Change In Re/Insurance Industry Accelerating: Scale, Efficiency And Risk Knowledge More Important

Swiss Re said it expects further rate increases for loss-affected and underperforming businesses and broadly stable rates in other areas, amid continued capital abundance in the reinsurance market. To ensure a long-term sustainable reinsurance market, further rate increases are needed. The hurricane season that is now upon us highlights the importance of having prices that adequately reflect the risks.

Fast-paced change creates challenges and opportunities for the industry, which is facing growing and ever-more complex risks, a wealth of data and a highly competitive market. In this environment, Swiss Re supports clients with its risk knowledge and builds on strong partnerships and technological innovation to meet the increasing need for insurance protection.

Swiss Re’s CEO Reinsurance Moses Ojeisekhoba said: “The industry is changing for a variety of reasons. We are confident that, with our continued focus on the needs of our clients, the scale and diversification of our business, and our risk knowledge and R&D capabilities, we are in the right strategic position to address change proactively.”

Swiss Re achieved profitable growth in its reinsurance business in the first half of 2019, underpinned by a strong increase in P&C treaty premium volume and price quality improvement across a broad-based portfolio. The natural catastrophe business has been one of the main drivers of P&C growth for Swiss Re this year. Large transactions, where Swiss Re combines its expertise and reliable balance sheet to meet client-specific capital management needs, have been another growth area.

Edouard Schmid, Chairman Swiss Re Institute and Group Chief Underwriting Officer, said: “The recent experience of hardening rates in reinsurance mainly reflects the response to higher loss occurrences and adverse trends in natural catastrophe markets and other affected segments. Our deep knowledge, experience and diversification make Swiss Re a strong partner for our clients in underwriting natural catastrophe risks while generating attractive returns on capital.”

The re/insurance industry is changing at a faster pace than ever before

The abundance of capital in the reinsurance market has impacted the entire reinsurance value chain, increased cost sensitivity, and is requiring reinsurers to find new ways of creating value for primary insurers.

The industry is also facing increasingly complex risks and a rapidly growing wealth of data. Some risks, such as secondary perils (eg wildfires, droughts, and floods) or cyber risks, are evolving and require new approaches, also to risk modelling. Increasing liability insurance costs in the US are another emerging issue as re/insurers have to find a way to model and price the impact of social inflation. At the same time, it is a challenge for primary insurers to use the wealth of data available as this requires profound know-how, specific skill sets and the right resources.

The re/insurance industry is not only confronted with a changing risk landscape, but also with growing exposures as the world’s population increases, people live longer and accumulate more assets, especially in areas prone to natural disaster. Swiss Re Institute’s latest sigma estimates that the combined protection gap for the main risk areas – natural catastrophe, mortality and healthcare spending – reached a record high of USD 1.2 trillion in 2018.

The re/insurance industry needs to rethink access to affordable, relevant and effective risk management and insurance safety nets. Reinsurers have a crucial role to play in supporting clients along the entire value chain from innovation design to claims optimisation. Swiss Re is doing so by fostering partnerships with clients and companies from outside the insurance industry to develop innovative, technology-based solutions which help close protection gaps, tap into new sources of growth, and deliver better products and services to the end-consumer.

For example, parametric solutions can provide end-to-end pricing, policy administration and automated claim pay-outs for natural catastrophe events. This helps clients increase insurance penetration in previously underserved markets in an efficient way and provides swift economic relief to policyholders.

Swiss Re said it has also developed a solid underwriting framework for cyber risks, a suite of solutions for clients, and invests in R&D to stay current with the rapidly evolving cyber risk landscape. In the field of data analytics, Swiss Re is partnering with companies from outside the insurance industry to access new sources of data which, in combination with existing in-house data, enable smarter pricing for its insurance clients, helping them grow and optimise existing portfolios.

Swiss Re’s CEO Reinsurance Moses Ojeisekhoba said: “As a risk knowledge company that leverages technology and embraces innovation, Swiss Re will fully leverage its capabilities to support its clients in this rapidly changing environment. We see good opportunities as we partner with our clients to meet the growing need for insurance protection. These partnerships are key, as in the end, we’re only as successful as the partnerships we have built.”