NEW YORK — In this more complex, riskier world Peter Eastwood warns businesses to practice simplicity.
The president and CEO of Berkshire Hathaway Specialty Insurance, speaking Sept. 17 at Advisen’s Executive Risk Insights Conference here, said complexity is “not a winning value.”
A consequence, he said, of the financial crisis and its subsequent additional regulations, the business world is now “unnecessarily complex” and organizations should focus on simplicity—in reporting relationships and decision making processes— as a “winning way to create value.”
“Simplicity is hard, complexity is easy,” Eastwood added. But complexity also diffuses responsibility, he said.
The transition is not easy. According to Eastwood, complexity in business is nurtured by a general lack of trust—government does not trust business, businesses do not trust the government, employers do not trust employees, and so on—but simplifying business is “always a winning proposition,” he said.
The advice was part of several guiding principles offered by Eastwood, who admits he is afforded some luxury as an operating company under Warren Buffett’s Berkshire Hathaway Inc. There a few distractions from the corporate center and BHSI is fortunate to have the capital backing of its parent.
But it was his days at his former employer, AIG, that led him to develop other business philosophies. Eastwood was at AIG during its trying times but from his experiences at the company, he said he began thinking more about management and people. He said a company has two assets: financial and human capital.
Employees “want to work for companies that have performed well,” he said. “It doesn’t feel good otherwise.”
In choosing employees, employers need to look more at character as well as capabilities, which are easier to assess. But an employee’s character represents an organization’s brand and is “compromised most often.” He admits there is a “ton of variability” in defining character but organizations should value it and create an appealing work environment. After all, “People have options,” he said.
Risk is getting bigger, and so might insurers
Eastwood said the insurance industry, right now, is overwhelmed with excess capital. But we live in a riskier world. Eight of the 10 largest catastrophes have occurred in the last 10-15 years, he said.
“When losses take place, they are historical,” he said, adding that often an “insured’s balance sheet is larger than the insurer’s.”
This may lead to additional consolidation in the insurance marketplace. He said larger, high-quality carriers will have competitive advantages.
Strategic M&A is a smarter way to use excess capital than taking prices below the risk insurers are writing, he said.
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
