens here? What do I need to do to prepare?

And on that note, I think it's clear that insurers do have a role in helping both companies and societies adapt. What do you think that role is?

Risk management is part of our DNA, right? So a key component in preparedness is assessing, quantifying, and treating risks, and that is our core activity. The role that we're playing in solving this problem is bringing our data, bringing our expertise, bringing our tools to, as I mentioned, assess, quantify, and solve the problem. But also as a hub, as a knowledge hub, bringing together academia, bringing together our customers, bringing together government officials, regulators, and having a discussion.

And we start with the basics. What is your definition of risk? What is it that you don't want to happen and how do we solve that problem? Corporations are not isolated from the communities that they operate in. So maintaining a society that is safe, equitable and equal for everyone is becoming more and more of a core issue with corporations.

So in terms of robust climate resilience then, what should we be looking for?

The elements of a robust resilience plan or resilience strategy has to include multiple elements. Elements around the protection mechanisms of the individuals, and that's the buildings.

So you need to create buildings that are safe for the inhabitants, that are low emission, that are comfortable to live in.

And then you need to look beyond that, look at the infrastructure, look at the utilities. Everything that supports the functioning of a society is prepared for the changes that we're seeing.

Take heat as an example. Increasing temperatures. And we're seeing that more and more in different parts of the world and areas that typically don't sustain heatwaves, for example, above the Arctic Circle.

But what is the impact of heat? It could be on people and it could be on the equipment that are essential to keeping society, but also corporations running.

So the impact on people is obvious, that it affects their health. They need to reduce the working hours, hydrate more. But the impact on the infrastructure is more complicated.

David was talking about the fact that we don't publicize when things haven't happened because strategies have been put in place to prevent them.

And unless we're celebrating those achievements, again, that's an opportunity lost.

Exactly. I agree with him totally.

You need to show how effective these investments were in protecting societies.

That is crucial.

I think something that would also be very helpful is to communicate in a less scientific way, make it more tangible.

So we’re just talking about the need to simplify the message.

And I want to ask you about data which can be incredibly complicated, but clearly plays a huge part in managing risk-informed decisions.

Absolutely.

So the best way to use data is to use it in a way that reinforces the message that you're trying to communicate, which is – what is the risk?

Even though technology is advancing at an incredible pace and we have this volume of data, we also need to bear in mind that there is a certain level of uncertainty behind the data.

The data is not predictive.

You should use it in a way that communicates the scenarios that could happen.

What if?

So I come back to simplifying the message.

We develop stories using data around what could happen under the different climate change scenarios.

The key point here is that the data that we use needs to reflect every aspect of the risk.

So not only how the hazard is going to change with time, but also the exposure.

And by that, I mean the values at risk, the people at risk, and so on, and also the quality of the protection mechanisms in place.

How is the building or flood protection mechanism or whatever? How is that going to perform with aging?

We've been talking about data, but clearly technology also has a massive part to play, and David was talking about the power of remote sensing.

Something that he's incredibly excited about.

Just thinking about technological advances, what are you excited about?

Well, it's not only the accuracy of these sensors, it's also the fact that they've become so cheap.

So you could deploy them at a very dense level throughout communities.

And what these sensors would do, they pick up and measure, everything from temperature within a building to energy consumption, to water consumption, as well as wind temperatures. What's happening inside or outside the building.

So rainfall levels, wind speeds, and so on and so forth.

So with that increased volume of more accurate data, that gives us more confidence in the assessments that we're making.

Zurich Resilience Solutions clearly plays a massive part in mitigating some of these risks, helping clients deal with the challenges.

Zurich Resilience Solutions is a global team of experts specialized in risk assessments in different industries. We support the underwriting function in providing the right coverage for our customers by offering a granular view of the risk. Additionally, we help our customers develop solutions around the risks that we identify. We are constantly learning from each other and approach each day with excitement and the desire to learn something new. Our optimism stems from the belief that individuals have the power to drive change, whether as voters, consumers, or employees demanding action. No action is too small, and by working together, we can create the momentum needed to achieve the goals set in the Paris Agreement. We should not solely rely on our governments but take responsibility for making a difference. There is no Plan B, and there is no Planet B either. It has been a pleasure talking to you too, Danni. Thank you for your time.

I think what I've been really struck by the most in my conversations with both David and Amar is the huge amount of optimism that both men have about our ability to deal with climate change and become more resilient to manage risk. It's just been incredible hearing their experiences. And yet, absolutely, the optimism because I think it’s so easy to get lost in all of this and to feel that it is hopeless.

Thank you for listening to The Risk Opportunity.

In the next episode, we'll be discussing Zurich's net-zero transition paper, drawing on the experiences of companies in key markets around the world. We'll explore the challenges and opportunities they face in the all-important race for net zero and offer some helpful recommendations.

In the meantime, please do follow, rate, and review the podcast. It really helps others find it.

The Risk Opportunity was brought to you by Zurich Insurance.

Zurich Talks Podcast – Digital Innovators series: Technology in the evolving risks landscape

Transcript

Welcome to Zurich Talks. I'm your host, Olivia Kinghorst. In this series, we'll be hearing from the industry veterans working at the forefront of digital innovation at Zurich Insurance. During this period of intense technological change, insurers are at the eye of the storm. And through these conversations, I'm keen to discover how Zurich is harnessing the power of digital technology in service of their customers. Joining me for this episode of Zurich Talks is Penny Seach, Chief Underwriting Officer at Zurich Insurance Group.

Penny, how do you describe what you do to your friends and family?

Well, first of all, thank you for having me today. I love being in the insurance industry, which does maybe sound like a bit of a geeky thing, but I try and just simplify it when I'm talking to people. And in essence, I describe my role in the industry as being a problem solver within the financial services space. When people ask me what that means I say, you know, we get to play every day with looking at the world and looking at risks in the world and then finding solutions for that.

Sounds like a great way to start a dinner conversation. So you have a long career in insurance, 25 years, in fact. What draws you to this industry and what makes you jump out of bed?

Well, the fact that every day is so different and the world around us every day has got something new in it. And if you look at it through different perspectives, you will see different things. Every day is challenging and stimulating. I love puzzles. I love being able to look at things and try and find a solution and try and find a way through and around things. So, yeah, that's why every day I jump out of bed smiling.

You've seen a lot in your career because you first joined Zurich back in 2017. You covered the Hong Kong market, then EMEA, and now the entire group. So, what stands out to you from working in such diverse markets?

I've had an incredible opportunity to work in very, very different countries, and there's a lot of things that are similar but different perspectives. And I think that that's for me what has been so interesting. So looking at the same problem or same issue, but through different lenses and then bringing that together to see one solution but through different eyes, I'd say that that's probably the thing that has stood out for me the most, that we see things in a similar but very nuanced type of way. And I think curiosity is extremely important, in your current position as chief underwriting officer.

So, explain to us why is underwriting so crucial to everyday people like you and I, taking out an insurance policy?

Yeah, because the insurance policy is about making sure that when things when something bad happens or where there is an outcome that is adverse, that the last thing that you then have to worry about is the financial implication of that or being able to pick up the phone and say: I need some help, can someone come and support? And getting an expert to you as quickly as possible. So, that's the value of insurance and you never appreciate it until something goes wrong, unfortunately, and then you need it. We really do focus, though, not just on being there in time of need, but also working with our customers, be there big or small, and to help prevent and to make sure that hopefully that insurance policy is never needed. So, we have a deep and strong focus on building and driving resilience for all of our customers.

How has this process actually evolved since you first joined the insurance industry? What does the underwriting process look like today?

Yeah, very, very different. It's very different five years ago. And it's just simply because our ability to ingest so much data and so much information is just - year on year - it's just evolving and it can become overwhelming. And that's why using technology in a really smart way really helps - as an underwriter - helps us work through a mass of data and a mass of stuff that is out there and really help us to distill it to things that really matter for us.

