Reinsurers do more to prepare for frequent and severe weather events: Hiscox Re
The reinsurance industry must do more to prepare the industry for a future with more frequent and severe weather events, particularly around water-related disasters, Daniel Vestergren, Hiscox Re’s chair of international business, told APCIA Today.
In particular, Vestergren advised reinsurers to do more work around forecasting the impact of climate change.
He noted that the reinsurance industry is accustomed to adapting to changes in observed risk variables, but warned: “It is crucial that the industry as a whole extends the modelling framework to capture climate change risk in a more comprehensive and systematic way.”
California wildfire has been an acute focus for Hiscox Re’s catastrophe research team in 2019.
“The impact on pricing has been more immediate,” said Vestergren. “We are encouraged that the industry quickly adjusted to a more rate-adequate environment.
“However, for perils such as North Atlantic hurricane, it is more difficult to discern a link with changes in temperature,” he added. “There could be an immediate reaction on pricing, or it could be more measured and occur over a longer period.”
Vestergren stressed that pricing is only one part of the equation.
“All else being equal, we believe that climate change will drive a gradual increase in demand for reinsurance,” he said.
“This is true for traditional excess of loss solutions, as well as emerging and innovative products such as parametric solutions. We believe these products will help bridge the insurance gap that is being exacerbated by climate change and we see this as a growth area going forward.”
Hiscox is working with third-party vendors which, Vestergren said, are uniquely positioned to help the industry better understand the risks associated with climate change, and the potential range of outcomes.
Third-party vendor models can ensure the adoption of new assumptions is industry-wide, to solidify a long-term measured impact on re/insurance rates, he concluded.
