That was one of the core messages delivered by panellists speaking at the Guy Carpenter symposium held in Baden-Baden yesterday (Sunday). The industry must learn to cover new risks and become more relevant to their clients' and the world’s insurance needs.
“The total size of the insurance industry is growing slower than global GDP and the gap between economic and insured catastrophic losses in many parts of the world is widening,” said Nick Frankland, who is chief executive officer of Guy Carpenter's EMEA operations, in his opening remarks. “Especially when public finances are so tight, that matters and should represent an opportunity for our industry.”
The session, entitled ‘Transferring Risk: Is the insurance and reinsurance industry adequately serving its clients?’ featured four senior executives from the industry. They were:Torsten Jeworrek, member of Management Board of Munich Re; Paul Horgan, head of group reinsurance, Zurich Insurance Company; Luca Albertini, chief executive of Leadenhall Capital Partners; and Tom Bolt, director of performance management at Lloyd's.
Frankland went on to say that there are many new risks in the world that the industry is not adequately covering such as cyber risks, risks in science and medicine, food security and urbanisation.
“Some risks are difficult to understand but we have a better understanding of risk and better abilities to model and price it than at any time in our history as an industry. We must avoid shying away from risk and instead embrace it.”
Jeworrek from Munich Re picked up on similar themes. He said that the industry is still covering the biggest risks that were relevant in the last century instead of moving forward and covering the risks rapidly emerging in this century.
“The landscape for risk is undergoing substantial changes and the industry needs to respond,” he said. “We have to increase our awareness of these new risks and find ways of providing good solutions. The way to move into the new century is through close cooperation between primary insurers, reinsurers and the capital markets.”
He too listed the many emerging areas of risk where insurers and reinsurers barely participate at the moment and showed a slide illustrating the shift in the types of companies driving the global economy forward. Of the top 100 corporates globally, a large proportion of them are now technology companies. These companies have very different insurance needs that the industry is not catering for, he argued.
“This is very different to the types of industries that the insurance industry has covered historically such as construction, automotive, marine and manufacturing,” Jeworrek said. “These were the industries that dominated the last century.”
He also questioned the industry’s inability to cover risks such as terrorism and business interruption risks. “We need to explore the boundaries of insurability,” he said.
Horgan from Zurich agreed with much of what had been said from a different perspective. He said that he estimates that Zurich only insures some 20 percent of its clients’ risks – something that should represent an opportunity for the industry.
“The worlds of our clients have changed a lot in recent years and we have not kept pace,” he said. “They are grappling with supply chain and outsourcing risks and trying to understand that picture and where the real risk should sit is challenging. But they are making demands of us that they want that certainty and they want products that cover them globally and will pay out.”
Albertini gave a different perspective arguing that one of the paths to innovation is through greater collaboration with the capital markets so that many of the risks not insured today can be in the future.
Bolt echoed the thoughts of the other speakers. He agreed that many emerging risks are not being met by the industry and argued that, especially in such a competitive market with rates softening, insurers and reinsurers should be looking beyond conventional risks to establish growth.
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