27 October 2015 News

Can the industry afford not to expand the pie?

Closing the property protection gap is a key issue facing the global re/insurance industry, which must be addressed, Swiss Re executives Monica Ningen and Nancy Bewlay told PCI Today.

Ningen, who serves as head of property underwriting in the US and Canada for Swiss Re, explained that the shortfall of coverage for natural disaster risk has average $127 billion annually in the last 10 years, although benchmarking across countries suggests a further general property protection gap of $68 billion, causing a total shortfall of $221 billion.

“Looking at the market we’re in today, this is a perfect place to grow and it would expand the pie,” said Ningen. “We know that most government budgets are already stretched, so we believe pre-disaster funding is incredibly important.”

She added that solving this issue will take a number of different players, including agents educating people on why they should buy cover, cities, governments and re/insurers.

Ningen added: “The main question is not whether we can afford to do this, but rather, can we afford not to? It’s all about forming partnerships and accomplishing what they need to accomplish.”

The reinsurer has its own global partnership team, which helps public sector clients around the world.

Swiss Re has partnered with US technology and consulting firm IBM to develop underwriting solutions that allow insurers to spot emerging trends. The first application will be in Swiss Re’s life and health reinsurance business unit, but Ningen is confident that the findings could also be beneficial on the property side.

Additionally, although many executives believe that reinsurers are beginning to offer more multi-year deals, Swiss Re’s research suggests there hasn’t been a shift towards this type of deal. They say all types of deals are being requested.

“Some companies want the flexibility of being able to restructure their programmes, while others carriers want multi-year to have a stable reinsurer panel,” explained Ningen.

In order to look at the total picture, Swiss Re currently uses forward-looking modelling, rather than predictive modelling.

“We invest a lot of time in analysing trends as they influence how liability develops,” explained Bewlay, who serves as head of underwriting casualty in the US and Canada for Swiss Re.

“The additional trend work that’s required to predict how these portfolios will develop is very much influenced by legal, social, economic and political factors.”

In Bewlay’s opinion, predictive modelling is a good attempt to come up with a statistical analysis of what probability could occur, but it leaves a gap and fails to account for a number of factors that ultimately affect where liability will pay out over time.

Advancements in technology and the collection of data mean that the industry is in a much better position than it has ever been historically to take a similar approach to natural catastrophe to predict in casualty.

“While it’s difficult, we have the ability to put our thought processes and our research behind using this data. This is where Swiss Re has really focused over the past two-and-a-half years,” Bewlay added.

“When a natural catastrophe occurs, you know it has happened and you can react quickly. When a casualty catastrophe occurs, it happens over a series of years and at some point during this you begin to understand that something is going on.”

Swiss Re’s aim is to keep pace and bring emerging risk to the market, wanting a proactive rather than reactive industry.

One emerging development, which brings a number of risks with it, is 3D printing.

Bewlay said: “If you had a scenario where something goes wrong during the process, it could impact a number of lines. For example, if something goes wrong with the printing of medical devices for use within the human body, there is a general liability products trigger, product recall, professional liability, medical malpractice, potentially business interruption, a workers’ compensation potential and an employers’ liability perspective.”

The reinsurer is also focused on autonomous cars which, it believes, will not only change the re/insurance industry but will change society. Partnering with the autonomous vehicle industry will allow the reinsurer to alter safety on a national perspective, she explained.

Finally, Bewlay added, a num ber of law firms are using technology to scrape information from social media; if it has a high enough rate of discussion, they begin to look for a claims potential.

She believes this is not necessarily a positive trend, given that the law firms are currently jurisdiction-shopping in order to maximise potential payouts.

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