We're going to touch on data in just a moment, but tell us in this digital age, what do you think makes an effective and successful chief underwriting officer?

The one is the ability to know it matters and focus in on that. I read a quote once, which I just love, and it has stuck with me, and that is humanize the complex and automate the mundane. And I think that that is just so powerful, and especially when we look at technology and we look at the vast array of tools that's available to us. And bringing that mindset to it, I think is a quite a powerful lens to how we then navigate our way through all the things we want to do.

So digital innovation is at the core of this Zurich Talks series. What are you doing to stay ahead of the curve? What measures are you implementing within your team?

So, there's so many different things. But if I think about if we want to humanize the complex, that means that we need to be able to ingest insights near time or real time and use that to then bring the human part of it. So bringing the empathy, bring in the ability to digest, understand and put concepts and context around what we're seeing and also then communicate. Machines are great at a lot of things, but probably those three things they're not so great at, right? And that's why, you know, humanizing the complex allows us as humans to bring those elements to decisions that we need to be making.

And so what digital tools have actually been the most transformative for the underwriting business at Zurich in humanizing?

I mean, if we think about all of the artificial intelligence and the way that we can synthesize data points in ways that we never could, there are so many different things. I'm going to talk about, one that I'm really excited about at the moment and I know the word is a buzz and everyone's talking about it, but it's large language models. And the use case and the ability to think about how we can use LLMs is just I get so excited that I have to pull myself back and say, remember, focus on what matters. I focus on the things that are really going to move the needle for us. But I would say LLMs right now probably would be the biggest digital tool that we are all working with.

From our conversations within Zurich Talks, we know that customers are really at the heart of the journey. So, how have their changing expectations impacted the process and how you're thinking of trying to improve underwriting overall?

And it ranges because we've got, you know, customers that we sell vehicle insurance to, a car insurance to home insurance, to really large, big corporates. The end of the day, it's about listening to what our customers are telling us and what their needs are. And across different geographies, some geographies, our customers want to be completely digital. In other geographies, our customers want to sit down and have conversations. So it's all about being able to be agile to our customers needs and then using technology in a way that simplifies the process in the quickest, most efficient way. We use it to automate and to simplify, but never to replace.

Because at the end of the day, humanizing is such an important part of what we do. And so, using the tools to bring efficiency to us, that's really where our lens is, as opposed to actually driving it to a decision or driving it to an outcome.

So, your friends and family, would you agree or would they think that the current process is consumer friendly enough when taking out insurance?

You know, I think any consumer, it doesn't matter what you're buying, you know, you'll always look at it and wish there was something different into it and wish that there was maybe less paper or something that was a lot easier. I would say insurance is no different. I suppose the context that I would always try and bring in - I think this is where my family probably stops listening to me - is that, you know, we're in a highly regulated industry and so there are things that we need to think about, but it doesn't mean that we can't try and make that process as smooth and as easy as possible.

And I want to come back to this data point, because you mentioned that several times in this conversation, we're exposed to vast amounts of data. How can you as a company, leverage this to improve your business and the overall client experience then?

I mean, everyone talks about data and it is, it's the core of what we're doing, but the ability to ingest relevant data and then move it from just being that data point to something that is actually capable of generating an insight. That's where we then pick that up as underwriters because we then want to move it to knowledge, and that's where we can then sit down with our customers and make and bring the data alive and use the data in a really relevant and powerful way. So, it's now about being able to articulate and visualize components of - for a corporate customer - components of their risk that beforehand would have been points in a paper. We can now visualize it in a 3D and very, very different way. We can bring in more context for our customers. But again, it has to be very relevant to their risk and we need to make sure that obviously there is no bias or anything that has been unintentionally introduced as we're looking at different data points. When we speak about innovation, of course, a lot of this comes down to mindset.

As a chief underwriting officer, how do you try to bring your global teams along in this digital journey and instill this culture of innovation?

It's so exciting. And, you know, I say I say to the underwriters, if when we looking at a risk, if, for example, it would take us, let's say, three days of analyzing and looking, you know, putting the information through the different models and doing research. Let's just say that whole process would take three days. If we think about how we can use technology to do that for us, it could take seconds, right? Worst case, it could take, let's say, half an hour, which means that we have the rest of the time to then ingest the output. Think about what it means. Think about how we build a solution that is relevant. How we focus on looking at how we can create or build resilience, and then crafting our discussions that when we sit down with our customer, we are crisp, we are on point and it's relevant.

So, Penny, the year is 2030. What do you imagine for the underwriting business? What will it look like then?

So, I remember watching many, many years ago the Minority Report with Tom Cruise, and I remember being just blown away when he was standing in front of like a glass whiteboard, and the precogs were spewing out predictions of the future and he was like swiping things right and left on the board. And so, I always take that into what do I think 2030 would hold for us.

Which is not far away.

That's really the terrifying bit, right? But I think one, if I if I take it back to that and I'd say one thing that as insurers we've been really good at is looking or building models based on history that are past. If we are starting to think about building models that are more forward looking and data and technology and ability to ingest data is allowing us to do that, then I could imagine a not far off world in 2030 that will allow us the same kind of thinking as being able to be more predictive of the future, more predictive of outcomes. And so, we can sit down with our customers and we can talk through different scenarios with them and visualize what we think that outcome could potentially be. And I think the power we would then be is that you're able to really take mitigating action or build resilience in anticipation of what we think the future outcomes will be.

And overall, how do you think Zurich as a group can continue to be innovative?

There is a lot out there and being very clear on what matters for us and what we try to solve for and then being playing around with the technology and the solutions that support that. I think that that's where we will really make a difference because then we can execute on the things that will really make a difference.

So, sifting through the noise and focusing on the core competencies.

Absolutely.

And what capabilities will be key to accelerating innovation as we look to the next ten years?

Yeah, I would say never forget that we are human business. Curiosity will never, ever replace anything, even when you're looking at output, challenging it, making sure that we've thought through things from every different perspective. So, I would say curiosity will never, ever go away. And empathy, because if you're looking at data with an empathetic lens, it will tell you something different than if you were just looking at it coldly. What's the one value you would associate most closely with Zurich? I would say integrity. Integrity goes hand-in-hand with honesty. I would also put curiosity, and that's probably a bit of my own lens coming through. But I'd say those would be the three that jump to mind when I think about Zurich.

And finally, what's the one piece of advice you would give your younger self entering the fascinating world of insurance?

I would just say to myself, just embrace all the opportunities that you are given and be curious because it will take you places. It will expose you to opportunities that you probably would never have dreamt of as a little girl. And it will be refreshing to be able to explore the world. So, yeah, that would be my advice.

You're the best example of that. From South Africa to the wonderful offices here in Zurich. Penny, a big thank you to you for spending your Monday morning with us. And if you've enjoyed this edition of Zurich Talks discover more at www.zurich.com/zurich-talks. And if you find these insights helpful make sure to join the conversation over at LinkedIn using the hashtag #ZurichTalks. We'll see you soon. Take care and goodbye.

Zurich Talks Podcast – Digital Innovators series: How digital innovation drives proactive protection

Transcript

Welcome to Zurich Talks podcast. I'm your host, Olivia Kinghorst. In this series, we'll be hearing from the industry veterans working at the forefront of digital innovation at Zurich Insurance Group. During this period of intense technological change, insurers are at the eye of the storm. Automation, personalization, and artificial intelligence are reshaping the industry from its very foundations. And as with any period of disruption, there are both risks and rewards. Through these conversations, I'm keen to discover Zurich's strategic approach to navigating the coming decade and how our guests are personally harnessing the power of digital technology in service of their customers. Joining me at the Zurich Talks podcast table is Jack Howell, CEO of Zurich Global Ventures.

