A widening of the protection gap, says Franz Josef Hahn, Chief Executive Officer (CEO) of Hong Kong domiciled reinsurer Peak Re, is “perhaps one of the most imminent threats” to the reinsurance business.
Speaking to Reinsurance News, Hahn discussed some of the main threats to the reinsurance business, including the impact of the Covid-19 pandemic on society and how it has contributed to both rising inequality and the incidences of extreme poverty, climate change, and cyber risks.
He said: “Insurance and reinsurance will need to step up their efforts to narrow the gap by leveraging the digital trend to offer simplified products.
“Over the years, Peak Re has striven to innovate and provide better protection to those people most at risk. To this end, we have co-developed different products with our insurance partners, including supplemental health insurance, lung nodule medical reimbursement cover and critical illness insurance with a strong wellness component. Another is a worker’s salary bond to ensure vulnerable construction workers get their salary on time.”
There are other threats to the sector, said Hahn, including climate change in Asia. This, he said, has exacerbated the intensity and severity of natural disasters. It also, he explained, remained a focus area with “tremendous growth opportunities” for Peak Re and Asian reinsurers.
“Cyber risks,” he said, “are another risk that plays a major role in Asia. In the wake of the pandemic, not only have the number of threats increased, but these threats have the potential to spread globally no matter where they come from.”
Hahn also singled out, when asked about the opportunities, the digitisation of the global economy. This, he said, is set to compensate for the decline in productivity due to mobility constraints. New forms of consumption, too, and servicing alongside the rise of the digital and platform economy are set, he thought, to change the risk landscape of insurers and reinsurers.
He added: “Our industry needs to modernise its transaction platforms to keep up with the general wave of digitalisation. Peak Re is the first Asia-based reinsurer to have sponsored a reinsurance sidecar, a special-purpose vehicle that helps us tap into the broader capital market. At the same time, we are the first reinsurer based in Hong Kong to issue public hybrid securities and a 144A cat bond, which helped to strengthen our capital base and increased our underwriting capacity.”
Hahn related technological advancement at an industry level with Peak Re’s ability to enhance efficiency and help clients more.
He said: “Building a more efficient, digitally supported and analytically driven operating platform is beneficial for the re/insurance industry. Apart from the obvious cost benefits, such a platform also provides the tools to support more mobile, data-driven, technology-enabled underwriting, which could further improve underwriting outcomes and can attract new, younger talent.”
He added: “Furthermore, the global reinsurance industry is at the forefront of combating climate change and mitigating its impacts. While this has remained a core competency of reinsurers, our industry will need more support from regulators and governments, for example, in putting into place conducive regulations that help to bring reality to the populace about the imminent threat of climate change.
“Many governments have committed to net zero in the coming decades, but a clear road map will help corporations and households better understand the risks and take appropriate measures. Recent regulation changes in Hong Kong and Singapore that help usher in more ILS transactions are good examples to illustrate the positive impact of regulations in driving reinsurance innovation and lowering the cost of insurance.”
Hahn also turned his attention to Peak Re’s plans, saying that the firm expected to see sustained economic growth pushing demand for insurance over the coming decades.
“Our goal,” he said, “is to drive profitable growth through reinsurance product development and modernisation. Diversification comes in as a way to manage our exposure by spreading risks across business lines and geographic locations. At times sustains a better return to capital, which helps expand our capacity. In 2021, we continued to seek diversification with tactical adjustments to optimise capital utilisation. Regarding our geographic split, approximately 55% of Peak Re’s gross written premium came from Asia-Pacific, 33% from the Americas and 12% from Europe, the Middle East and Africa.”
Meanwhile, he said the outlook remains bright for the firm.
He added: “The expectation of robust economic growth in Asia over the next decade will drive the rise of the middle class and increase demand for various insurance protection products, particularly personal and health insurance.
“At the same time, the trend towards further urbanisation, the increasing focus of companies on reducing risks in the supply chain, increasing digitalisation and intensified global efforts to combat climate change all point to a positive development in demand for risk solutions in the coming decade.”