Recent years of heightened catastrophe activity, characterised by rising losses from secondary perils, has significantly changed the way the reinsurance industry views risk, contributing to an “arms race” as reinsurers look to leverage the latest technology and processes, according to Juan Andrade, President and Chief Executive Officer (CEO) of Everest Re.
Ratings agency A.M. Best held its virtual Global Reinsurance Market Perspectives panel earlier today, which included the head of Bermuda-based reinsurer Everest Re, Andrade.
During a lively discussion, in which panellists debated the rate environment, social inflation, the insurance-linked securities (ILS) space and more, Andrade was questioned on the impact of elevated catastrophe activity and subsequent losses on the way his firm manages property exposures.
From Everest Re’s standpoint, he explained, there’s three important things to consider; the science of climate change, the risk models, and then the impact of data and analytics.
On the first point, Andrade stressed that the science is important because the reality is that climate change is not a theoretical future loss.
“Climate change is something that’s happening to us today, unfortunately. We saw what just happened with Hurricane Ida over this past weekend. So I think it really makes us very heightened around the science of climate change,” he said.
With the vendor models, Andrade said that it’s really about the quality of the models, how well they’re updated, how static they are, and how dynamic. While for data and analytics, it concerns what value all of the innovation coming from InsurTechs really has.
“Now, I say all of this because ultimately, as we looked at risk today it has to be looked at in a much more sophisticated way than we did in the past. We have to understand what is driving the perils, and it’s not only that ocean warming equals more severe storms, it’s also the fact that there’s frequency. And that there’s frequency of events that we didn’t see before. There’s more frequency of wildfires, convective activity, winter storm activity, that sort of thing. So how do we build all of that into our capabilities,” said Andrade.
For the models, at least, Andrade feels it’s pretty straight forwarded, explaining that, “You have to keep up with a model, you have to be able to bring that science into the model, make it a lot more dynamic, make it an active process. And, ultimately, it’s how do you bring new data analytic techniques into the modeling, and ultimately into the underwriting and the pricing of risk.”
“I think it absolutely has changed the way the industry begins to look at risk in a significant way, and it’s an arms race, right.
“At the end of the day, I think the companies that are going to be more sophisticated in adapting to the science and looking at the modeling and taking care of the data will ultimately have a better chance at assessing the right price for the right risk, and ultimately be more successful over time. So, it absolutely has changed the way we look at the business from an underwriting perspective,” he added.