Now as a driving force behind Zurich's innovative growth engine, Jack is uniquely positioned to shed light on the essential components of an innovative practice. So, what does it take to keep this engine operating smoothly and at peak performance? Let's find out.

Jack, you have spent over two decades in insurance. What are some of your most vivid memories of technological disruption during this entire period?

It's crazy to think I've been doing this for 20 plus years, but I guess if I go back far enough, you know, one of the biggest sort of innovative changes to our industry has actually been self-service, as crazy as that sounds. But, you know, there was a time when you had to call a call center and submit forms with paper and all of that has changed. And it's really changed the way our consumers interact with us and our ability to listen to them and change the way we respond to them. But it's also changed the way, you know, they can then help themselves. So, I think that was the first big change that I saw in my career. The second change that I saw is really the ability of insurers to embed insurance into digital journeys. And that's something that's come about over the last ten years or so where we've really been able to put insurance into the normal sort of pattern of buying that our consumers have today. And that's allowed us to introduce insurance into, you know, the right place. Today that is becoming much more contextual. So, whereas historically we would offer insurance, you know, just embedded on a web page, now we're actually able to offer the right insurance at the right time to the right person with the right type of coverage. So, it's becoming smarter. And I think that's where this gets really interesting for us.

And we're going to dive into embedded insurance later on in this podcast. But let's talk about you. How have you personally adapted in the face of innovation and all these technological waves?

It's been really interesting. I think, you know, the biggest learning that any of us can have when it comes to innovation is the understanding and recognition that we really just don't know everything. And it's important to listen. It's important to listen to people, to understand, you know, where they think we can take technology and how we can use it, how they see the world changing around us. Because the experiences that I have are certainly not indicative of other experiences that other people have. And it's important to listen how they see technology and innovation impacting their lives and then think about how we can apply that to insurance. So for me, it really comes down to listening, giving people the opportunity to explain how they are finding are finding innovation and how they're working with innovation within their own businesses or in their own lives and how we can then apply it.

So what I hear is staying humble and keeping our ears open to the customers.

I think that's right. I think that's exactly right.

Well, you have also worked extensively in Asia. So can you reflect on the rise of Asia as an innovation hub and what you've seen on the ground there?

Yeah, Asia's just been a really amazing story, and I think that a lot of that is driven by the fact that they didn't have such a heavy infrastructure to begin with. So, if you think about cell phones as an example, I know it's not insurance, but, you know, cell phones became so prolific across Asia largely because they didn't have landlines. Right. So, it was much easier for a lot of these countries, especially in Southeast Asia, to just put up one cell tower and service an entire community instead of installing phone lines, you know, to every home. And insurance is a lot like that, right? If you don't have insurance already built into your economy, if you're don't already have a service model built, you can incorporate a new service model and start with something that is more innovative. So, it's allowed Asia to, I think, really leapfrog from a technology perspective a lot of what the rest of the world is doing when it comes to insurance. I think it also helps that, you know, these are incredibly young populations in general. So, you get the adoption rates to being much higher than you do in other parts of the world.

It's a really unique experience that you bring to the table, to your current role. And let's turn our attention to that because at the moment you're leading Zurich Global Ventures. So just give us a snapshot of what that entails.

Yeah, I mean, the idea for Global Ventures actually started when I was in Asia. So, I think it's sort of influences even the thinking we have today. But the idea is to create businesses that combine insurance sales with services in a way that really changes our customer experience. So, it's about building a product that is not a standalone insurance product, but an insurance product built around services and capabilities to reduce and minimize risk and help people overcome risk in the first place. And those businesses are everything from travel to, you know, employee benefits. We're looking at digital health and wellbeing. You know, there are a number of different areas where we think we can apply that concept to bring new value to customers.

There seems to be a lot on your plate, but tell us exactly how you yourself are being confronted with innovation on a day-to-day basis.

So for me, I think about how do I encourage innovation within the team that I have. And a lot of it starts with bringing the right people on board, right? There's a can-do attitude when it comes to innovation. And there's a sense of creativity. So, we are often not the sources of innovation, right? We receive it from the outside world. It's about how do we take that innovation and apply it in our business and how can we creatively think about the problems we face and bring those new technologies to solve those problems that we face today. So, it really does begin with hiring the right type of people that have the right mindset and the right approach to tackle these types of issues.

You spent so many years trying to get to know your customers even better. So, what did they really want from insurance and has anything surprised you with that?

Maybe the biggest sort of secret is that, you know, I believe that customers don't want to need to buy insurance. Right. And it sounds kind of counterintuitive from an insurance perspective, but, you know, customers don't want to need to buy insurance. They don't want to have risk. And I think if we focus on the fact that our customers, you know, they don't want to get in accidents in their cars, they don't want to have their flights delayed, they don't want to have problems. So, if we can focus on solving those underlying problems, we actually reduce the need for insurance. Right. And that is actually what our customers want. They want less risk, more certainty, and they want to recover more quickly. And that's why at Global Ventures, we're focused on combining insurance with the services that can minimize that risk.

So let's talk more about that. How can you, in fact, better address these changing customer expectations and behavior through technological advances?

I think there are some really sort of basic examples that are being used today that sort of highlight how you take that innovation and apply it to a customer need. So, for example, when it comes to homeowners' insurance, right, you can now use a drone to assess the quality of someone's roof. Now, a drone is not super modern technology, but it was innovative at a time and using that technology to assess the quality of someone's roof and understand 'are they at risk, do they need a new roof before something bad happens?' Is a way to use technology and innovation to reduce the risk seen by an individual. You can apply that same logic to individual travelers. We have a product whereby travelers can track on their phones, or we can track on their phones how they're traveling. And we know if they're in a dangerous situation. You know, are they in a zone where there was recently an earthquake and can we help them, you know, get out of that, and address that situation faster because we now know where they are? So, it's about leveraging technology to reduce the risks that our customers face on a day-to-day basis.

These are some great examples that you've brought up, and I can imagine that they're successful examples. But what barriers have you faced when trying to implement innovation and how did you actually, in fact, overcome them?

Yeah, I mean, there are a number of barriers that often come up. You know, it starts always with sort of mindset, right? You know, is this really going to work? I don't see how it's going to work on the one hand. And I think overcoming that mindset and helping people appreciate, you know, how they can do things differently in order to apply this innovation and the technology to solutions, that that's always one of the first hurdles, but sometimes the hurdles on the other side, you know, we find ourselves working with a lot of innovative small companies who make great claims on the things they can do. And we say, well, this would be wonderful for our business. And then you find out that maybe claims aren't quite there yet, and it's not quite as powerful an innovation as we thought it was to begin with. So, I think it is about the right balance of, you know, bringing the right level of change to the way we do business today, but also, you know, having a realistic view on the capabilities of technology as they stand today and not trying to stretch that technology too far. Right. Take it for what it is and use it for what it is to improve the way we run our business.

Now, Jack, we're situated here having this conversation in this very cozy studio today at the Zurich headquarters. How do you think Zurich, as a group, can continue to be innovative?

Zurich is a wonderfully global company, and I think that that global aspect to our business is very powerful. We have businesses all over the world by nature, given the size of our home market, where we have to be international. And I think being international exposes us to a lot of different ways of thinking. It exposes us to a lot of different opportunities to different people and, you know, creates a need for us to be open minded about how we think about problems. And that's a really powerful aspect of our organization, you know, recognizing that we are a global company, were an international company, and bringing different ways of thinking from all over the globe has allowed us to be competitive. Having this international structure, this international family of employees, it's easy to come up with innovative ideas.

How do you ensure that those don't get lost in this whole process?

