Marsh & McLennan Cos. Chief Executive Officer Daniel Glaser, head of the largest insurance broker by market value, said taxpayers may face a larger burden as natural disasters do more damage in developed areas.
“There’s a collision course between, essentially, call it an environmental system and a financial system,” Glaser, 52, said in an interview yesterday at Bloomberg headquarters in New York. An increase in natural disasters “tests the resiliency of governments because ultimately they are expected to respond to catastrophe. They’re doing it with debt, not with actual reserving.”
Glaser, who became CEO this year, is pushing for insurance to play a larger role in setting aside funds for disasters and to force businesses and individuals to pay the price for developing in vulnerable areas. Marsh & McLennan works with clients in more than 100 countries (MMC:US) and earns money by helping businesses arrange coverage and manage risk.
Superstorm Sandy, which lashed the U.S. Northeast in October, showed the costs of a natural disaster striking a densely populated area. It destroyed $35.8 billion in private property and $8.6 billion of government assets, according to U.S. Bureau of Economic Analysis estimates released Jan. 30. Insurers will probably pay out $20.6 billion in claims, while the U.S. flood insurance program will spend $7.5 billion.
“Guaranteed over the next five years you will see the rebuilding of the homes that were destroyed in Sandy in the locations in which they were destroyed,” Glaser said. “That happens all over the world each time.”
Congress completed a $60.2 billion aid package this week to help communities rebuild. Lawmakers wrangled for three months over the legislation, with House Republicans withholding support because some sought to cut the national debt.
Record tornado claims in 2011 contributed to $33.1 billion in insured losses in the U.S. that year, according to data compiled by the Insurance Information Institute. Eight of the 10 costliest hurricanes in U.S. history occurred in the past decade, the trade group said.
“It’s becoming quite clear that severe weather events are the new normal,” Glaser said. Storms are “more costly because there has been lack of control of development in coastal regions and in flood plains.”
The largest cities and states could mitigate future costs by hiring staff to plan for disasters, similar to how companies employ chief risk officers, Glaser said. Governments should also mandate that people living in the most vulnerable areas buy insurance for flooding and earthquakes, he said.
Glaser took over (MMC:US) at Marsh & McLennan after serving as chief operating officer and head of its flagship insurance brokerage. He succeeded Brian Duperreault, who during a five-year tenure as CEO sold assets; reorganized the largest unit, Marsh; boosted profit (MMC:US) and helped repair the company’s reputation after a 2004 bid-rigging scandal. The stock returned 53 percent (MMC:US), including reinvested dividends, during the five years through Dec. 31.
Marsh & McLennan’s agency unit devoted to mid-size business clients may continue to expand through acquisitions (MMC:US), Glaser said. The health and benefits business also offers opportunities for growth, he said.
Insurers and brokers are setting up private marketplaces, or exchanges, as employers shift responsibility to their workers for choosing benefits. The exchanges allow workers to choose among a variety of plans offered by competing health insurers. Employers may still contribute toward benefits even as workers often bear the cost for exceeding a basic level of coverage.
The private markets are rising in parallel to the government-sponsored exchanges created under President Barack Obama’s health-care law. Those exchanges, which start enrolling people in October, will be limited to small businesses and people buying insurance on their own.
Looking to offer the same service to large employers, Marsh & McLennan’s Mercer benefits-consulting arm announced the establishment of an exchange with software provider Benefitfocus on Jan. 10 for companies with 100 workers or more.
Glaser said he’s not worried about competition from the online marketplaces that the health-care law will establish. Mercer may benefit as companies race to set up their own exchanges, he said.
“The more the merrier, because somebody is going to need advice,” Glaser said. “And as soon as they say that, then it’s, ‘I got to hire somebody’ and Mercer will be there.”
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