The paperJam lunch talk at the Banque de Luxembourg on Thursday 9 October, led by Editor-in-chief Jean-Michel Gaudron, could not have been better timed. The subject of the round table discussion, “Is the Future of Insurance in the Finance Industry?” may have been, in the words of Foyer’s François Tesch, “provocative”, but it could hardly have been a more relevant question. Given the extraordinary events of the past two weeks in Luxembourg, paperJam Club business manager Eric Hiéronimus even suggested, in his introduction, two alternative titles: “Is the Future of Insurance STILL in the Finance Industry?” or “Is the Future of Insurance MORE THAN EVER in the Finance Industry?”.

But Pit Hentgen of La Luxembourgeoise immediately turned the tables and suggested that maybe the question should have been, “Does Insurance have a Future?” The answer, Hentgen, argued is a resounding “yes”. The very nature of the regulations governing the activities of insurance companies distinguishes them from the banks, Hentgen explained.  The control mechanisms themselves are much tighter than those under which banks are allowed to operate, especially regarding solvency and liquidity.

“Insurers have been prudent”

That does not mean that insurers do not acknowledge the seriousness of the current crisis. Indeed, the third speaker, Jean-Philippe Balon of ING Life, said he had not witnessed times as difficult during his 13 years in Luxembourg.

Balon even cited a French economist who suggested that the financial crisis had enjoyed investment banks as its starter, private banks as its main course and would devour insurance companies for dessert. But he dismissed this notion and the overall message coming from the young president of the Commission Internationale Vie at the Association des Compagnies d’Assurance (ACA) was that insurance companies would suffer no direct repercussions from the bank crisis fallout, even though results are affected by the performance of assets.

The highly experienced François Tesch said he believed the crisis would soon start having an impact on sectors outside the financial markets, such as industry, as hedge funds begin to unload assets. He thinks the crisis will last at least another year. But he also agreed that the insurance sector would be unlikely to suffer significant problems. “

We have been prudent,” he told the audience. “I find the title provocative because this crisis has shown the difference between bankers and insurers.” The speakers did warn, however, that insurers would have to reduce risks even further by diversifying investment placements. “We must reinforce lines of regulation and manage risk,” said Balon.

“Two different cultures”

One the principle questions insurance companies, like other financial institutions, have to address in the current climate is a crisis of confidence. “We have to make clients aware that guarantees are in place,” said Balon. “Explain that the guarantees are real.” This will require ensuring that the intermediaries who deal directly with customers are fully briefed. Balon explained that he had spent three-quarters of his time over the last ten days coaching these very people.

What’s more the long-term nature of insurance products, unlike the short-termism employed by many banks, has helped. On the other hand, as François Tesch pointed out, insurance companies abroad – he cited AIG in particular – have often acted like banks. “AIG is not what we want on the continent,” he said. Indeed, the very high complexity of products offered by banks and financial institutions came in for criticism from Pit Hentgen.

Jean-Philippe Balon said he saw the crisis as an opportunity for insurance companies to reposition themselves with their customers, to recognise that they wanted simpler products. However, he also acknowledged that insurance companies that have been developing new products might have difficulty in launching them in the current economic climate.

While stressing the differences between the banking and insurance sectors, all three speakers also acknowledged there were distinct links between the two, in terms of crossover products, such as banks selling insurance products such as life insurance for mortgages. Many customers want to be able to have bank and insurance products available at the same point of sale, said Hentgen. “But do we have to be the provider of both? They are two different metiers with very different cultures.”

See the video interview of Jean-Philippe Balon HERE (in french)

See the video interview of François Tesch HERE (in french)

See the video interview of Pit Hentgen HERE (in french)