Yeah, I mean, we do run ourselves as a group of different companies all over the world. So, creating a way for us to share ideas across the organization has been very sort of a powerful eye opener, if you will. So, the innovation challenge that we run where different businesses are encouraged to bring new ideas and new companies present them to the group. Often, it's that cross fertilization of an idea that came out of, you know, Singapore and Mexico saying, well, we could use that here in Mexico. You know, it's really about opening up that communication and making sure we continue to learn from each other across the globe.

We've talked about the past, we've covered the present, but let's focus on the future now. What capabilities will be key to accelerating innovation as we look towards the next ten years?

I go back to where we started earlier around people. I think if we have the right people in place that have the right approach to learning from the environment to thinking about how they can apply, you know, those tools and those learnings to their current business and to their customers, I think that's what really opens up innovation and allows us to continue to move forward. It is about risk taking as an organization, trying new things, but I think it is also understanding the impact of failure, right? It's taking risks in a controlled way, understanding the downside of the risks that you take as an organization. So, making sure we have people who understand, you know, how to apply or are creative in terms of how they apply new technologies to their business, but at the same time are conscious of the impact it may have on our current business.

So, it always comes back to people. Jack, if I may, I'd love to put you in the hot seat now and do a quick fire out of some short questions. What is the one value you would associate most closely with Zurich?

I think Zurich is incredibly open minded as an organization, and that is really powerful maybe that comes from the whole global aspect as well. You have to be if you're dealing with people from all over. But I think being open minded to change, being open minded to new ideas is really powerful. And it's certainly one way to characterize the organization.

The last question I'd like to finish up with. What's one piece of advice you would give to your younger self entering the world of insurance?

Oh, wow. There's so many. So many things I could have done differently. I guess if I would sum them up, I would say focus more on the journey and less on the destination. I think in my career or early days of my career in particular, I was really focused on getting somewhere in terms of a position with an organization. And I think it's important to really focus on the journey that you take to get there and the learnings along the way. And that's something I would word of advice I give to my younger self.

So in short, enjoy the ride.

Exactly.

Thank you so much Jack for joining us today. Now, if you've enjoyed this episode of Zurich Talks podcast, discover more at www.zurich.com/zurich-talks. And if you find these insights helpful, make sure to join the conversation over at LinkedIn with the hashtag #ZurichTalks. We'll see you soon and take care.

Zurich Talks Podcast – Digital Innovators series: Empowering people through technology

Transcript

Welcome to Zurich Talks podcast. I'm your host, Olivia Kinghorst. In this series, we'll be hearing from the industry veterans working at the forefront of digital innovation at Zurich Insurance Group. During this period of intense technological change, insurers are at the eye of the storm. Automation, personalization, and artificial intelligence are reshaping the industry from its very foundations. And as with any period of disruption, there are both risks and rewards. Through these conversations, I'm keen to discover Zurich's strategic approach to navigating the coming decade and how our guests are personally harnessing the power of digital technology in service of their customers.

Joining me at Zurich Talks podcast is Stephanie Lloyd, CEO of LiveWell by Zurich. Under her leadership, the digital wellbeing brand has reached new heights. So, what does that mean for people like you and I? Let's find out.

Stephanie, you began a career in insurance in 2007. Take us back to that time. What have been the biggest examples of disruption that you've witnessed since that period?

Yeah, it's incredible if you look back on it. So, I think, for me, what stands out is innovation around the customer centricity. When I first started, it was about, you know, risk selection, identifying the risks, so the kind of bread and butter of insurance. And I think we didn't talk enough about customers. And I think, all of a sudden customers are in every conversation and tech is being used to help solve meaningful problems, to really innovate for them.

Now, you've actually spent a significant portion of your career in California. So, what was your experience like living in and really being exposed to this innovation hub?

Yeah, you can't talk California without talking Silicon Valley. So, I think that that would be, you know, something that's left a mark on me being so close. And, you know, as remote work kind of started to take hold of California, all of that kind of shifted, it became Silicon Beach, which was Santa Monica, kind of my neighbor. And I think one thing I really picked up on and loved, was was not only the passion that Silicon Valley brought to problem solving, but also this fail fast mentality. I found it absolutely exciting to be part of and to see from the outside and then get to have a front row seat and be part of it.

So you've a front row seat right now at Zurich. So, tell us, what have you learned from your time in California that you've actually brought with you today here in Zurich?

Yeah, I think the biggest thing that stands out for me is making the best decision in the moment. And usually that's with imperfect information. But I think what I learned is you have to make progress. You have to move forward. And doing so means lots of immediate decisions with as much information as you have. And then learning from that decision to figure out what your next step and pivot is.

So I get the impression that you can't sit still. You're always thinking about the next step. You've actually developed a particular fascination with creating products that address a modern consumer. How did this interest arise? What sparked that?

Yeah, I think at my core I'm a data nerd. So, I think that, you know, early Steph thought she'd be sitting in front of a computer, running, you know, regression models and doing data science and looking for patterns. And so, I've always been fascinated with the data side of things, but problem solving. And so, for me, that's kind of always been there. But then I got turned on to this, you know, the idea of jobs theory. Yeah, there are jobs to be done and then that's when true innovation happens, is when you understand what problem in a human's life are you trying to solve for. And once I kind of caught on to this in design thinking, it really just kind of brought those two worlds together and took off.

And this has culminated into your current role, which is CEO at LiveWell. What is LiveWell and how does this digital solution really fit within the broader Zurich family? Walk us through that.

So LiveWell is our digital health and wellbeing proposition that's really focused on empowering users to make health a habit and to make progress in their lives on their health and wellbeing journey. So, we're really trying to shift the conversation of insurance in the relationship to be less transactional and more focused on service led propositions. And again, going back to - how do I help users, you know, make progress in their lives and solve problems that they encounter. So, for us, it's making health a habit, it's helping users thrive to live their best lives as they progress, and that using the technology and the relationships that we have as part of the broader Zurich community to really help bring that to life for them.

So, what I'm taking away is that health and wellbeing are really at the core of LiveWell. How are you trying to improve this in an innovative way for your consumers?

Yeah, I think we can all appreciate that the world is getting more complex and there is again, back to the data, the science, the technology, things are coming at us at a rapid pace. And I think one thing we're looking to do is try to simplify the noise and help users understand health from a holistic perspective, but make it really simple for them. Because really the solution to help users from a preventative wellbeing perspective is simple actions, right? Sleeping better, eating healthier, moving, getting activity. It's not crazy rocket science, but actually calming the noise and getting really simple personalized tips on what you can do based on your schedule, your activity level, what your goals are, and making it just really simple to execute - is at our core.

Seems easier said than done, right? All these habits you and I like to practice every day. What barriers have you actually faced when trying to implement innovation? How have you tried to jump through these loopholes?

Yeah, it's a great question. I think one one is risk appetite and comfort with failure is not created equal. Right. So, within Zurich, across other enterprises, you know, startups play by different rules than, you know, an incumbent that's trying to do something new and innovative. So, I would say that that's one area where it's just a different level playing field that we have to operate in. And part of that goes to everyone thinks that innovation is like big ideas, big moves, and it's really just a series of slow moves; it doesn't happen overnight. And I think there's a lot of patience that's involved that when you're trying to do something at scale and doing something from a global perspective, that can't just happen overnight. And so, I think a lot of times we don't. When you're innovating in a space like ours, you don't move larger organizations metrics overnight. And so they keep that focus, keep that patience. And I think for us that is something that Zurich's, committed to LiveWell in the wellbeing space. So, that helps me sleep better at night. But I think that that is where a lot of folks in my position often struggle is that continued commitment and conviction in the proposition itself.

You come to the table in fact with rather a unique perspective, a founder's mindset. How has that impacted your approach to innovation and what you've just described?

