19 September 2016 Insurance

EXCLUSIVE: Close the insurance gap to stop fighting over a shrinking pie: S&P

Closing the insurance gap – the difference in many sectors and parts of the world between economic and insured losses – would allow re/insurers to innovate and stop fighting over the same shrinking pie.

This is the opinion of Dennis Sugrue, senior director of insurance ratings at S&P Global ratings, speaking to Intelligent Insurer at the Monte Carlo Rendez-Vous 2016.

“The re/insurance industry has, to some degree, a social obligation to help,” he said. “Re/insurers should be exploring innovation and stop fighting over the same shrinking pie.”

He explained that helping to close the insurance gap is a real opportunity to demonstrate the value of re/insurers’ products to economies which don’t have a full appreciation of the value of insurance.

“At the same time, companies are commercial organisations and the benefit for them is the ability to grow the pie and learn about new types of risk so it is a win-win for governments, citizens and re/insurers.”

Earlier this year, leaders of the United Nations (UN), the World Bank Group and the insurance industry announced the formation of the Insurance Development Forum (IDF).

Chaired by Stephen Catlin, executive deputy chairman of XL Catlin, the aim of the forum is to better understand and utilise risk measurement tools to better deploy governmental resources targeting resilience to protect people and their property.

According to Sugrue, the IDF is helping to firmly place the protection gap on the radar for the re/insurance industry now.

“A number of individual companies have been doing this for some time but the industry hasn’t done enough as a united front. I think there is more focus on closing the gap as a result of the coordinated effort of the industry.”

On disruption, Sugrue said that companies that are able to adopt technological advancements could shake things up in the market place.

“There are two different schools of thought in terms of disruption,” he said. “Is it an outside coming and pushing re/insurers out of the market and doing the job differently or is there disruptive technology that can be used by players in the market for more efficient underwriting or lower expenses?”

He added that if a company figured out how to take links out of the value chain, or perhaps go around links, this could truly disrupt the industry.

“The days of 15 percent returns on equity are gone. The re/insurance industry has ridden a wave of luck over the past five years, but those days are now over,” said Sugrue.

“But in the longer term, the social role that the industry has to play is a real opportunity. The business model and the strategy will change for the industry but there’s still a lot of glory left.”

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