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25th Anniversary series: 2011 – Industry View – a look to 2019

May 27, 2015

In 2011 our then CEO, Stefan Lippe, mandated a medium term strategic scenario project. This was conducted by Swiss Re employees and external experts, and facilitated by Duke University. For some reason, we looked to 2019, which now seems very strange, but I think the reason at the time was a 7 year view published in 2012!

We focused on five areas: macroeconomics, geopolitics, environment and resources, technology and social change. The idea was to consider these areas, build some scenarios and then look at the possible implications for the insurance and reinsurance industries. The whole team decided from the beginning that we wanted to avoid a binary outcome, the “good” and “bad” scenarios. We therefore decided to use three scenarios rather than two. The scenarios were based on the interaction of a number of trends, and were not based on the most or least likely trend, but rather deliberately with the goal of capturing a broad range of plausible outcomes of significant impact.

Scenario 1 – Frustrated

In this scenario, economic growth is weak, policy making seems stuck in a rut and investment slows down, leading to social unrest, conflicts between states and increased protectionism

Scenario 2 – Connected

In this version of events, there is more growth and attempts to solve both the Eurozone problems and the US deficit are more successful. Investment increases and the world becomes more connected, with greater innovation and more accumulation and analysis of data

Scenario 3 – Shocked

This is in some ways a more extreme scenario with shocks affecting the environment, food production and trade flows causing severe stress to governments and social structures.

Writing this blog has given me the chance, about half way through the period, to see how things are advancing. From where I sit now, I recognize a lot in scenarios 1 and 2, and a few aspects of scenario 3. The first lesson from this is that we are operating more in an “and, and” situation than “either or”. I see tensions between the first two scenarios and expect these to continue to play out in the coming years. The continued problems in the Eurozone, especially around Greece, and in Brazil, the events in Russia and Ukraine and the increasing regulatory burden resulting from the global financial crisis continue to point to the Frustrated scenario. Some of these themes were played out recently in the UK election. However, many of the technological developments are more consistent with scenario 2. There is of course a risk that as the world becomes more connected, the risk of a mega event becomes higher, whether caused by a cyber attack or a natural disaster. There are also indications that in some places new social structures are developing which may at times be at odds with traditional identities and loyalties.

My main focus of research was geopolitics. We established some themes which we believed to be givens in all three scenarios: decline of the West and continuing conflict. To these we added some key variables: a gridlocked world with old institutions failing but no consensus on how to replace them, which to a certain extent we have seen in the Syria crisis and the response to extremist Islamic terrorism, and the burning BRICs, which at least in some cases have failed to live up to expectations. The final two, which I see playing out actually in a more positive way, were the shadow economy, which sounds scary but can also encompass things like peer to peer lending, and crowd funding, and the rise of the “middle world”, where we see some hopeful signs at least in countries such as Colombia and Nigeria. Leading indicators, that are useful to monitor are the weakening of institutions such as UN or EC and shifting alliances, changing relationships between state (federal) and local governments and between the state and the individual, unintended consequences of protectionist measures and indeed developments in the “middle world”, not least the “clash of civilisations” within and between Islamic countries.

If there is one thing that strikes me it is that the pace of technological change has really picked up since we did this work in 2011. Examples in our paper of paying for things by phone, or education being carried out remotely via robots with a live link to a professor are no longer fanciful. Work on genome mapping and the use of big data in diagnosing and treating cancer are also becoming reality, if not yet commonplace. Of course even this trend may be thrown off course, either by a societal backlash based on privacy concerns, or by a big disaster which puts into question our reliance on wifi, the internet, phones etc. However, if I was doing this exercise again today, I would build this technology and connected aspect into all the scenarios, albeit with different outcomes.

This paper is the work of Susan Holliday and only contains my personal views, thoughts and opinions. It is not endorsed by Swiss Re nor does it constitute any official communication of Swiss Re.

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