Yeah, I probably answered it in my last question, but for me, it's not big moves, big decisions. It's rapid paced, small decisions, and it's also understanding, and I take a lot of this from the Amazon leadership principles, which is one-way doors and two-way doors. I live that like every single day, which for me is, you know, we need to make quick decisions, quick moves to keep the, you know, to keep innovating and keep moving forward. But there are some decisions that have more consequences than other decisions. So, if it's a two-way door where you can make the decision that if it doesn't work out, you pivot, move forward. Those should happen really, really quickly. And I want to make sure I role model that for my team so that my team then goes and operates that way because I'm not there in every setting. So I want to make sure that they take that and move it forward.

And speaking of your team, how do you then keep them on their toes? How do you inspire them to be more innovative in their day-to-day role?

So, I think fundamentally it's psychological safety and you've got to have a culture where, you know, everything is looked at as a learning, not a mistake or a failure. And that's really hard to do because I think a lot of energy and organizations go towards something was a mistake. And so, I always hate the question, like, you know, what was your biggest mistake? Because I don't live my life that way. I look at everything as, what do we learn from this? And if you can orient your whole team around, you know, what's your hypothesis going in? What are we trying to learn from this? And when something happens, it's - what did we learn? Not - what mistake did you make? I think as a whole, the confidence level goes up. You have way richer conversations. You've got folks from other sides of the organization, you know, marketing and talking to actuaries, talking to medical professionals, all giving ideas because they feel very safe to share that. And that more diverse perspective leads to a better outcome.

Now, you've stepped into this role at LiveWell last year, as I understand, and I guess you're still trying to figure out exactly where all the pieces are going. So what capabilities will be key to accelerating innovation at LiveWell, what will be your priorities?

I think a big one is to make sure that we're marrying the health sciences with the behavioral sciences. There's a lot of advancements going on on both sides of the house. But I think for us to really have an effect on the end user, the human on the other side, we're trying to have a positive impact on...

The people listening to this podcast.

Yes, the people we want to thrive. It's how do you bring the science the best of the health sciences together with the behavioral science to help them actually take the the learnings and the best tips and put them into practice. And so I think that that's a capability that's really key. We have it, but kind of continuing to reinforce it and those advancements are ever-changing. So, making sure we stay on top of it.

Now a question to the broader group, Zurich Insurance Group. How do you think the company as a whole can continue to be innovative as we look to the next ten years?

For me to innovate and be successful innovating at all is well. It goes back to listening to your customer, making sure that you've got the relationships that you've got, that your ear to the ground, that you're listening to them trying to understand again what problems in their life are you trying to solve for. So it's really making sure that we continue to stay as close to the end customer as possible, listening to them and helping them make progress. But as part of that, we also have to make sure that, we're able to then change the dynamic of our relationship. It can't be the historical, transactional risk manager type relationship. It really needs to shift and be more service led and really honing in on that relationship. So I think those are the areas that I would say for us moving forward has to be front and center.

So in short, we're hearing customer, customer, customer. That's going to be the motto of this conversation. Now, stay with us, Stephanie, because we have a few special quickfire questions that we've saved for you.

The first one is what emerging technology excites you the most? What comes to mind?

Okay, precision health for me. So, I know the sexy answer would have been generative AI and we can talk about that for hours as well. But for me, precision health is so exciting. The fact that we can really understand at your DNA level what makes you different and how to treat things that you might have, you know, the challenges you might face. Personal side. My husband had leukemia in 2021, and by all the tests we learned that he had a different mutation that meant he needed a different course of treatment than what the standard of care would have been. And to me, just... right, I mean, the fact that we knew that, and we could personalize his care based on that knowledge has just forever changed me. So, I'm so excited about precision health and how that will turn and transform into personal care, all powered by the advancements in AI.

What's the one value you would associate most closely with Zurich?

Forward looking. I think we can't... everything that's got us to this point isn't going to be what continues us for the next 150 years of success. So, I really respect and respond to Zurich as a whole, constantly looking at how do we evolve, how do we move forward. So that's really what resonates with me.

And final question, what's the one piece of advice you would give your younger self entering the fascinating world of insurance?

I think you answered it by calling it fascinating. I think when I first joined insurance, I thought it was going to be a bit stale, a bit conservative, a bit boring.

And coming in, I found it to be nothing but. The richness of the data, the complex problems we are trying to solve. It's just a really exciting industry and you can have lots of careers just inside this one company, one sector. So, I would say remain open, keep an open mind to the possibilities.

On a very personal level, what I would give my younger self is, is to bet on yourself. I think so many times, as women in particular, although I know it's it's not restricted to women, when we see job opportunities, we look at every single line item on that job. And if we don't check every box, we think it's not for us. And I've done that to myself, and I've been fortunate enough to be surrounded by my own personal board of directors who have stopped me when I've been falling into that trap and encouraged me to stretch further and to go for it. And I would tell myself, I'd want to encourage myself to bet on myself more. Because we can do amazing things and even if we don't know how to do it today, I think we can figure it out.

Well, now you've ended up here by betting on yourself. Worked out a little bit. So thank you so much, Stephanie, for this discussion. And if you've enjoyed this edition of ZurichTalks podcast, make sure to discover more at www.zurich.com/zurich-talks.

And if you found these insights helpful, make sure to join the conversation over at LinkedIn using the hashtag ZurichTalks. We'll see you soon and take care.

Tools for a Resilient Future

Transcript

We're seeing multiple crises happening at the same time. Things continue to be highly unpredictable. The problem is complex and the solutions are not easy.

Hello and welcome to the The Risk Opportunity, a series brought to you by Zurich Insurance Group. I'm Danni Hewson, a financial analyst and broadcaster. I've been covering finance and business for more than 20 years. As 2023 continues to become ever more challenging, we take a look at the risks we face so far and explore the tools required for building a more resilient future. In this final episode of The Risk Opportunity, we consider how multiple interconnected events are compounding risk and how risk management processes are being forced to adapt.

With me today are Amar Rahman, Zurich Insurance's Global Head of Climate Resilience for Zurich Resilience Solutions, and Owen Matthews – a former astrophysicist who now advises financial services clients for KPMG.

Amar and Owen, welcome to The Risk Opportunity. Thanks so much for joining us.

That’s a pleasure. Nice to be here.

Nice to be here Danni, thank you.

Amar, I am going to start with you. What are your highlights from this year's Global Risks Report?

To me, the most interesting aspect of the report is this new definition of polycrisis, the fact that we're seeing multiple crises happening at the same time. That’s new.

Owen, did you expect the year to unfold the way it has done?

No, there's certainly been a good number of surprises. I mean, I would have said on the very macro level, on the geopolitical level, if you'd asked me a few months ago, I might have said things looked like they were just starting to settle very slightly. But I think that view went out the window just recently with the Israel, Hamas situation. Economically the policy has been very hard to call this year in terms of interest rates. So things continue to be highly unpredictable.

Are you finding, Owen, people are talking about risk in a different way?

I think maybe what I'm seeing is, because my background has been more on the financial services side, and there I think a proper quantitative view of risk has been established for a long time. I think maybe what we're starting to see is that robust treatment of risk and understanding the fact that risk embodies opportunities is something which is starting to emerge more, maybe on the corporate side as well.

And, Amar, is that leading to the need to manage risk differently?

Absolutely. I mean, traditionally, you would prioritize risk according to the severity and probability of these risks happening, but with the landscape we're seeing today, one has to even consider the low probability risks as something that could very well take place. The other aspect is that, and I could refer back to the polycrisis aspect, is not only to look at the risks discretely, but see how they interact with each other.

Because when you have that kind of polycrisis, it must be hard, Owen, when you're talking to companies to persuade them to focus longer term when they’re dealing with the here and now, particularly when it comes to investing for the future?

