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The industry’s traditional approach of using historical data to make decisions must change in favour of a more analytical way of working that looks at how the risk landscape is changing, says Bertrand Romagne, chief executive officer (CEO) for XL Re Europe, speaking ahead of Re/insurance Outlook Europe 2023, a conference taking place in Zurich on June 19-20.
The re/insurance industry must better use the extensive data, analytics and technology at its disposal to start looking at the future more – and how risks may develop in the future – as opposed to the rear-view mirror-approach to underwriting that has been the bedrock of the industry historically.
That is the in some ways radical suggestion offered by Bertrand Romagne (pictured), chief executive officer (CEO) for XL Re Europe, AXA XL Re speaking in the context of changing market conditions and a changing risk landscape. Romagne will elaborate on this his thoughts further in a keynote presentation at Re/insurance Outlook Europe 2023, a conference taking place in Zurich on June 19-20.
“We, the insurance industry, have always used a mirror to the past to predict the future,” he says. “But maybe we should start to look ahead in another way. If you look in the rear-view mirror, as opposed to at the front, too much, you will have an accident. I'm always reluctant to predict the future. But the industry needs to better understand the risks it’s facing and how they are changing.”
He argues that the industry does not use the tools available to do it well enough. “We have to better understand the risks: invest in that process, use the data. The industry always seems to be surprised by losses. People were surprised by the scale of the earthquake in Turkey – but everybody knows that there is quake risk in Turkey.
Romagne is speaking in the context of another big question the industry is grappling with: is it a true hard market or one that was severely under-priced previously which has now attained adequate pricing. To put it another way: are recent price corrections enough to compensate for the past years’ results and pay for the current loss trends?
Romagne says the true answer will be nuanced: by line of business based on past performance and a changing risk landscape. The future outlook for cat business, for example, is very different to many casualty lines. “People focus on cat business, but these questions are equally relevant for casualty business,” he says. “But at some point, the industry must anticipate the losses and be ahead of it. You can't just catch up with losses. Instead, we must price our risk adequately ahead of any loss.”
He adds that he sometimes feels the industry is uncomfortable in reporting profits which is illogical on two levels. The most obvious is simply the fact that making a profit is the primary purpose of any company. The second is that it is also true there may be years of heavy losses when the industry does not.
But this sentiment and a strong balance sheet become even more important as, indeed, the world is becoming riskier. He says that it is a hard statement to make. “I don't know if the world is riskier. The world is bigger to some extent, there is more value, there is more concentration, there are more people, more interconnection. But that's why data is important, because we need to understand those things.
To be successful, he is also clear on the importance of talent within the industry. He says the industry must make itself more attractive to ensure the best people want to join it.
“There's clearly in general, a shortage of talent. We have to make our industry attractive enough to have those people coming to work for us, which leads back to us making sure we're ahead of the trend in terms of losses. We have to realise that you don't attract flies with vinegar; you attract them with honey. We need the industry to be more attractive to the best people.”
Romagne will elaborate on all these themes in a keynote address in a keynote presentation at Re/insurance Outlook Europe 2023, a conference taking place in Zurich on June 19-20.
AXA XL, Bertrand Romagne, Risk landscape, Re/insurance Outlook Europe 2023, Underwriting, Insurance, Reinsurance, Europe, Zurich