Despite facing future and emerging risks such as an ageing population, climate change and cyber-related threats, the insurance industry consistently proves that it is “the shock absorber for the world” that will continually “demonstrate its relevance” in the years ahead, according to Jason Richards, chief executive of UK and Ireland at Swiss Re.
Speaking at the ABI’s annual conference last week (22 February 2022), Richards remained unphased by the roster of emerging risks facing the general insurance industry.
He told delegates: “We’ve dealt with these kinds of challenges before and we’re merely dealing with a change in the risk landscape.
“Our industry will respond as it has done many times before. Our industry has demonstrated its relevance in the past and it will demonstrate its relevance for many of the issues that we’re facing today as we look forward.
“In the past, we have demonstrated many times that we are the shock absorber for the world.”
He cited the 9/11 terrorist attack and numerous hurricanes as key lessons learned for the industry – although claims were paid following these events, insurers were also subsequently able to develop further underwriting expertise.
“The general insurance industry is in good shape,” Richards continued. “The industry is financially sound, the balance sheet of the industry is strong, performance is strong.”
Instead of nervously considering potential market threats, Richards recommended that industry participants focus on possible opportunities arising from emerging risks, such as the ability to plug protection gaps around natural catastrophes, cyber, secondary perils and pandemics.
Catherine Dixon, chief underwriting officer at Allianz Commercial, added that the insurance industry does adapt well to change thanks to smart staff, organised data and good technology.
Moving risk mountains
Julie Page, chief executive of Aon UK, agreed with Richards that the GI insurance market has “the ability to influence risk in such amazing ways”.
She explained: “Risk prevention moves mountains – you only have to look back on history to see the mountains that have been moved. Employers’ liability has been a powerful force for good since its origination in creating safe workplaces.”
She therefore described the sector as being a “power for good” – despite being “profitmaking firms in the main”.
However, to influence risks and positively impact clients, “you’ve got to be in it”, Page added.
“We have the ability to influence risk in such amazing ways, but in order to influence it, you’ve got to be in it – getting the data, understanding the risks and then mitigating,” she explained.
“[To tackle emerging risks,] we need to get further in because it’s only when we’re in that we start to help moderate and manage the risks. The pandemic was a massive example of this.”
Page reflected that there were distinct features to performing and underperforming businesses during the Covid-19 pandemic – these should now be viewed as “risk dynamics” that can “be brought to bear on future system risks”.
Another risk that could benefit from this approach is the cladding crisis that has impacted building safety since the Grenfell Tower fire in June 2017.
Page added that this issue was not originally spotted when affected buildings were constructed, yet the risk remains “unresolved” today – the industry therefore needs to lean in to help unblock potential problems areas.
James Daley, managing director of Fairer Finance, said government involvement here is important too because the insurance industry cannot tackle all outstanding problems single-handed.
Facing the ‘next systemic event’
Despite being an advocate for brokers spearheading risk management and prevention, Page additionally argued that the general insurance market is still facing a perfect storm because commercial customers’ “needs are changing quite dramatically” due to evolving cyber risks, climate change, Brexit and regulation change – to name a few continuing points of contention.
She explained that brokers are “in an industry where we’re talking about volatility being something we trade for premium [but] we’re literally picking up the edges now because the risk dynamics in the world have changed so dramatically”.
For her, the cyber market is “probably the fastest growing risk”, making it “arguably the next systemic event that might hit our clients”.
Cyber risks are “currently insured at around 1% of the global losses that our clients are facing”, while 62% of weather-related events remain uninsured, Page noted.
She continued: “When corporate clients buy insurance, they’re trading risk out of their balance sheet and they’re going for something that takes volatility away.
“If there is anyone in this room who thinks that this industry has smoothed volatility for corporates over the last two years, I’d like to have a conversation about that.
“I think it’s been an incredibly volatile time for them, either taking back risk that they thought they had sold or taking it at a price which might have moderated the potential risks they were holding somewhat, but just introduced a different type of volatility.”
Last Tuesday’s panel debate was chaired by James Dalton, director of general insurance policy at the ABI.