First published in ITIj 84, January 2008
Roger St Pierre explores the workings of one of the world’s strongest economies
Switzerland is a prosperous country that runs like the proverbial clockwork that first built its reputation for precision. However, given the nation’s penchant for a well ordered life, it’s no surprise that the Swiss have always been a nation that believes in hedging their risks and keeping something in reserve – hence its long dominant banking and financial services sector.
Insurance, naturally, has always played a major part in this prudence, and Swiss travellers put the securing of adequate insurance protection high on their list of must-do’s whenever planning a trip. With an average annual spend of Fr7,000 per capita on private insurance premiums, the Swiss are one of the best insured nationalities on earth.
Given the stunning beauty of their country, many Swiss citizens choose to spend their holiday and leisure time on home turf, but when it comes to business, that’s another matter. Since Switzerland is small and land-locked, the Swiss business community has always needed to be outward looking, seeing the whole world as its marketplace, while incoming foreign business travellers take full advantage of what is one of the world’s most developed and successful service economies. Consequently, Geneva and Zurich today rank as two of Europe’s busiest international airports.
Switzerland is topped only by the US in the 2007-2008 Global Competitiveness Report, which was recently put together from a poll of 11,000 business leaders worldwide by the World Economic Forum, working with its network of partner research institutes and business organisations in a record 131 countries.
Call it Schweiz in German, Suisse in French, Swizera in Italian or Svizra in Romansch – to use the country’s four official languages – or use the Latin name Confoederatio Helvetica (the Swiss Federation), this is a vibrant federal republic of 26 states (called cantons) and some 7.5 million people, contained in a tiny area of 41,285 sq km (15,840 sq m), much of which is uninhabitable mountains. Founded in 1291 as an alliance between just three cantons, the Swiss Confederation secured its full independence from the Holy Roman Empire in 1499 and was quick to assert the neutrality that has kept it out of conflict and preserved its national integrity, even during the two world wars that surrounded it in the darkest days of the 20th Century.
To the four official languages must be added English, which is widely and well spoken in business circles. Indeed Nestlé, the world’s largest food company, diplomatically opts to conduct all business at its headquarters on the shores of Lake Geneva in neutral English, because it is located in a French-speaking area but most of its staff are German speakers.
"Switzerland has the world’s sixth highest nominal per capita GDP"
Linguistic abilities, plus the nation’s reputation as a bastion of strict neutrality, help explain why so many major international bodies, from the World Trade Organisation to the Red Cross and the International Olympic Committee, have chosen to base themselves in this little country. Though Switzerland only joined the United Nations in 2002, much of the organisation’s administration has been based there for decades. A non-participant in NATO, Switzerland has not as yet joined the EU either, but has forged very strong links with the grouping on the trade matters with which much of its prosperity is dependent.
Surpassed only by other small nations such as Luxembourg, Norway, Qatar, Iceland and Ireland, Switzerland has the world’s sixth highest nominal per capita GDP, at US$35,000, ranking it higher in individual prosperity than the US, Japan and the major European economies. On a PPP basis it ranks 13th.
Banking and insurance are at the heart of this prosperity, with Zurich Financial Services, Credit Suisse, UBS, Winterthur and ABB, among others, rating as global household names. International investor confidence in the country and the way it conducts its affairs has always been high.
Pharmaceuticals, chemicals, watchmaking and biological sciences are all highly important business sectors, while all those Swiss-based international institutions are important employers in a labour market that saw the outstandingly low unemployment figure of 1.8 per cent recorded in 2001 more than double to 3.9 per cent by 2006, due to a slow-down of economic growth, before falling back to a modest 3.3 per cent in 2007. Economic growth currently stands at around 3 per cent per annum.
Doing business in Switzerland is made easier by the great strides achieved in bringing business law and practices into line with those extant in the European Union. While the current ruling government and a number of other politicians are in favour of full EU integration, at least in the long term, there is a vociferous conservative opposition to such a proposition. In 2001, a referendum on starting accession negotiations resulted in a ‘no’ vote, but the issue has not gone away and, meanwhile, the government has created an integration office under the joint aegis of the Department of Foreign Affairs and the Department of Economic Affairs.
Signed in 1999 and effective since 2001 is a series of seven bilateral agreements between Bern and Brussels to which were added a further nine agreements, signed in 2004 and since ratified.
Not surprisingly, the secretive Swiss banking system has been in the international spotlight in recent times, and measures have been taken to bring in greater transparency and fight money laundering and tax evasion. Pressure has also grown for tax rates to achieve parity with those applying in the EU.
A superb and fully integrated public transport system makes it easy to get around the country, and the Swiss like to move around further afield too. It’s no coincidence that Kuoni, the world’s premier upmarket tour operator, is a Swiss company.
