Mohamed El-Erian, the chief economic advisor for Allianz and former CEO of its PIMCO unit, warned that the evolving global trade war presents risks the insurance industry should worry about. On the other hand, he said, that technology and the transformative risks it can bring is less of a cause for concern.
“The reason why your industry should really worry about a trade war is because of the impact on cost and ability…and the impact it has on income,” El-Erian said in his keynote address at the 2018 PCI Annual Meeting in Miami on Oct. 29.
Of particular concern, according to El-Erian: tariffs, which the Trump administration has been welding on a wide scale and other countries have passed in response and in escalation.
“Tariffs are stagflationary. They raise costs and lower income,” El-Erian said. “That is the worst combination for the vast majority of industries. It is a serious issue.”
Insurance Tech Changes Will Continue to Be Slow Moving
During El-Erian’s PCI address, he was also asked about technology, which the property/casualty insurance industry sees as both a threat to its stability and opportunity. El-Erian observed that the drastic transformation in insurance industry operations that technology could enable hasn’t exactly materialized just yet.
Technology “will fundamentally redefine the financial industry. But it hasn’t happened so far, in part because of regulation and slow change,” El-Erian said.
Still, that doesn’t mean that the financial industry shouldn’t anticipate big things once technology changes take hold in insurance and related areas. What it has done in other industry sectors offers a case in point, he noted.
“What technology is doing today—it doesn’t change just what we do; it changes how we do it,” El-Erian said.
El-Erian offered a cautionary tale for the finance industry, involving the game-changing technology Airbnb brought to the hotel industry, allowing homeowners and renters to lease their spaces to travelers.
“Kids in San Francisco come up with a disruption that in six years provides a million rooms around the world, versus [Hilton Worldwide Holdings’] 700,000,” El-Erian said. “They never ever saw them coming…It was this incredible combination of big data, AI and mobility.”
El-Erian warned that “it is just a matter of time until either the established companies figure out how to evolve to serving clients who expect anytime, anywhere service, who want open interactions,” or they collapse after failing to do so.
“Either you evolve,” he said, “or someone will disrupt you.”
For insurers and the financial industry, El-Erian expects a longer transition because of the sensitivities involving the use of technology that can price risk around actual behavior [telematics, etc].
“If embraced, these changes can not only keep up with the reality of the crowd but also help deal with longstanding issues that are much more sensitive,” such as political bias, poor communities and the potentially higher risks they present, El-Erian said.