I mean, that's traditionally been an issue with risk management. But when we see these complex crises, and particularly when we see crises such as the climate crisis, which unfolds over a really very long timeframe, those questions get more difficult because the planning horizon of firms tends to be shorter. The lifetime of individuals within a company tends to be shorter. Some of this can be handled through regulation. You see within financial services there are increasingly specific requirements which gradually tend towards having to hold additional capital for this particular type of crisis. But yes, it remains a challenge.

And I would imagine, particularly, when things are so expensive and you've got companies dealing with inflation, Amar, this must have been something that you've been coming up against.

Talking just from an insurance perspective, a very simple example, the replacement value that you're charged for within the premium and then that you get paid out depends on the costs that are agreed on at the time of signing the policy. Now, with inflation, with the increased cost of living, the replacement values of whether we're talking about the physical assets of building stock or whatever, is changing quite rapidly even within the duration of the insurance policy.

Before we go any further, let's just talk about Zurich and KPMG's collaboration. What was the motive behind it, Owen?

We've been doing quite a bit of consulting work for Zurich Insurance over the years, and our global lead partner was talking to his counterpart in Zurich and thinking about how can we, in addition to doing work for Zurich, where can we collaborate? The topic of climate particularly cropped up. Firstly, because it's clearly such a growth area broadly in the market. But then, on embarking on some initial conversations with Amar and team, it became clear that we had a really good synergy here where we can provide very strong transition risk analysis that is assessing the impact of the transition of the world into a low carbon economy, whereas Zurich are able to provide very strong physical risk impact calculations. And we put that together into a combined proposition which covers then the whole of climate risk, which is pretty unique in the market.

From our side, our typical stakeholder in our customer organizations is the insurance buyer or the risk manager, and they're being asked these questions, how to deal with these multiple risks, how to deal with these emerging risks. So our collaboration with KPMG was a direct response to the questions that we're being asked. The expanding role of risk managers who are being asked to look at these transition risks that Owen mentioned. We found KPMG to be a natural partner, seeing that their experience on transition risk side, our experience in the physical risk side, and how these two risks interact. Risks are not discrete. They don't come up independent from each other. Between us, between KPMG and Zurich, we could help our customers manage these risks and actually turn this into an opportunity rather than increasing risk.

Because when we're talking about risk, it’s so easy to see it as an issue, as a problem, as something which is going to be costly. But actually there are huge opportunities here, Amar. Are you seeing companies picking up on that now?

Absolutely, I mean, some companies respond to regulatory requirements. They have to do these changes. But what we're seeing more and more is even companies that are not required to comply at the moment with these sustainability reporting initiatives actually doing so because they see it as an advantage. They see themselves as distinctive from their competitors because their stakeholders, their customers are looking for such partners to support them on that sustainability journey. The problem is complex. And the solutions are not easy, but people are realizing more and more that when they work together they could leverage the advantages of each company to come to a solution, just as we did with KPMG.

I think Amar’s put it well. What we are able to do, which I think is very helpful in answering this question for our clients, is to actually do some quite robust modeling of which parts of their business are going to suffer. But it's not all parts of the business that will suffer. Some parts of the business may be able to flourish better under a transition. So we try and provide a robust calculation, showing which areas are actually opportunities as well as risks.

I mean, just by the fact that you are assessing your risks, you're aware of your risks, and taking action against them is an opportunity in itself because you're setting yourself apart from the competition, you are ahead of the competition in dealing with these risks and being aware of them.

So much data, so many risks. It must at some point just become loud for your customers, for the businesses that you're talking to. How do you simplify this, Amar, so it just doesn't become overwhelming?

We do that in a systematic way. We make clear to customers that this is an iterative process. You start off using very simple data points. You develop scenarios that are tangible and can relate to anyone in your organization and then build up on that. Increase the complexity slowly because you need to potentially adjust also the scope of the analysis depending on the concerns, on the definitions of risk within your organization. Risk is very, very subjective. Our perception of risk and the way we react to risks depends very much on our own personal experiences. Even if we talk about large corporations, that subjective element is still there.

And it’s always a challenge to tell a story around the scenario analysis that the higher ups, particularly in the company, who may not necessarily be the most quantitatively minded, are able to digest and understand and act on. Doing the assessment, doing the modeling, that’s half the story. But being able to put that together into a coherent narrative that explains the connections between the high level macroeconomic events in your scenario and the impact on the company in a way that people can understand, that's a major challenge. And I think that's what we spend a reasonable amount of our project time doing.

It's not only the sophistication of the analysis or the amount of data points. I think at the end of the day, it's communication. How do you communicate the results of your analysis in the way that's tangible to the multiple stakeholders in your customer organization?

And Amar, I wanted to ask you because you are called the Big Cat Tamer at Zurich. Why? What does that mean?

You put me on the spot there. Go read the article! I’ve had a very interesting life, not one that many people go through. I was originally born in Iraq. I spent 12 years there, unfortunately during the Iran, Iraq and the Kuwait wars. And then it was quite a long journey to get where I am today. And those experiences have shaped me as a person, but also how I work and how I engage with people. So a big part of my work, when I talk to people and try to communicate our findings, the findings of our team, I try to tell them stories. Explaining to them what the data is, trying to make it tangible and I think that personalization of risk, explaining to people what it means to them personally, to their families, to their coworkers, and not only to their business evokes a reaction. So I think that overlap between personal and professional has earned me that moniker, unfortunately.

And Owen, I know that your background is in astrophysics. How do they come together with where we are now?

Yeah, it's a bit of a change of track, admittedly, but there’s a lot of overlap. I mean, first of all, you see a lot of people with physics, astrophysics, mathematics backgrounds moving into finance and particularly risk because of its quantitative and mathematical nature. But I think astrophysics and risk are a particularly good pairing, actually, and that's because I think we have similar views around precision and accuracy. But in astrophysics, you never really have a very precise result. It's always an order of magnitude, as we would say. You have an idea of the direction of travel. So, we're used to the idea of working in an environment without precision, or with a limited precision.

And unlike maybe some people in the scientific domain, particle physicists etc., who think in terms of 20 decimal places of precision, which is pointless in risk and particularly in climate risk, I think we have a more realistic idea of what we're trying to achieve, which is to get a feeling for the direction of travel, give people an idea of how to prioritize and how to productively use the results.

But you two clearly are enjoying working together, Amar?

It's been an incredible learning journey for me personally, looking over the shoulder of the KPMG team and seeing how they interact with customers, how they use the data, how they turn these complex issues that companies are dealing with into something very tangible for them. So it has been also at a personal level, very interesting.

It has been an incredibly difficult, volatile year, 2023. I can't imagine that anybody starting out in January could have expected what we have come up against. But do you think that people are talking about risk differently? Do you think that they are seeing opportunities and that they are working towards being more resilient, Amar?

Absolutely. People are becoming more risk aware. Social media has a large role to play in that. It's becoming personal for many people, whether we're talking about war or natural catastrophes all over the world. People are consuming news at a different level than we used to previously. So people are very much in touch with the human factor around risk. And I think everyone at a very personal level is trying to do their bit around it. And we see that on the news with the demonstrations with young people going onto the streets and talking about climate change and dealing with it right up to the highest levels in different corporations. Everyone's trying to do their bit. Everyone is trying to understand the risks around them better and doing something about them.

Owen?

I agree. I would sound maybe a note of caution, though, particularly when we are thinking about climate risk. And that is because – particularly given what you said, Danni, about the last couple of years, having been so surprising to a lot of people, to all of us, I guess. There was COVID, there's been the the Ukraine-Russia war etc. So there are so many things in people's in-tray, both on a personal level and also the people running the banks and the corporations, that there is a risk of climate being drowned out, because it's this persistent nagging problem. And yes, there are specific flashpoints that we see. We see a bit of a mountain falls down or something and people remember, but there's maybe a risk of climate fatigue. I think that we need to be aware of and keep reminding people that this genuinely is existential.

