Welcome to Going Long with FT Global, the podcast that dives into the world of long-term investing and strategic decision-making. Hosted by Sarah Williamson, Going Long features thought-provoking conversations with some of the brightest minds in finance, economics, and business. Today, each episode will bring you exclusive interviews with renowned executives, investors, and experts who are driving change in the world of finance, getting their unique perspectives, and uncovering strategies that have shaped their success. Whether you're an investor, a business leader, or simply curious about the forces shaping our global economy, join us as we explore the power of long-term thinking. This is Going Long with FT Global.
Thank you for joining us today on the Going Long podcast. Today, our guest is Thomas Buberl, the CEO and director of AXA, one of the world's largest insurance companies. He started his career at the Boston Consulting Group, and then worked for the Winterthur Group and Zurich Insurance Group, where he was CEO for Switzerland. In 2012, he joined AXA as CEO of AXA Germany, and prior to his current role, he was CEO of the global business line for health business. He has been a real leader in thinking about how the insurance industry and financial services more broadly can think about sustainability and be long term. So Thomas, thank you so much for joining me today.
Thank you, Sarah. Good to be with you.
So insurance is sort of the ultimate short-term, long-term tension business. It has long-tail risks, long-term customer relationships, but you renew things in the short term. You have shareholders who worry about the short term, and current events that hit you in the short term. Can you talk about how you balance short-term pressures with the long-term mindset of building a company that people rely on for years?
It's absolutely true that we have a coexistence of the short term and the long term. An insurance company is by definition a mirror of industry and society. Managing this is never easy, certainly not in a context we see around the macro and financial environment that remains uncertain. If I don't sound too pessimistic, it's difficult to imagine where the avenues of improvement are in the short term. That's why one should balance it against the long term because this question of where do you want to go, what society goal do you want to solve, changes the perspective and liberates more energy for a longer-term vision. It also makes you more agile and reactive, because often we are caught in the short term. To make it more concrete: in 2016 we decided to acquire XL, a US-based commercial insurer. We got a lot of criticism, the share price suffered, and I was criticized for taking too much risk. For us, the aim was to go into areas with the biggest amount of risk and growth in risk, which is the corporate sector. Looking at it today, we were right. The biggest amounts of new risk are exactly in that sector, particularly in geopolitical tension.
Let's talk about geopolitical tension. Maybe we start with the US. In the US, we have tension in our politics, uncertainty, our new president is issuing executive orders and pushing back on climate. At the same time, we've had fires in Los Angeles and hurricanes in unexpected places like the mountains of North Carolina. The insurance industry is in the spotlight. How do you think about that tension between politics and what's happening on the ground?
First, it's important to have a clear view of what is happening. We do that every year methodologically with our future risk reports to understand what really matters. What's interesting is that the top 10 risks haven't really changed over the last 10 years, except for COVID. But what has changed: first, these risks are now interlinked. Geopolitical and cyber risk are linked, natural catastrophes and health and social risk are linked. This makes it more complicated. Second, people are exposed to more risk, don't want to absorb more risk, and have less confidence in governments to resolve this. It's a difficult equation. So we spend a lot of time understanding these risks and their changes, because they heavily influence how we design our business approach.
Thinking about risks and how they change is core to your ability to underwrite and manage your business. We're seeing discussion about the differences between the US and Europe, the need for more competitiveness in Europe, streamlining regulations. Do you see that affecting your business, or are you so global that it doesn't affect you?
No, we are affected by every change anywhere because we are very global. An insurance company has its finger in every pie but not too deep. Diversification is the mantra. We are affected by all these issues, but never so severely that it puts the company at risk. On Europe, competitiveness is at the heart of the discussion. It has several facets: starting with regulation. We need to find the right balance. Approaches often say regulation must disappear completely, but we need to be realistic. It's governments and parliaments that make regulation. We should focus on making current regulation easier and more digestible without shooting at it. Second, competitiveness is about whether we have succeeded in exploiting the internal market. The European Union has understood this issue, and now it's about how to design an action plan to deliver on it quickly.
The point about streamlining compliance with regulation rather than the regulation itself is important. If we move to climate, you have had a clear commitment to sustainability, divesting from coal, modeling climate. It's central to your business. In financial markets, most professionals believe climate risk is mispriced. As an investor, how do you think about the pricing of risk in markets, and can investors do it better?
This mispricing is an issue. But there's also a miscomprehension of what climate risk is. The frequency of perils has increased, more claims happen, necessitating rebalancing premiums and claims, which often results in higher premiums. But we see government intervention that prevents this balance from being possible, leading to the belief that risk is mispriced or uninsurable. I am not of that opinion. You can manage claims better and bring risk back to proper pricing through prevention. For example, in the US, Hurricane Katrina and Hurricane Irma had similar trajectories but the cost has gone down because governments, companies, and individuals took preventative measures. We work on this through AXA Climate, which has 200 environmental engineers focusing on prevention. If prevention becomes a mandatory part of the insurance solution, climate risk can be properly priced again and remain insurable.
That sounds like something that surpasses political winds. Nobody wants to lose their house or business. Is that being well-received?
The environmental engineers are convinced. Bringing politicians and the general public on this journey will take time because prevention means the insured party has to participate in managing its own destiny. We need to continue this discussion and show real data and results. For example, we work with satellite imaging to prove what prevention can do. In the recent fires around Los Angeles, buildings constructed with materials other than wood mainly withstood the fire. The conscience will come because of social pressures and the money governments have to mobilize. I'm positive it will come, but it needs time.
