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For us Israelis, the Israeli economy is perceived as a very dangerous place, especially when we think how foreigners look at us. This may be true for many foreigners, but not for all. “For our clients, opportunity always carries risk, says Aon president and CEO Gregory Case, when asked whether Israel is considered a good place for the world to do business.
Aon plc (NYSE: AON) is an international insurance giant that specializes in risk management worldwide. “For our clients, there is risk in Israel, but many of them see the opportunities,” says Case. “We see the Israeli economy as very much alive, growing, and innovative. It’s also an important economy for us at Aon, and Aon Israel’s influence in the company is greater than its business size.”
“Globes”: Are Israel’s risks unique?
Case: “They are similar to the risks everywhere in the world. There are real traditional risks of liabilities and property, as well as newer risks, such as cyber risks, risks from global warming, and terrorism. But there are similar categories all over the world, albeit each category has varying strengths from place to place.”
What about global risk? Will the world be more dangerous in 2015 than in 2005?
“Our clients see 2015 as more dangerous. There has been an increase in traditional risks and in new risks, too, such as cyber, terrorism, and global warming. The strength of the risk has risen, as has our connectivity across the world. This means that there is greater risk in the world, more kinds of risk, and they are more connected.
“The contemporary world is also more complex, which is a major development that happened over the past decade. But our clients will also say that there are more opportunities than in the past, and that they should be seized despite the risks. That is what we do at Aon.”
Aon has a unique and critical position in the global business world as a supplier of solutions for managing the slew of risks that the world is dealing with at the business and individual level. The company is the global leader, with three core services, mainly for companies: risk management as a mega-insurance agency with capabilities, knowledge, experience, and global reach; insurance and reinsurance brokerage services, including for insurance companies; and global human resources consultancy and outsourcing services.
Aon, headquartered in London, is traded on the New York Stock Exchange with a market cap of over $26 billion, after a 115% rally in its share price over the past five years (The S&P 500 Index has risen 80% over the same period and the Dow Jones has risen 63%).
Aon is a growing company, operating in over 120 countries, and has more than 66,000 employees. It has made strenuous efforts in the past few years to grow in Israel too.
New global risks
After years of business in Israel, in late 2006 Aon acquired the activity of the Freddie and Ilan Beck Insurance Agency and merged the two companies to create Aon Israel, which has been headed ever since by the dominant chairman, Ilan Beck. Ahead of the “Globes” 2014 Israel Business Conference on December 7-8, we were hosted by Aon in the UK to speak with Case, who will be a speaker at the conference.
“We carry out risk surveys on many companies. This is the biggest survey of its kind among many companies, across continents, industries, and so on. In terms of macroeconomics, we see strengthening of all the big clients, because of urbanization of the world’s population and the rising insurance value (such as skyscrapers, whose value is rising), and there are global risks that affect everyone. There are also risks that we never heard of ten years ago, such as cyber risks and existential risks, as well as terrorism, which is another risk we have to deal with.
Risks in the world are growing, expanding, and maturing, or are there risks that are lessening?
“There are risks that are less relevant now than in the past, because we know how to better deal with them. For example, there are risks for which there are natural or investment hedges, or directors and officers insurance (D&O insurance), which is as a tangible risk as before but which we are better handling now.”
You mentioned cyber risk. This recently made headlines because of the hacking of US banks.
“Cyber risk is no longer a rumor, but real and present for all our clients, nor is it a just a threat for US banks. Today, company managers and directors are talking about cyber risk, which didn’t happen before. It’s not just a matter of preventing cyber threats, but how to deal with them, because everyone will get hit.
“Whether we’re talking about a private hacker, a competitor, or another threat, our clients must understand the risk. A range of measures deals with this risk, not just insurance.”
Other problems making headlines are piracy and kidnapping for ransom. Are these global threats?
“This rises and falls over time. Piracy is a major challenge for our clients, which has again become real after being intangible for a long time, but which has eased a bit in the past few years. We helped our clients in how they prepared for piracy risk, and how to take steps to prevent piracy, which were not previously considered, such as the use of torches and searchlights.”
