Swiss Re CEO, Reinsurance, Moses Ojeisekhoba, has said the industry has to work with global governments if they are to make serious inroads in closing the protection gap.
Speaking at a virtual press conference during what would have been the Monte Carlo Rendezvous Mr Ojeisekhoba, made his comments in response to a question from emerg-in on whether the growing scale of exposures both in terms of catastrophes and any future pandemic would require public-private solutions?
“Yes, we have seen how such arrangements work in areas such a terrorism pools, and as exposures rise there is a growing need for broader solutions,” he said. “Governments can play a significant role in terms of the credibility and distribution of products.
“They can reach far more people. For covers which need to access large numbers of people for a specific risk this can often only be achieved in partnership with governments and we can expect that these partnerships will need to increase if we are to reduce the protection gap.”
The reinsurer’s Group Chief Underwriting Officer Thierry Léger added: “The industry has a lot to offer governments and public entities when it comes to risk. We can put a price in the cover for the exposure and we can provide differentiation between risks. We can bring claims management expertise and also look at ways to cover certain areas of risk in a more cohesive way.”
He added that with a migration to catastrophe-prone areas, and with it a rising level of wealth in those areas, the protection gap will continue to increase. While this presents an opportunity for the industry it would also require new solutions.
Swiss Re said that while rates have increased in recent months due to the pressure from COVID and its impact in investment returns a range of pressures on underwriting meant that rates had to continue to increase in the months ahead if the market was to ensure it was around in the medium turn to support its clients.
“The big question remains when we look at a risk, is are getting sufficient pricing for the risk that we are taking on,” explained Mr Ojeisekhoba. “We do not see that pricing is currently sufficient to manage exposures. You need sufficient pricing in the long term to be a sustainable industry.
“To do so we have to attach the right price to the exposure.”
Swiss Re added it expected the rate of hardening for all classes of reinsurance cover to increase as the COVID pandemic puts further pressure on investment returns according to Swiss Re.
While rates have been hardening for some months Swiss Re believes prices will continue to rise as the reliance on underwriting profits increases in the low interest rate environment. The underwriter added it expects more opportunities for re/insurers due to a combination of improving insurance demand and growing exposures.
“Even before the COVID-19 crisis, most major markets were operating at below-average profitability,” said Mr Ojeisekhoba. “To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed.”
Swiss Re warned while low interest rates have been affecting the industry’s profitability since the global financial crisis, further rate cuts aimed at fighting the economic impact of COVID-19 will only exacerbate this problem.
Against the background of ensuring pricing adequacy, underwriting fundamentals such as risk selection and costing, portfolio steering, appropriate terms and conditions, and contract wordings will be critical to writing future business added the reinsurer.
It has led to a move to a more scientific, technology-driven approach in order to strengthen underwriting. Advanced data analytics are already available to enable real-time views, market awareness, portfolio analytics and dynamic feedback loops to improve risk selection.
Mr Léger said: “At Swiss Re, we have accelerated digitisation and the use of more and better data sources across the entire underwriting process. With these capabilities and the risk insights from Swiss Re Institute, we can improve our own decision-making and effectively support our clients in their underwriting.”
When asked whether he believed that the market would return to Monaco for the Rendezvous post the pandemic Mr Ojeisekhoba said he felt the market needed to have the opportunity to network but questioned if the shape of the event may now change.
He said it may well be that with the rise in the use of video conferencing firms may well look at the number of staff that would return to Monte Carlo and also the costs of the event, and it might see a change in its size.