Insurance: from surviving to thriving

Amidst the challenging risk landscape, Swiss Re’s Ole Ohlmeyer argues that the insurance industry should strive for more than merely surviving the next storm.

Key points:
Risk transfer only part of the answer
Risk intelligence can improve decisions
Resilience needs a broader toolkit

By Ole Ohlmeyer, global head of alternative risk transfer, Swiss Re Corporate Solutions

For an industry built around protecting against adverse outcomes, survival may sound like a reasonable ambition. But as we consider the future of insurance, we should perhaps aim higher. The more important question is not whether insurance will survive, but what role it needs to play in a fundamentally changing risk landscape in order to thrive.

At its core, insurance solves a crucial problem. Risks that are too large for one company to bear can be pooled, diversified and transferred, with capital standing behind them. That mechanism works, and it will continue to work.

But the environment around it is changing.

Corporate risk managers today have more options for managing volatility than ever before. Traditional insurance increasingly sits alongside retention, captives, capital-market solutions and other forms of alternative risk transfer. The growth of these alternatives should not be viewed as a threat to insurance. It is evidence of something more fundamental: corporate risk management is becoming increasingly sophisticated.

Companies want greater control over their risks. They are looking more closely at which risks to prevent or mitigate, which to retain and finance themselves, and which to transfer. The question is increasingly not simply, “What can I insure?” but “What is the most effective way to manage this risk?”

From risk transfer to risk intelligence

At the same time, the nature of risk itself is changing. Cyber threats, natural catastrophes, geopolitical disruption, emerging technologies and complex supply chains do not exist in isolation. They interact across increasingly interconnected business systems.

That changes the challenge for both risk managers and insurers.

Companies cannot control every external shock. They cannot prevent every cyberattack, ensure that every supplier remains operational or stop a natural catastrophe from occurring. But they can better understand their systems: where their critical dependencies lie, how disruption might propagate and where intervention can have the greatest impact.

This is where insurance has an opportunity to widen its own lens.

Our industry has accumulated decades of experience in understanding what happens when companies, economies and societies come under stress. We have data, modelling capabilities, engineering expertise and increasingly sophisticated technology to analyse risk.

“The key is not trying to insure everything, but to understand when insurance is the right answer – and how it fits into your broader risk management strategy.”

The opportunity is to turn that knowledge into better decisions.

Intelligence, in this context, means understanding risk well enough to decide what to do about it. Should we prevent it? Mitigate its consequences? Transfer it? Or deliberately retain and finance it?

Insurance may be the answer. But sometimes it will not be.

The key is therefore not trying to insure everything, but to understand when insurance is the right answer – and how it fits into your broader risk management strategy.

A broader resilience ecosystem

This has important implications for the relationship between insurers and their clients.

Risk-bearing capital remains fundamental. But insurers can increasingly complement that capital with what we might call intellectual capital: risk expertise and insights that help businesses understand their exposures and make more informed decisions about them.

For a corporate risk manager, this means looking beyond individual products towards a combination of solutions. Traditional insurance, captives, structured solutions, parametric covers and other forms of alternative risk transfer can all play different roles. Prevention, mitigation and risk engineering can reduce exposures before risk transfer even enters the conversation.

The objective should not be to maximise the amount of risk transferred. It should be to determine where each intervention creates the greatest value.

That requires insurers and risk managers to work together differently. Instead of starting with an insurance product and asking where it fits, we should start with the risk itself: understand the system, identify its vulnerabilities and then determine the right response.

This is particularly important as some of the risks businesses face become more interconnected and difficult to insure using conventional approaches. In that environment, insurance should not see itself as the end product, but as one component of a broader resilience ecosystem.

FERMA’s call for our industry to “widen the lens” is therefore very timely. Strategic foresight requires us to look beyond the immediate question of what can be insured and consider how risk can be made more manageable in the first place.

Capital will remain essential to insurance. It can help our industry survive.

But intelligence – understanding risk and focusing intervention where it creates the greatest value – is what can help us thrive.

Ole Ohlmeyer is the global head of alternative risk transfer, Swiss Re Corporate Solutions

For more news from FERMA Forum Today, click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.