Aon also developed an independent capability for the immediate management of crises, such as kidnapping for ransom, and the company has managed more than one such incident through its conclusion.
What about the threat from terrorist organizations, which dominate the media conversation?
“We don’t look at this from a political perspective, but from the angle of its effect on our clients, which is definitely dramatic.”
What about plagues, such as ebola?
“This is added to the list of risks, alongside terrorism, cyber, and global warming. It’s also a threat even when it doesn’t really infect people, but affects economies that aren’t strongly hit by the plague, because people don’t go to work for fear of infection. Plagues and global medical challenges will be something we’ll have to deal with in the future. When the world’s population is concentrated in big cities, there are risks that come with that.”
Risk management is Case’s business. “Risk management is not a sideline for companies, but a basic field for growth and profitability,” he says with assurance. “Uncertainty slows our client’s activity. Where there is uncertainty, there is slowdown, and wherever there is certainty, our clients are more active, which in turn affects growth.”
Nonetheless, it’s important for Case to clarify that the rise in risk is not particularly problematic, especially in the current market climate, which affects insurance prices. “Our task is access to capital to support clients, and there is now a lot of capital in the insurance world, more than ever before and in unprecedented amounts. For example, the available capital in reinsurance has climbed from $500 billion to $580 billion. Altogether, there is more capital in the global insurance market than ever.”
Will this affect prices for consumers?
“That is already happening in some sectors. For example, catastrophy reinsurance has already had this effect, but demand for coverage has changed, rising with the supply of capital.”
Why are there no big foreign insurance companies in Israel owning major insurers (except for AIG’s modest holding in Israel)?
“They are here indirectly, through Lloyds and as reinsurers. Can we bring capital to risk management in Israel? Yes. In fact, the Israeli insurance market is international, and is not comprised of only local players. Multinationals can work and sell anywhere.”
The map and us
Aon, the world’s largest insurance broker, publishes several ratings of risks found in all countries. The main map published this year is a map of terrorist risk and political violence in 2014, which examines the risk in each country from several aspect: terrorism and sabotage; strikes; riots and malicious damage; uprisings, revolution, and revolt; and civil war and war.
What is Israel’s place on this map? The risk of war, terrorism, government instability, strikes, etc. are high, with a score of 4 out of 5. Where does this put Israel in global comparison, as Aon see it? Canada, Australian, Ireland, Sweden, and other countries are characterized as negligible risk - the lowest risk rating. The US, UK, France, Eastern European countries, Japan, South Africa, and other countries are characterized as low risk - the second rating.
Argentina, Russia, Chile, Morocco, Mexico, China, Iran, Saudi Arabia, and Jordan are classified as moderate risk.
Israel is included with Turkey, India, Brazil, Algeria, Thailand, Ethiopia, Kenya, and North Korea are clearly marked with the color indicating high risk.
Countries with the fifth risk rating, the severest of all, are only found in Africa and Asia. They include, unsurprisingly, several of Israel’s neighbors: the Palestinian Authority, Lebanon, Syria, Iraq, and Egypt, and other countries in Africa.
Aon also rates political risk, looking at the factors of financial soundness, disruptions in the supply chain, regulatory and legislative risk, political violence, and business transaction risk.
On this map, Israel is counted among the unrated countries, alongside other countries, mostly in the West: the US, Canada, Scandinavian and other European countries, and Australia. Unsurprisingly, Israel does not belong with its neighbors, even with regard to political risk, while most of its neighbors are colored in bright hues. The exception is Turkey, which, like Israel is unrated, and Saudi Arabia, which is rated as moderate risk.
At the opening session of the Israel Business Conference’s second day on December 8, “The Middle East - Global Risk”, CNN correspondent Richard Quest will interview former Prime Minister and Minister of Defense Ehud Barak and Financial Times chief foreign affairs commentator Gideon Rachman. Gregory Case will have a one-on-one discussion with Rachman.
Published by Globes [online], Israel business news - www.globes-online.com - on November 30, 2014
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