At the Rendezvous de Septembre Insurance Development Forum panel debate, led by Lloyd’s Syndicate founder, Stephen Catlin, re/insurance industry veterans said expediency would push governments and societies to offload their risk onto reinsurers as fiscal budgets tighten.
The Insurance Development Forum (IDF) is a public-private partnership launched in 2015 by the insurance industry with the United Nations Development Programme and the World Bank, with the aim to close the insurance protection gap, the gap between insured and economic losses.
Swiss Re Chief Executive Officer (CEO), Christian Mumenthaler, said there was a “psychological” challenge for reinsurers in developed markets where people could afford to purchase insurance, but only a relatively small percentage are insured.
The Swiss Re CEO puts this in part down to a prejudice against insurance and people’s lack of understanding of their own risk, despite a fundamentally strong case for purchasing protection: In Italy, only one-third of households are insured against earthquakes, in California just 12% of policies include earthquake risk.
Bill Marcaux from the lawyers association, DLA Piper, said; “There is a put your head in the sand human nature. If I just don’t have the funds, if I’m a city or a state, do I build a hospital, do I build a school, or do I buy a CAT bond?
“If I don’t buy the CAT bond, the world bank, the development agencies probably will come to my rescue, if I’m in California, FEMA will come to my rescue. So I think to be realistic, it gets to the value proposition.
“When I get to that point, do I see the value? It comes down to the fundamentals we’ve been talking about building trust, understanding, and appreciation of the value proposition of insurance.”
He added that to facilitate expansion into developing markets there’s a need for a clear legal foundation for taxation and conflict solving to enable insurance to cover the protection gap as the industry expands.
Willis Towers Watson’s CEO of Capital Science and Policy, Rowan Douglas, said; “Quite frankly I believe business is driven by expediency and most public policies are driven by expediency.
“The people who are bailing people out financially are running out of rope, so that expediency pendulum has reached pretty much the end of the road and a greater responsibility of risk is going to be spread to those who truly own it.
“I think capital more broadly as our industry was 25 years ago, is going to be required to become more sensitive to these risks, using the methods of metrics that our industry has now become well used to. So I am sure that investors and others will have to become more sensitive to these risks.
“As soon as those risks have to be accounted for, resilience will be valid.
“Our fundamental challenge in our industry is to grow, and we’re running out of places to grow in our traditional activities and the expediency is meaning that we have hundreds of people in our working groups.
“So I think we’re up at an inflexion point, I think when we come back here in five years time we’ll be having a very different conversation.”
Ian Branagan, Group Risk Officer for reinsurer Renaissance Re, called attention to an “urgent need for more expansive risk models to be created for regions of the developing world,” highlighting the disparity between the extensive risk modelling available for the developed world compared to that of emerging and developing markets.
