Aon Corporation President & CEO Greg Case Braces for Hurricane Season
Friday, May 26, 2006SUSIE GHARIB: The global economy is providing new risks for businesses, on growing fears about terrorism, pandemics and catastrophic weather. These issues all provide big challenges for re-insurers and risk managers, like Chicago- based Aon Corporation. Diane Eastabrook sat down with Aon`s President and CEO Greg Case. She began by asking him how prepared the re- insurance industry is for the coming hurricane season, which starts on Thursday.
GREGORY CASE, PRESIDENT & CEO, AON CORP.: The industry, I want to stress, is a strong industry, which for hundreds of years has served a very, very distinctive and impactful (ph) purpose and is positioned to do again. There are also other options in terms of just basic insurance. You look at the alternative marketplaces, the capital markets, et cetera, all things that Aon`s been very involved with, thinking about how to serve client needs. The basic primary insurance or reinsurance market is one of those, but there are others available as well.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: What other options might be available?
CASE: In the capital markets, there is a tremendous amount of interest around catastrophe bonds. The private equity money is also very interested in playing a role in insurance over time. And where there is need and there`s capital, they often come together and we`ve seen that a lot over the course of the last year.
EASTABROOK: The terrorism risk insurance act is going to expire at the end of next year, 2007. Can the commercial market compensate for that if we don`t have that government safety net?
CASE: We have in terrorism a very, very unique situation. In the $100 million cover that you just described, which really is only in place through the next renewal cycle, in our view is essential. In our minds, this is not an insurance question. The mistake that I see made is to become an insurance issue. It`s not an insurance issue. We`re not an insurance company. We`re advocates of this because it matters to our clients. When you try to understand what`s required to actually make a capital investment to build a hotel, to invest in housing, to do anything you want to think about in terms of capital investment, you must have risk assessment behind it, and terrorism throws a -- you know it throws a monkey wrench into it that is quite, quite unique. So our advocacy around a backstop beyond the industry is not about insurers. It`s all about clients and what clients need to make effective capital investments.
EASTABROOK: We`re seeing a lot of businesses going global these days. What are some of the other risks that they`re encountering as they go off and set up businesses in other countries?
CASE: The level of risk overall is just increasing, flat out, the level of risk is increasing. You touched on a few of the issues: terrorism, the whole catastrophe risk, risk around the pandemic, et cetera. The whole level is increasing, different than it`s ever been before. Beyond that, the complexity of risks are increasing. So take a look at Katrina as an example. In Katrina, there is a whole set of -- laws are being written today, as we speak, around was it a storm surge that caused the damage or was it the flood afterwards? That sounds trivial, but it`s literally the difference between businesses making it and living and not making it.
EASTABROOK: You made reference earlier to a pandemic, and we heard just a few days ago that bird flu has been detected again in Indonesia. How well prepared are companies for a possible bird flu pandemic?
CASE: We are working with many, many clients who are first starting with what`s the situation assessment? What are our risks in terms of human capital risks? What are our risks in terms of supply chain? What are our risks in terms of plants or customers who may not even be able to access our products for a variety of reasons? So first is, just what`s the quantification? What`s the real risk?
EASTABROOK: How much of a risk is this, do you think?
CASE: We are quite concerned about this. This is something that`s real, that we have seen before, and in many respects, the stakes are as high now as they have ever been. We all hope frankly this would be -- it would be wonderful if this was another Y2K and it just whimpered away, but if not, it`s incumbent upon us and our clients to be prepared for it.
EASTABROOK: Mr. Case, thanks very much for joining us.
CASE: It`s been my pleasure, thank you very much.
