Insurance and reinsurance are essential to society and to financial stability. Yet for some reason we have a hard time selling our products. What gives?
Sure, the current market environment is challenging. Interest rates are low and there’s been a surge of new capital adding to the pressure on rates. But this cannot be our reason or excuse.
Small slice of a big pie
As an industry we fight over a rather small slice of a much larger pie: the total potential insurance market. That slice could and should be so much bigger, with commensurate impact on society as a whole.
Take the recent earthquake in Italy. Even though we currently estimate that total losses from this tragic event will be below the USD 3.96 billion economic losses from the 2009 L’Aquila earthquake, I foresee that the insured portion of those losses will again be low. In 2009, insurance covered just about 14%.
The fact is that the majority of the people on our planet are uninsured Why aren’t we as an industry calling attention to the benefit we can bring to our communities? What prevents us from cutting some new slices out of the pie?
Addressing barriers is key
Going after new risks is no doubt a challenge. It requires new skills, innovation and creativity. It requires good people and a willingness to change. It requires fresh thinking to increase accessibility, affordability and visibility. But above all, it requires a resolute determination. We as an industry know how big these challenges can be.
Many of our potential customers simply lack awareness of the risks they face. Others have insufficient access to insurance to begin with. Our industry’s products often conform to the design principles we like and not necessarily to those that are most suitable for potential customers. And products sometimes can cost too much. We as an industry — meaning reinsurers and insurers together — can start doing things differently to help break down some of these barriers and I will give a couple of examples to demonstrate what Swiss Re is engaged in, together with its partners. We believe technology and product design can help unlock some doors.
Technology will be a key enabler
Technology is not a panacea for everything, but I see four areas in which digital innovation can take place: accessing/acquiring new clients, better understanding risk, reducing costs in the value chain, and creating new services, especially on mobile platforms (think phones, wearables, etc.). There is a lot of focus on the first and the second one, but I think even greater value can be created by focussing on making products more affordable through unconventional channels.
Look at Zing, a South Africa-based start-up. They’re running a digital insurance model for emerging consumers that combines mobile technology with an insurance proposition. We think it will help to provide solutions to fill the big protection gap in Sub-Saharan Africa, where insurance penetration is well below 1%.
Of course, innovation isn’t limited to start-ups working in frontier markets. We’re working with SunCorp to protect low-income families in Australia, where about a fifth of adults lack access to financial services. An even higher percentage lack insurance to protect their belongings. SunCorp’s “Essentials by AAI” microinsurance policies offer very low limits for home contents and car insurance, with flexible payment options and a simple underwriting and claims process. By making insurance accessible and easy to understand, SunCorp is closing protection gaps for people on social benefits or those with household incomes of around half the average wage or less. We take half the risk on the “Essentials by AAI” product – bringing entirely new clients under the protection of insurance.
Renewals and Monte Carlo
So what might lie ahead at Monte Carlo?
Insured losses in the first half of the year went up by about 50% due mostly to large events such as earthquakes in Japan and the Fort McMurray wildfires in Canada. This makes the total first-half losses for 2016 the highest since 2011 (when quakes and floods in Japan, Thailand, New Zealand and Australia triggered significant losses). These losses are only a bit above the 10-year average.
I expect these losses from the first half of 2016 are putting some pressure on the market judging by the reported results in Q2. But the reality is that losses of this quantum should be expected, and the absence of such losses is the anomaly. If re/insurers are rationale, then I expect they will reflect this in their pricing. The entire industry needs to be strong and sturdy to serve one of its key purposes, which is to support the development of society at large.
Over time the role and demand for both insurance and reinsurance will continue to grow. This is because of structural factors like population growth and concentration of assets in catastrophe-prone regions, but also because we as an industry will get better at chasing other, new slices of that insurance pie. In my view, this is the more important development and the one I’ll keep my eye on: standing side by side with our clients so we can start closing those protection gaps.
I look forward to our discussion in Monte Carlo and beyond and welcome your feedback.
Source: Open Minds