Risks shift from states to private market
Due to financial pressures, countries worldwide are seeking to transfer risks to the private sector, Moses Ojeisekhoba, Swiss Re’s CEO of reinsurance, said at the company’s press conference at the 2017 Rendez-Vous in Monte Carlo.
“People in mature and developing countries still rely on a positive optimism that states will rescue them,” Ojeisekhoba said.
Such an attitude can be exemplified through the protection gap worldwide in relation to earthquake or flood risk.
“What we see on a global scale is that countries and municipalities are all challenged from a financial standpoint. You see them actively trying to shift risk from the public sector to the private sector and that relates to natural hazard cover or health or pensions,” Ojeisekhoba said.
This trend is unlikely to abate any time soon, especially since the exposure will continue to grow, he said.
“The hazard is clearly there. It’s a problem that gives people a false sense of security.”
Ojeisekhoba believes that the trend of shifting risk from the public to the private sector will make people take these risks more seriously.
“The private market can offer substantial capacity for many of these risks,” said Swiss Re CEO Christian Mumenthaler. In addition, the insurance industry can help mitigate these risks which could reduce premiums and therefore costs for the population.
Risks are expected to continue growing, for example due to urbanisation and an aging population.
While the capacity to cover significant parts of the risks may be available in the private re/insurance market, the sector is facing a number of challenges, Ojeisekhoba admitted. Profitability in the P&C reinsurance sector is deteriorating, in terms of both return on equity and underwriting profits. And there are additional challenges such as climate change, protectionism and nationalism in some countries and regions, he concluded.
Instead of focusing on prices, which continue to be under pressure in the current soft market, Swiss Re wants to focus on knowledge to create solutions to add value to clients’ business, ultimately improve profits and enhance growth of the sector.
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