What's been interesting this year is to see the number of companies in their earnings updates talking about climate issues. We've had retailers saying that they're not selling coats because it's been too warm. Is there a danger that maybe companies are thinking, we've already got this climate risk, we don't need to look further ahead?

Yes, it is a danger. I think, in the end, it comes down a little bit to the distinction between weather and climate. People think that they're managing climate when maybe they're managing weather, because they know what to expect this year, they maybe have a decent idea of what to expect next year. But if they want to plan ahead, 10 years, 20 years into the future, then we need to look at how things are changing, and know how things are today. And that's the message that we try and get through with our scenario analysis. It's not prediction, but it's a projection of what can happen down the line.

And Amar, I guess that brings us full circle. We were talking earlier about the fact that, for a lot of companies, thinking five years ahead is as much as they can do. But to try and think 15, 20, 50 years ahead, trying to get that across must be difficult.

Yes, that that is the question, the recurring question from companies. First of all, what climate scenarios do we consider in our risk assessments and then what time horizons do we look at? So we try to explain to them that it needs to be aligned to their net-zero strategy, looking at the strategic cycle within their corporations, and how that works. But basically we would recommend a shorter time horizon, say 2030 from an operational perspective, in 2050, from a strategic perspective, one of the main reasons being that the uncertainty of the data, whether it's the climate data or that your own data describing your activities and organization, the uncertainties increase with time. So you need to choose a time horizon where the data makes sense. Otherwise, the scenarios are unrealistic, purely around the data uncertainty.

And from the conversations that you're both having, are you feeling optimistic that companies can put in place measures which will keep them resilient, which will help them to stay healthy going forward, Owen?

There's no doubt that those companies which, by definition, those companies which manage to become resilient are those that will survive and those that will still be here in 20, 30 years' time. I think that message is starting to get through. I think the problem is not that people don't understand and accept that on an individual level. It's a question of making it systematic in companies so that the planning horizon is in line with what it needs to be. And part of that, which I think is really important, is incorporating that kind of climate planning, sustainability planning into the ongoing risk processes that a company is implementing. So it's not just a one-off exercise, but something which is continuously monitored and we see that being done more effectively. So yes, I'm reasonably optimistic. I think one has to be otherwise you just get depressed.

Amar, I'm going to give the last word to you. Just to reiterate what Owen said, it is a matter of survival and companies are aware of that. There's increasing pressure from their own employees, from society at large to do something and everyone is aware of that. So what we're seeing is a first step, and it’s a very, very important step. Companies are trying to understand their risks better, and many of them are already taking very tangible solutions.

Owen, Amar, thank you so much for joining us.

Thank you, Danni.

My pleasure.

It’s just been such a brilliant conversation. Really interesting to hear that everyone's experience of risk is so personal, so subjective. And it is so important to tap into that, to tell those stories in order to create an environment which helps companies really deal with and mitigate those risks.

Thank you for listening to The Risk Opportunity. It's been a pleasure to host this series. You can find it on all your favorite podcast providers. In the meantime, please do follow, rate and review the podcast. It really helps others find it. Head to zurich.com/climate to discover more about accelerating climate transition and climate resilience and download the latest reports.

The Risk Opportunity was brought to you by Zurich Insurance Group.

The Risk Opportunity: Using Risk to Build Resilience

Transcript

Vincent Landon Welcome to our podcast, where we explore the transformative role of innovation in closing protection gaps within society. Today we're joined by Zurich Group's Chief Strategy officer, Paolo Mantero and global head of Zurich Resilience Solutions, Dirk De Nil. They'll share their insights on the evolving landscape of insurance in the face of climate change and how technological advancements are reshaping the industry. Protection gaps are the divide between economic losses and the insured coverage available to mitigate them. Climate related protection gaps are widening. There's an increase in frequency and severity of extreme weather events and natural disasters. As a result, more people are vulnerable to the financial consequences. Paolo, can you give us an idea of the scale of the problem?

Paolo Mantero Thank you. The scale is big. It's $3 trillion we're talking about, is the size of a G7 economy. That's the size of the global protection gap overall. And the other interesting and sad fact at the same time is that this gap is becoming bigger and bigger every year is going faster than the economy. So, we have a role to play as an insurance company. We protect people. We protect them from risk. And we have these big growing gaps in front of us. So, we have a role, and we have a role in terms of understand the risk better, which helps covering more. We have a role in thinking about new solutions to cover risks, a new way of doing it. With the new technologies and innovative products. And surely, we have a bigger role in help preventing people from risk to materialize and happen.

Vincent Landon Can you tell us a bit more about that, Dirk?

Dirk De Nil There's immediately two things that come to our mind there. It's transition and it's adaptation. And as an insurance company, yes, we need to play a role with respect to transition, we definitely need to support the industry moving ahead with these new technologies. But I think, as Paolo already was saying as well, right, it's much more in the adaptation side where we need to play as a company. And so that's where we need to work with the industry, that's where we need to work with public entities on really how to build resilience against what's happening out there with the climate right now.

Vincent Landon Public private partnerships have emerged as a pivotal mechanism for bridging protection gaps. They play to the strengths of both sectors and hopefully lead to comprehensive strategies that cover different areas of risk. What are the opportunities and challenges for public private partnerships in narrowing climate related protection gaps?

Paolo Mantero Glad you asked the questions because the opportunities are huge. If you look at the size of the protection gap, that's comparable to the size of the insurance industry. So, it doesn't take much to understand industry - insurance industry - alone cannot cover the gap by itself. So, I think there is an opportunity to collaborate with states, but also the financial markets to provide solutions that are joint. And when it comes to state and the regulators, that's very important on multiple aspects. You see, in certain places, when the regulator doesn't act in a way which goes along with the risk, the protection gap becomes huge.

Vincent Landon That's very interesting. Is there more on that?

Paolo Mantero Take what is happening in California nowadays. So, the risk of fire has doubled over the last five years. But the regulator said, well, insurance prices have to stay still. So, the result is that 90% of the insurance companies have basically fled the market and 50% of the households in California as a consequence are uninsured. It's not the, you know, the end results that we want. Now, in that case, the regulator is taking action. And has understood that and now prices are adapting. But of course, it's not just a matter of price. It's also a matter of having joint solution where the public takes its responsibility of things is what we have in Switzerland with the 'Elementarschadenpool', right? The states and private sector come together with one solution for things like catastrophes, but also pandemics.

Vincent Landon And of course, we've talked about the role of government as a provider of capital. But of course, on the resilience front, there's a huge amount that can be done. Dirk.

Dirk De Nil Yes, absolutely so, but I mean, I think what Paolo was saying rightfully as well, right? So, it's we have to play a role, resilience, obviously, governments have to play a role and we have to play a role, together, right? But let me before I talk about ourselves or our public private partnerships, maybe say a couple of words also about governments in specific, because I do believe actually and that's at again, remember, right offer side, demand side. It's more at the offer side because governments really, they have the power that can really stimulate insurance penetration. I mean, think about mandatory schemes, right? That can really oblige companies to buy certain types of insurance. Now, if they do it, they should do it in a very prudent manner, obviously, because as a sector, we can only absorb as much as we can, right? And so, it's always good that the government steps in as well as the ultimate provider of capital as well, or kind of an excess insurer if you want. France is a perfect example. So, for every property policy, you contribute a bit of premium in a pool. And when a climate event happens, it's the pool that pays, right? So, governments at the offer side can definitely play a role as well. I just wanted to say that. Now as to public private partnerships, right, where we work together with them, which is very important, I really believe we should be focusing on resilience, building resilience.

Vincent Landon And that, of course, is really the heart of the matter there. Can you just tell us a bit more?

