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INSURANCE| 02.19.2024

Pilar González de Frutos: “Years ago no one imagined that sustainability could become the backbone of insurance”

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To speak of Pilar González de Frutos is to speak of the insurance industry in Spain. She has been the image and voice of the sector’s employers’ association for over two decades, during which time she has educated, defended tooth and nail the importance of an industry that is essential to any society’s economic development, and has never tired — although she certainly had reason to — of preaching the importance of private savings as a complement to the public pension system.

PILAR GONZALEZ DE FRUTOSA law school graduate, State Insurance inspector, General Manager of Insurance, president of UNESPA, vice president of CEOE, president of the Interamerican Insurance Company Federation (FIDES), and many other posts mark the career of this woman who came to the world of insurance unwillingly (at first, she wasn’t planning on working in insurance… and yet, she’s dedicated her entire professional career to this sector, in which she confesses she has worked hard and which she has also enjoyed a lot).

A few months ago she received the international Julio Castelo Matrán Insurance award from Fundación MAPFRE for her work “The Necessary Reform of Complementary Social Protection in Spain.” In this essay, she makes an argument she has made throughout her career, with passion and in a didactic fashion: the pension system should be based on three pillars — public, business, and individual — and that complementary protection systems, i.e., private savings, together with public pensions is what can help the elderly maintain the purchasing power they enjoyed until their retirement. Strengthening this system benefits both those who buy into these systems and the economy in general, as it contributes to economic growth and improving competitiveness.

She’s no longer on the front lines, but has the knowledge of someone who spent their entire career in a sector that represents around 5 % of Spain’s national wealth. We speak with Pilar about the evolution of this industry and the challenges it’s facing in the near future.

You’ve seen first-hand and played a leading role in the transformation of the Spanish insurance industry in the past few decades. What are the changes that have transformed the industry over these years?

A lot has changed. For example, 40 years ago the law didn’t provide for a solvency margin. There was a minimum capital figure, which was required when registering. Prices were regulated, and insurance distributors had to belong to a professional association. When Spain joined the European Economic Community, that modernized insurance. (She explains this statement with a statement that highlights the changes in the industry). The subsidiaries of the European insurance companies that operated in Spain at that time imported everything from their parent company; today, however, the Spanish teams of these multinationals are in charge of opening new markets. There has been an enormous transformation and professionalization of the sector.

Additionally, the insurance industry has become mainstream and gained acceptance in society. Insurance is, frankly, viewed positively by society, and the people who benefit most from this are the customers themselves. There’s a lot of competition, but there’s something that characterizes the insurance industry and that is the tremendous professional respect that exists between its workers.

What are insurance’s most immediate challenges right now?

Right now there’s a lot of pressure on costs, and therefore one challenge is efficiency, so that, without weakening the quality of the service provided — which is high — the income statements of the company and its providers add up, so an enormous effort must be made in terms of efficiency in other expenses. Digitalization, artificial intelligence, and product customization must contribute to ensuring that each insured party pays the price that corresponds to them, but without it becoming self-insurance, without losing the essence of insurance.

Meeting the needs of new risks is another imminent challenge. There, we’ll do what we’ve always done [she still uses the first person plural sometimes, speaking as if she were still part of the sector — it is hard to separate oneself after so many decades]. How have we done it? By analyzing, seeing what coverage we can offer, using a lot of reinsurance; in short, accumulating experience, adjusting prices, and then generalizing this coverage.

Sustainability, in three areas — environmental, social, and governance — is the hot topic these days. Is insurance ready to meet these demands? 

It’s more prepared every day. Years ago we spoke of Corporate Social Responsibility, a concept that we couldn’t imagine then would become almost the backbone of the insurance business. Today it’s unthinkable to have a product that doesn’t consider the ASG impact in all aspects. In the field of governance, the insurance industry has had a head start compared to other sectors due to its business model. Governance is highly regulated, and the sector believes in this and manages it appropriately. Today there is increasing progress being made on environmental and social matters, although the measurement criteria are still being developed and the possibilities for comparison are still almost impossible.

What used to be extraordinary weather phenomena are now increasingly common, and with a higher intensity. In Spain we have a body, the Insurance Compensation Consortium, which covers some of these episodes. Should it be updated to adapt to a new reality that has changed a lot since its creation? (We’ll remind readers that it didn’t cover Filomena).

Yes, definitely. The traditional distribution of the loss ratio between the companies and the Insurance Compensation Consortium has evolved to the companies’ detriment; today, they assume a higher percentage (practically 70% of the costs of natural disasters, compared to the Consortium’s 30%). This must be reassessed so that the percentages go back to being 50% the Consortium and 50% for insurers. To start, the definition of events that are covered by the Insurance Compensation Consortium must be reviewed.

In recent decades we’ve experienced several financial crises, reputation crises, yet insurance hasn’t been affected by these crises. Why is that?

The insurance business model is not a speculative model; it’s based on the mid- and long-term and that generates a management model that is based on respect and a long-term commitment to the customer rather than immediate profit.

And when internal restructuring has taken place, it has been done by the Insurance Compensation Consortium’s Liquidation Committee, and the cost has been borne by the contributions fund and not public funds.

In cases where there has been a direct impact, the sector has reacted very well and always assumed its commitments, and even gone beyond that. An example of this was the insurance industry’s commitment during the pandemic.

The low economic level of some countries, especially in Latin America, logically explains the underdevelopment of the insurance industry, but microinsurance can be an option. What role can these products play in these economies?

They can play the basic role of integrating large swathes of the population, especially in less economically developed countries. Given the social structure of some countries, where there are specific regulations for these products, with specific channels and cost controls, microinsurance is important and is the future of insurance for these parts of society.

UNESPA, the employers’ association you presided over for more than two decades, has insistently, tirelessly advocated through education for measures to promote the second and third pillars of the pension system. What needs to be done to achieve this?

Beyond a social necessity, which it is, it’s a necessity as a country. The second and third pillars complement the first, and complement each other, and we need to combine all the instruments we have. If we want to reverse the situation we have today, we have to incentivize retirement savings. It’s a serious mistake to promote the second pillar at the cost of the third. They are not alternatives; again, they are complementary to the first and complement one another.

There are exhaustive analyses of countries from our environment which have already made decisions in this regard, and the proposals focus on the second pillar, with incentives for businesses and employees. The new plans are going to require years to be rolled out; therefore, there still needs to be a temporary system which allows people to continue to make contributions to individual plans with the limits that we had, while the new employment plans are not available.

We need to recover those limits, facilitate payment in the form of income, and separate taxation such that recovering contributions is taxed as taxable income and the profits as savings income.

We must promote internal savings as a country, so as not to have to depend on external savings, with all that entails, which is nothing more than paying risk premiums like we paid in the last crises. This is compatible with job creation and maintaining the welfare state.

And we have to be transparent in the public system, so that people can know what their future public pension will be. Let’s be realistic: we either have to work longer or the replacement rate (percentage that represents public pension compared to last salary) will be lower.