Swiss Re Group Chief Underwriting Officer (CUO) Edi Schmidt highlighted the need for reinsurers to take a more scientific and forward-looking approach to underwriting to drive down cost of re/insurance at the firm’s 2017 Monte Carlo conference press briefing.
“Today we have much more capabilities to use more sources to make the underwriting even more fact-based, to help make products more affordable, we need more efficiency in underwriting; I think we have a duty as an industry, to really drive the cost down.
“We combine elements from behavioural economics, and data analytics to have a much more forward-looking view for our business and to assess risk in a statistical way.”
Schmidt attributed the firm’s success to using their risk management expertise to help clients mitigate their risks, with underwriters following the dual approach “to the benefit of the shareholder to try to optimise our portfolio and get good returns, but on the other hand we use all that knowledge to have better, more differentiated solutions for our clients.”
For Swiss Re, reinsurance solutions are; “not just for ceding but also for their end consumer, a lot of our work in the different risk categories supports that – what we also bring to clients is our own understanding of accumulation risk.”
When tracking global trends impacting underwriters, Schmidt said the focus is on researching forward-looking trends in natural catastrophes, climate change, and factors impacting global accumulation risk particularly in liability.
“The biggest insurance catastrophe we’ve seen so far is asbestos, which cost the industry much more than a major hurricane like Katrina.
“We invest a lot of resources to understand accumulation risk, particularly in the liability arena,” said Schmidt.
The growing role of technology could help to mitigate some risks, but also causes accumulation risk to skyrocket through an overall increase in global interconnectivity; “If you look at underwriting trends in general, with the usage of technology, a lot of the risks actually can be moderated or mitigated if you think about driving automated cars or sensory homes, I think that capability to identify and mitigate risk will increase so overall reducing the frequency of certain types of losses.
“On the other hand, I would argue that with the interconnectivity of the world increasing, through the internet, the cloud, everything, at the same time you have the restraint in more and more people concentrated in exposed areas, 50% of people are located in cities so it’s clear that the risk of accumulating loss in areas in just increasing, so I think we should do what we can to understand these accumulation risks better.”
Particularly in the casualty arena, Schmidt said there’s a much bigger need to move away from just backward looking actuarial assets to introduce forward-looking assets to understand liability; in the life space, he advised re/insurers to be on top of medical improvements to understand mortality trends.
“Every year we try to optimise, we look at forward-looking trends, what’s the situation going to do, what’s the rate level going to do in this line in this market, and then we try to define the optimum portfolio for the next couple of years, and then of course our liability business has to be matched with the asset side and the total balance achieved needs to be in sync with our capital liquidity requirements, and doing this in a systematic way we try to always achieve a portfolio that brings better returns.
“We try to defend our business, in other areas where we see much more positive trends we try to do much more,” said Schmidt.