Disruption will be central theme of Baden-Baden meeting
The Guy Carpenter Baden-Baden 2017 Reinsurance Symposium has placed disruption at the centre of the agenda and identified it as the theme for the annual industry meeting during the opening event, which featured Munich Re CEO Joachim Wenning as one of its speakers.
Disruption, according to most definitions, is synonymous with disturbance or a problem that interrupts an event, activity or process, James Nash, president international at Guy Carpenter explained.
The industry is facing disruption from many directions, but the term is not new to the industry: the Bermuda market challenged the status quo, especially for catastrophe writers within Lloyd’s, Nash said.
“The catastrophe model companies changed the way we look at risk and introduced advanced mathematics to the underwriting process. More recently, the entry of new capital into the sector has stirred up the market,” he added.
The sector is waiting to see the extent to which the financial markets, which are more active than ever in the industry, will be able to deploy capital quickly after the recent nat cat events, he said.
Players hoping that those participants will react with rationing of capacity, followed by significantly higher prices, will no longer be ensured survival, Nash warned. For them to survive, they need to find new and better ways of doing business.
While disruption is not a new development, the pace and the diversity of that disruption today are new, Nash noted. New sources of data, such as telematics, sensors, wearables, autonomous vehicles, and the internet of things, are proliferating.
Alongside them is the power to use the new data with power computing and data analytics.
Within all the disruptions, what will remain stable is that people and organisations will always want to protect assets by buying cover, Nash said. In addition, there will always be capital willing to assume that risk.
Joachim Wenning, who became CEO of Munich Re in April, said disruption will be a hot topic beyond the recent nat cat events which are set to dominate Baden-Baden this year.
Wenning is optimistic that the industry will find an appropriate response to the disruption it is currently facing. He pointed to challenges the sector has overcome in the past, despite first reacting by excluding a risk because it couldn’t price it. He mentioned the 9/11 2001 attacks as an event no-one could have imagined before, and how the industry found ways to offer at least partial cover for it.
Wenning recalled the appearance of HIV/AIDS. In underwriting it was first excluded, but as the industry better understood the risk it developed products that now allow even standalone cover for the disease.
He also discussed cyber, saying it might be a bit more complex than previous risks due to its interconnectedness. But where there is a market, there is also demand and the industry is reacting not only with risk coverage but also with services for risk prevention.
On the low interest rate environment, he said it is challenging re/insurers on the investment side, but has also attracted new capital to the industry in the form of alternative reinsurance capacity. The industry has learned that there are opportunities by bundling the strengths of traditional and alternative reinsurance and participating in the insurance-lined securities (ILS) market.
Wenning believes that data and technology such as robotics will make the industry more sophisticated. Those who are good at using it will grow the business and their market share, he said.
Other industries such as energy, motor or engineering are transforming themselves. The current response of the industry will not be enough to offer the right cover in this changing ecosystem.
The re/insurance industry needs to adapt to the new ecosystems and not only offer products but also offer systemically appropriate solutions for customers’ changing needs, he concluded.
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