The good pension funds will grow even stronger - interview with Ulrich Fricker
echo-Interview, October 2012

The good pension funds will grow even stronger

Elipslife Echo - Interviews with prominent business leaders

echo interview with Ulrich Fricker

echo-interview with Ulrich Fricker, Chairman of the Suva executive board

elipsLife echo: Mr Fricker, we take it that you sleep well even during weak economic times: as Suva has a monopoly, it does not have to battle for customers.

I cannot tell whether my good sleeping patterns are thanks to our partial monopoly. But let us talk about the facts. When the accident insurance law entered into force in 1984, the market was split up. Companies and sectors exposed to a higher accident risk have since been allocated to Suva. The rest of the market, which consists primarily of the service sector, is reserved for the other insurance companies, i.e. the health insurance providers and private insurance companies. Although we do not have to acquire customers, we are very aware of the fact that our customers are bound to us in a forced marriage. Both parties are therefore obliged to treat the relationship with care. This is one of the reasons why we are joining forces with the companies to intensify the focus on prevention. If a company cannot change to an insurance company offering lower premiums every three years, the accident costs can only be reduced through prevention.

Ulrich Fricker in an interview with elipsLife

echo-interview with Ulrich Fricker, Chairman of the Suva executive board

Suva insures around 118,000 companies with approximately 1.9 million employees, which makes it the giant in the Swiss insurance landscape. How does Suva get along with the private insurers?

Every now and again, delimitation in the accident insurance market becomes a topic of discussion: does a specific company fall in Suva’s remit, or not? Generally speaking, however, cooperation is good, in particular with regard to the actuarial tables. For example, we cooperate in preparing the proposals for technical interest rates for the Federal Council, and we also cooperate in various commissions and associations and on the Swiss Council for Accident Prevention (bfu).

All four members of Suva’s executive board come from the private sector. Did these managers also introduce management principles from the private sector?

Of course! We may be a public-sector company, but we have to generate our profits without any government support. As long ago as the 1990s, my predecessors started to implement the management model of the University of St. Gallen. Today, Suva is as thoroughly organised as any company listed on the stock exchange. At the operational level we consistently work in a process-oriented manner. Suva has also won two prizes, which shows that we are not doing too badly. In 2004, we received an Esprix award for special proximity to our customers, and in 2009 we won the Esprix award for business excellence, the highest award that can be won in this field. Suva is the only insurance company in Switzerland that has ever won this award as a total enterprise.

To get back to the interaction between public-sector and private companies: should the state carry the social insurance schemes that are prescribed by law, or should these be carried by private companies in order to optimise the costs?

You are talking about the famous single statutory insurance scheme. It goes without saying that a classic competitive market gives rise to greater effort and as a result to innovation. However, competition is restricted in many areas of the social insurance system. Essential parts of the product are defined by law for both the health insurance and accident insurance sectors and are therefore the same for everybody. The health insurance schemes try to differentiate themselves through services or marketing. Logically, of course, price also plays a role, but it is strongly qualified by the spreading of risk between the providers. Instead of a competitive market we therefore have more of a competitive bureaucracy. Whether this has a positive effect on cost trends is debatable. With a change to a public-sector solution, all material stakeholder groups should be involved in the management. At Suva, the customers — representatives of employer and employee organisations — are included in the top governing body, the board of directors. In this way they are involved in decisions on premium systems and premium amounts and can ensure the necessary balance between the interests of the parties involved and the maintenance of efficiency.

Ulrich Fricker in an interview with elipsLife accident insurance

echo-interview with Ulrich Fricker, Chairman of the Suva executive board

Customer needs play an important role in the private sector. How does Suva register customer needs?

We use different tools for this task, in particular regular surveys. We ask the responsible officers at the companies, but also accident victims, about their satisfaction with our services. We also use customer feedback systems to force our employees to react to customer input and send them on training courses to improve their conduct in direct contact with customers. Suva’s very well-developed customer relationship management takes a holistic view of customer relationships.

Do you use these elements to make up for the lack of competitive pressure?

Although the customers know that they cannot terminate their relationship with Suva, they still rightly insist on good services and good premiums. The customers are represented on the board of directors through association representatives. In this way they can and do bring their interests to the table, which is one of the reasons why the Suva model works so well.