Dirk De Nil And so in that respect, I'm very happy and very pleased that I can say that we as a company, we work with 15 cities globally, in nine countries where we really try to work together with cities really on water scarcity and heat. In Madrid, more specific, we work with the city council really on, again, the impacts of heat, but for schoolchildren in specific, right? And not a surprise, I mean, I can answer the question, what do you think are the recommendations? But it's all about water again, how can you provide water to these children? How can you have more green around the schools? And then obviously. How do you, what's the construction of a building, right? What materials you use, how do you position the building, etc., etc.. So, many things are happening in that respect.

Vincent Landon We've talked about cities. It's part of the theme. It's one of the strands. We're also looking at other approaches as well, aren't we?

Dirk De Nil Correct. Yeah. And so, hey, one thing is important, right? It's we need to continue learning elsewhere around cities in particular. And I think that's why we took the decision to really sponsor a global survey with The Economist under the title of 'building climate resilience'. And so, we really interviewed academic people. We are interviewing people of all of the city councils, the public experts. So, it's really good and it will really provide very insightful ideas about what's happening around climate change in cities, actually.

Vincent Landon Both at the heart of all this are innovative products and solutions, you know, innovative solutions offer new ways to address protection gaps and insurers are increasingly looking to new technology to improve insurability, foster prevention and build resilience within communities. Dirk, I'm going to go to you first now, because how is Zurich using technology to mitigate and adapt to climate change? What are some of the key initiatives in this area? What's the impact on new insurance models?

Dirk De Nil As an insurance company, we have access to a lot of data. I mean, as we own the right risks, as we do risk engineering work with the risks. We really know about where is the building located. So, we have location data. We also have exposure data. What is the value of a building? Again, what material has been used to construct a building? What are the building standards that have been applied during the construction, etc.? So, if we take all these data together and then overlay that with climate models, we can definitely define what the critical exposure for a company is with respect to wind, with respect to a flood, with respect to whatever peril you can come up with, right? And then we can send people on the ground to really work with companies, to work with public entities to really build resilience. So, computational power is going up, artificial intelligence is there, and we can now really access, and data mine or analyze much bigger amounts of data and so, be more precise in the insights we generate because of that. And then also become much more precise in the resilience work that you need to be doing to protect against climate work.

Vincent Landon This is part of a wider picture, isn't it, of innovation within Zurich.

Paolo Mantero And I think we live in a world of specialization, right? And an insurance company can be specialized. And we are specializing in risk. But to face big problems like the one of climate change or the one of building resilience, you need more than just being specialized in risk. And so, we need to access other capabilities. Here, partnership with companies that are specialized are very important.

Vincent Landon Can you tell me a bit more about that?

Paolo Mantero So, just to make you an example, right? We know that one of the biggest risks that we face when we share property, is substance. So, construction basically falling in the ground because the ground falls down. And we know there's actually a map where this happens. We have models to understand how it evolves. But you can reach these models with the satellite imagery and understand from, you know, pictures of the satellite how this is evolving. Now, we're never going to be owning a satellite or image processing technique to understand that. And this is where a partnership is very vital because there are companies that have built this for multiple purposes. But we take the output of their work to make it something that is related to risk and resilience, which is our DNA. So, I think collaboration is important. What we try to do with Zurich Innovation Championship every year we ask out in the market companies to help us on certain things like that. And, you know, we have selected more than 50 partnerships over the last that five years with companies that are very specialized in one piece of the chain. And in one element that can help us insuring things better or improving resilience better. So, that's an approach to find collaborations that are long lasting, and can add, what we are not specialized at.

Vincent Landon And of course, it's not just the Zurich Innovation Championship, it's a part that is, again, part of a much wider picture here.

Paolo Mantero Absolutely. The picture is very wide. And for instance, our climate transition plan as a resilience, as a cornerstone of what we can do as an insurance company to contribute to a better planet, a better word. Preventing risk is a key role and in climate is prevention is a determinant factor between success in bringing the world down to a zero-carbon world and a world where temperature keeps increasing and creating more issues for us.

Vincent Landon And Dirk do you have sort of other examples, actually? Yeah. Practical?

Dirk De Nil Absolutely. So, I mean, it's not all about data, right? And that's the most spectacular and we like to talk about. I mean, absolutely, partnerships, it's extremely important as well. Now, I think there are also more simple things you can do to help close the gap. And I would be thinking here about things like parametric insurance, micro-insurance. And so, for parametric insurance, let me maybe I mean, it's really you link your pay-outs to pre-defined triggers. Could be amount of rainfall. And so, in Italy, we work with a company called xFarm Technologies, and we came up with an insurance solution that protects farmers against unexpected irrigation expenses if there is not enough rainfall, right? So, it's a very simple example, I think, but very efficient. And then I mean, micro-insurance, obviously you really make climate protection insurance accessible, available for people with low income, for small companies and that in particular in emerging markets. We at Zurich we work together with a company called Blue Marble, and they do things like they provide crop insurance in Zimbabwe. I think in the Caribbean they provide cat cover. So, and that's really on a smaller scale. And people you don't hear so much about it, but it's also very relevant, I think, to mention it.

Vincent Landon And of course, moving on with I mean, we talked about innovation and prevention. I mean, it's key to any strategy aimed at narrowing protection gaps. How are insurers integrating prevention into their strategies? And what impact have these initiatives had on community resilience? Some examples here, Dirk?

Dirk De Nil The unit I am leading, Zurich Resilience Solutions was established in 2020. And it's really where we work with companies, but also with public entities on identifying risk, assessing risk, and then really work with these companies and public entities to build resilience, to reduce the risks.

Paolo Mantero I think prevention is important because insurance without prevention poses a moral hazard. So, if you're insured, you really work and invest. Do you invest on prevention? Do you invest on making the losses that would come from any event lower? If you are insured, you don't care. And so, if this happens, what happens is the protection gap widens. Because there would be more and more expensive events and insurance costs will rise and people will not have access to insurance anymore. So, to make it socially viable, insurance has to come with prevention. That's why we believe that prevention is an important part of what we do because you know the capital side of insurance and the risk side of insurance have to come hand-in-hand.

Vincent Landon Looking ahead, what are the opportunities and challenges you foresee in that sort of intersection of climate protection and innovation in the insurance industry?

Paolo Mantero Again, also here huge opportunities, I think about weather forecasting. Over the last 30 years we were able to improve the way we could forecast climate events like tornadoes and with an accuracy that went for from three days, from one day to three days ahead of the event. So, we and think about how many things we can do in two days just helping people getting out, protecting buildings, protecting assets to make sure that we minimize the impact of those events. It took 30 years to gain two days. Okay. Today, two very important days. Now, over the last few months, GraphCast, which is a system based on Google DeepMind, through AI, was able to reach the same level of precision in forecasting that all these models developed in such a long period, right? So, that just gives you a sense of what is the promise for the future. Now, of course, there are limitations, there are shortfalls. Models needs to be trained better at, provide better outcome. But, you know, the promise is there, and I think it's clear. I think the challenge here is to make sure that we don't expect more for these new technologies that the new technologies can deliver with a level of maturity.

Vincent Landon And of course, how we interpret and analyze that data as well, which is clearly I mean, you must be overwhelmed by data, I'd imagine.

Dirk De Nil I'm very proud as the head of Zurich Resilience Solutions to talk about it, but also to say that we work with data and for our customers the same data as we use as an insurance company, as Zurich, a big insurance company, to really decide on our reinsurance management, to decide on our capital management, to decide for ourselves, really. And so that's a very important thing, I think.

Vincent Landon Thank you, Dirk, and thank you, Paolo, and thank you for joining us today as we uncover the innovative solutions and collaborative efforts needed to secure a more resilient future for all. We hope this discussion has been enlightening and we look forward to continuing the conversation.