Strangely, while departures and domestic trips both grew by two per cent, and arrivals into Switzerland grew by five per cent in 2005, the last year for which final figures are available, the tourism spend actually dropped a little in all three areas, with outgoing tourism spend value down by nearly five per cent, incoming tourism spend down by one per cent and domestic spend one per cent lower than in the previous year.
"each Swiss citizen now makes an average of 2.5 trips a year"
Part of this spend decline has been due to the advent of low-cost travel and the resultant consumer demand for a bargain. Shorter, less expensive but more frequent trips are the trend, and this has led to a vast increase in the buying of annual rather than per-trip travel insurance policies.
The old tradition of a two-week long holiday has lost popularity, with some opting to take several trips a year of less than a week each, with short breaks of 1-3 days very much a rising trend, and others saving up their time and investing it in a single trip of three weeks or more. Each Swiss citizen now makes an average of 2.5 trips a year.
Internet bookings have become a major factor and have shown a 50-per-cent growth over the past year. However, they still represent well under 10 per cent of all sales in the Swiss tourism industry. Hoping to meet the Internet challenge, the retail travel business, as in Germany and the UK, has been undergoing massive consolidation, with the high street multiples, such as TUI, Kuoni and Hotelplan, swallowing up smaller players in a run of mergers and acquisitions.
Switzerland’s insurance industry has been undergoing similar organisational regrouping. Currently the Swiss Insurance Association, which recently celebrated its centenary, has some 80 member companies, but some of these are affiliated or branch companies of others.
SIA works closely with economiesuisse, the Swiss Employer Association and the Swiss Chamber of Commerce and is a very active member of the Comité Européen des Assurances. The association includes not only Swiss national companies, but also foreign subsidiaries and branch offices. Between them, SIA members account for more than 95 per cent of the total premiums achieved by private insurers operating on the Swiss market.
Currently, SIA members employ around 43,000 staff, of whom some 7,000 are field sales team members. Additionally, the eight Swiss-based insurance multinationals employ some 92,000 staff members in their offices abroad.
Swiss insurance companies operate under licences issued and supervised by the Swiss Federal Office of Private Insurance.
The insurance industry initially blossomed during the 19th Century, when still extant companies like Swiss Mobiliar (founded 1826), Helvetia (1861), Baloise (1863), Swiss Re (1863) Zurich (1872) and Winterthur (1875) entered the industry.
After some difficult times, Swiss insurers are now seeing an improvement in performance thanks to measures that have streamlined their underwriting focus, cut costs and put the focus back on core business. According to PricewaterhouseCoopers consultant Peter Lussi: “The industry in Switzerland still faces major challenges. These include the need to improve profitability across all sectors, implementing and ensuring compliance with new rules and regulations, dealing with insurance industry concentration and setting up industry-wide risk management systems.”
Besides its thriving tourism and insurance industries, this conservative but thoroughly modern country has a very well developed healthcare system, much of it in the private sector. However, according to OECD statistics, it’s the third most expensive system in the world, behind only those of the USA and Germany. The total spend amounts to nearly 10 per cent of GDP – far above that in most Western European countries.
Swiss healthcare insurance combines public, subsidised public and fully private healthcare in a rather unique manner. Insurance companies may selectively contract with primary care providers.
"the Swiss healthcare system is the third most expensive in the world"
The country has an impressive total of more than 400 hospitals, of which just over half are either public or run by not-for-profit private organisations. They provide 5.6 beds per 1,000 population, and lengths of hospital stay are comparatively high, which helps explain the high spend. Health insurers prefer that their claimants are treated as in-patients as, in that case, some of the cost is borne by the state, while they usually have to pick up the full tab for outpatient treatment.
The air ambulance market is dominated by the not-for-profit Swiss Air-Ambulance organisation, operating 24 hours a day, 365 days a year and a spin-off from the Rega charitable foundation, which owns it 100 per cent.
Most patients will be flown on a one-direction basis. Recognising this, Swiss Air-Ambulance offers discounts of between 30 and 60 per cent for clients who then soak up this so-called ‘empty-leg’ capacity, meaning that the otherwise empty capacity of the inbound or outbound flight, whichever applies, is used for other patients, providing cost economies all round.
Swiss Air-Ambulance flies worldwide, using a fleet of three spacious SAA CL604 jet aircraft fitted with top-quality medical equipment and with adequate room not only for medical treatment to be administered in-flight, but for additional patients or medical personnel to be carried.
Given the popularity of winter sports in its home country, the organisation also has mountain rescue as part of its remit and for this uses the Eurocopter EC145, which has space for the patient, a physician, and a paramedic as well as the pilot. Economic to fly, and with a long range, this helicopter is equipped with a high-performance hoist system to help lift patients from remote mountainsides.