From your personal point of view, what are the ingredients for entrepreneurial success?

When it has been guaranteed that an institution, a company or a national economy remains a learning system. I learned about this system theory in St. Gallen and found it very convincing. The environment is constantly changing. A company must always be able to adapt, even though certain basic functions remain the same. At Suva, we are obliged to fulfil the basic functions prescribed by law. We must constantly monitor the situation to see how we can do this efficiently and sustainably.

The Suva board of directors consists of 40 members. This sounds like sluggish bureaucracy rather than entrepreneurial dynamism. How can Suva function at all with such a large board?

Suva has done very well in the past 100 years, not in spite of, but thanks to the model of management through social partnership. Our current board of directors is in actual fact a supervisory body, as with a cooperative society. The name should also be changed in future to reflect this, for example something like «supervisory board». We want to introduce this change during the revision of the accident insurance law. The management committee consists of eight members of the board of directors. This is the real board of directors as defined in the Swiss Code of Obligations. Together with the executive board, the management committee determines strategies, decides on risk management procedures and adopts the principles that guide the future development of Suva. Our system works very well.

With which pension fund are the approximately 3,500 employees of Suva insured?

We have our own pension fund with its own board of trustees which is managed in accordance with current governance principles. A special feature is that we still have a defined benefit plan. We have adjusted the actuarial tables from 1 January 2013 and increased the savings contributions for the employees as well as the employer. We have decided to keep this system, in spite of the fact that a defined benefit plan is exposed to certain risks in times of persistently low interest rates. We can do this because we manage all the pension fund’s assets ourselves and our pension fund is in a good position. The current funding ratio is more than 110 percent.

You have been the CEO of Suva since 1999. What role did the pension fund play in management decisions in this time?

For a long time I did not have to worry about the pension fund as it was well on track. But then the economic environment changed and interest rates began falling alarmingly. It seems that we will have to accept a lower return on capital in the medium to long term. To this must be added that fact that our life expectancy is continually on the rise. We have therefore given our pension fund a new foundation.

What developments in the employee benefits insurance do you expect in the next three to five years?

The risk capacity of a pension fund — i.e. the ratio between the actuarial reserves or pension assets and the obligations — will determine the future of a pension fund. The risk capacityforms the basis for the investment strategy. I believe that today’s good and very good pension funds with a high risk capacity will grow even stronger as they can actively participate in the capital markets. Those who can afford to follow a more aggressive investment strategy usually achieve a better performance on average. Pension funds that are already battling an actuarial deficiency do not have the required risk capacity.

If you could give the private pension funds in Switzerland some advice, what would you tell them?

I would advise them to adjust their investment strategy to their risk capacity and to work on reducing their costs. The trustees are responsible for maintaining a balance between income and expenses. On the expenses side — i.e. the obligations to the pensioners — it is in practice only possible to change the benefits in an emergency situation. Pension funds therefore have to focus on the income side. Apart from a well-diversified investment strategy the costs are also important, as these determine the difference between the gross and net return. This requires cooperation with other institutions such as banks and advisors, as small pension funds cannot afford their own specialists. At the same time the processes should be improved, which is an issue that is often neglected. What is the pension fund’s administrative cost per insured person? How can this be improved? Every franc that is saved on administration can be passed on in the form of better benefits.

Does this mean that you are in favour of professional trustees?

Yes. We currently have many pension funds in Switzerland, for some of which the size is not ideal. A bundling of funds would increase the volume, generate economies of scale and also lead to the professionalisation of trustees.

Ulrich Fricker in an interview with elipsLife SUVA
Personal Profile
Ulrich Fricker
Chairman of the Suva executive Board

Ulrich Fricker was born in the Canton of Aargau in 1953 and currently lives in Central Switzerland. He studied at the University of St. Gallen, where he also obtained his doctor’s degree. He has been the chairman of the Suva executive board since 1999. He also serves as the chairman of the board of trustees of the Swiss Council for Accident Prevention (bfu) and the Federal Coordination Commission for Occupational Safety (FCOS). Before joining Suva he was the head of Risk Management and Insurance Advisory at KPMG/Fides Alexander AG in Zurich. Prior to this he was a member of the executive board of the ELVIA Group in Zurich.