Harvey highlights protection gap: Tokio Millennium Re CEO
Funding from the re/insurance and capital markets can help narrow the protection gap that exists in underinsured populations—a problem highlighted by Hurricane Harvey, Stephan Ruoff, CEO of Tokio Millennium Re (TMR), told Monte Carlo Today.
Economic losses caused by wind, storm surge, and inland flood from Hurricane Harvey could reach $90 billion, according to estimates. Yet industry-insured losses from wind, flood, and storm surge combined may only just top $10 billion.
“Hurricane Harvey has highlighted the level of underinsurance in developed insurance markets,” Ruoff said.
The protection gap may be even larger in parts of the developing world or for populations that are vulnerable, underinsured or particularly prone to natural disasters, he suggested.
“At TMR, we are investing in global resilience issues through our research on natural catastrophe and climate change to drive our understanding of the risks and help customers better understand their exposures,” he said.
Whether Hurricane Harvey and Hurricane Irma are market-turning events, they will be a talking point for Monte Carlo 2017, Ruoff noted. The reinsurance sector is already dealing with unsatisfactory returns on deployed capital after many years of soft market conditions. A severe natural catastrophe season will only highlight this further, he believes.
“Reinsurers’ biggest challenge is to stay relevant when the reinsurance business model has come under strong pressure,” Ruoff said.
‘Convergence capital’ has already reshaped the way balance sheets are managed and technology is now redefining the way business is transacted.
Risk transfer will always be needed, but reinsurers need an efficient operating platform with a future-proof architecture able to embrace ever-faster changing technology. This may also offer an opportunity for business growth, Ruoff said.
“The next step is for the industry to efficiently match these pools of capital with pools of risk in order to create new solutions for specific customer needs,” he said.
He added that technological innovation has the potential to completely reshape how business is transacted in the future and reinsurers need to embrace this trend. Insurtech will not only lead to strong efficiency gains but also partially redefine risk transfer mechanisms. Hence it is important that technology and re/insurance sectors recognise and combine their strengths, Ruoff suggested.
Re/insurers have strong analytical infrastructure and deep customer relationships, while technology companies have vast vision and knowledge.
“Strategic partnerships need to be built, whether through equity investment, partnership or acquisition, it doesn’t matter as long as the end result provides a more robust and efficient way to transact business,” he said.
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