Industry’s role is to make the world more resilient: Mumenthaler

The re/insurance industry’s purpose is to make the world more resilient and act as a shock absorber when unexpected loss events occur. But it must also attempt to encourage governments to invest in risk mitigation strategies, as opposed to simply reacting to events as they happen.

That was one of the key messages from Christian Mumenthaler, group chief executive officer, Swiss Re, speaking yesterday (Monday November 2) at the SIRC 2020 Re-Mind virtual conference, taking place this week in place of the physical 17th Singapore International Reinsurance Conference, which has been rescheduled to November 2021.

“A company is like an organism—it does something to its environment, otherwise it does not exist. We believe that our purpose is to make the world more resilient and to act as a shock absorber for the world,” Mumenthaler said.

“The protection gap is always bigger in poor or developing countries.”

He said that the real task for the world was to prepare for events better instead of simply reacting to them. This was a big challenge, however, due to the fundamental nature of human psychology, which does not naturally focus on things that have not happened yet.

“The biggest challenge is not to identify risks. Whether it was the financial crisis or a pandemic or cyber risk, we have talked about these risks.

“The challenge is to translate that into mitigation before the risks materialise. That is a real effort for the human mind. It is very hard to take action before an event, and to put resources to something that has not happened yet.

“We can do this with risk mapping and we can share concerns but, for me, the ideal outcome over time is that governments would have a chief risk officer who talks about risks and makes them public so we can focus on those rather than simply the last risk that materialised.

“If we could do that and plan in advance we would save many lives and prevent economic damage. But it is a big ask. I cannot over-emphasise how difficult it is,” he said.

“The challenge is to translate that into mitigation before the risks materialise.” Christian Mumenthaler, Swiss Re

Working together
Mumenthaler explained that solutions have been formed as a result of partnerships between industry and governments, including a number of terrorism and catastrophe pools designed to reduce risk and to pay out quickly if an event occurs.

“People will always focus on an immediate priority, however, and risk mitigation always suffers. But it is our responsibility to create better systems,” he said. “It just takes time.”

These issues are especially pertinent in Asia because of the size of the protection gap—the difference between economic and insured losses—in the region. He said the industry has a duty to develop new tools and products that could help close this gap.

“That remains a big topic in Asia,” he said. “The protection gap is always bigger in poor or developing countries. We can do certain things but there are cases where people do not buy protection even when they understand the risk and can afford protection.

“It is a case of behavioural economics, in some cases. The human brain does not like to think about risk.”

He said the only solution in some cases could be to make purchasing insurance for certain risks compulsory, and that it was important for the industry to work together more for the common good, sharing resources with peers.

As the vice chairman of The Geneva Association, an international think-tank for the insurance industry focused on closing the protection gap, Mumenthaler said it is important the industry should work together and share data more.

“We as an industry have an obligation to be relevant to society—to invest our efforts and time in understanding risk better,” he said.

But he stressed that there are risks the industry cannot manage alone, including pandemics and cyber risk.

“In those cases, risk-sharing is the answer. And it is even better if we can consider these risks in advance,” he said.

Mumenthaler commented on the way the industry has handled the challenges of the pandemic, including learning to work in different ways. He said the experience of remote working may accelerate trends that were already underway in the industry.

“It could mean more agile working and a move to less hierarchical organisational structures,” he concluded.