Doris Höpke, Munich Re’s Management Board member responsible for Special and Financial Risks, discussed notable trends in the reinsurance space, as well as strategies for negotiating the fast-changing market, in a recent interview with Reinsurancene.ws.
Höpke discussed the rise of insurtech, reinsurers increasingly moving closer to direct and primary sources of risk, and where the greatest potential for growth and also risk lie in 2017.
Looking forward, she noted the potential for re/insurers taking on cyber risk and expanding in the growth regions of Latin America and Asia.
What do you see as particular opportunities or target markets for 2017, and why?
Doris Höpke: The most important topic will be where our industry is heading and how it will cope with future risks and demands in a digitalized world. This is a major challenge as well as a huge opportunity. Innovation will be crucial for that in our industry. Large amounts of previously not available data and sophisticated analysis methods improve risk assessment, loss prevention and claims handling. Customer expectations and behaviour change regarding product design, services and sales.
We also still see significant growth opportunities in the traditional lines of business. Reinsurers have the capacity and capability to further expand the scope of insurable risks, also in mature markets. Although insurance density in many industrialized countries is already high, even these markets often have an additional need for insurance cover, e.g. from epidemic or increasing weather risks.
In growth regions, there is increasing demand for insurance to protect manufacturing capacity and the rising prosperity of the population. Particular in Latin America and Asia we are already one of the leading reinsurers and we increasingly participate in niche primary insurance activities, too. In India, for instance, we have strengthened our presence and business activities in the non-life reinsurance segment in Mumbai. In the medium term, emerging markets in Asia will continue to drive insurance-sector growth. Closing the insurance gap in these markets is often also important to support economies in a rather juvenile stage and stabilize their future development.
How important is it that your company is at the forefront of the InsurTech trend and can you tell us what you’re doing to embrace it?
Doris Höpke: The digital transformation will change the insurance business fundamentally: from the way customers buy insurance and the insurance products themselves to risk assessment, claims handling, loss prevention and internal processes. There is a huge potential for growth in unsaturated markets like cyber, where globally only 1 percent of losses are insured.
Munich Re is well positioned to successfully adapt its business model to market changes. Innovation is crucial for our industry and Munich Re fosters innovation throughout its global organization. We want to be at the forefront of this development in our industry. Therefore we have built up structures all over the reinsurance group, including innovation scouts and labs and we cooperate with relevant partners in order to understand and assess new technologies and develop innovative insurance solutions.
What have you done specifically to gain a competitive advantage in the digitalisation revolution?
Doris Höpke: We position ourselves to be leading in areas, which are key and core success factors for risk assessment. That’s why we further enhance our data analytics abilities and tools as well as an agile IT. Based on that, we are developing new (re)insurance products, new business models and enhanced risk-management services. One example is in the field of IoT where sensor-based technology supports innovative loss preventing services.
In other areas we team up with new partners outside the (re-) insurance industry to be able to benefit from newest technology and make its value available to our clients. Here new digital sales models for new groups of customers are to be mentioned, e.g. with our partner Trov, who offers on demand insurance for single items. Also we support our clients to compete with new players and grow their business. Thus we stay relevant in the changing environment.
Reinsurers increasingly operate at the primary level and look to access direct client relationships. Is this a trend you expect to accelerate in the industry and at your firm?
Doris Höpke: Since 2009 we reach new client groups through our operating field Risk Solutions, where we provide customized solutions for corporate clients and industrial firms. Our clients thus have direct access to the expertise, innovative strength and capacity of a leading global risk carrier. These activities with their strong top- and bottom-line contribution help us to detach Munich Re from the cycle in traditional reinsurance. Thus we want to expand these activities. We expect to continuously identify new configurations of services and co-operations which serve the classical purpose of risk protection and risk transfer, while involving new players. In doing this we also might see ourselves in other than traditional roles.
The political world seems to have become less stable in the last 12 months, with waves coming from all sides. How do you see this uncertainty affecting the reinsurance business now and going forwards?
Doris Höpke: Uncertainty as such is nothing new and our industry is, in general, well positioned to handle situations of high uncertainty. But indeed, the accumulation of sources of instability or low predictability of future developments seems to be felt stronger in these times. Further, new interdependencies and direct and indirect causalities result in complexity on a high level. Insurance can play its part in transferring risks and enable risky market activities and thus reduce the effects of uncertainty. But surely, a reliable political framework and adequate regulation allow insurers and reinsurers to be most effective.
Reinsurance plays a vital role in global resilience and risk financing. How can the industry provide even more value through deployment of its capacity?
Doris Höpke: With our know-how and our strong capital position, we develop solutions to enable more and more people to access insurance and thus create a more stable economic basis. Especially emerging markets are often highly exposed to nat cat risks. But only a small share of the losses is insured: around 10% in South America, 8% in Asia and as little as 5% in Africa.
In addition, the support of local governments is necessary to create the right conditions for insurance penetration. The G7 member states for example launched a climate insurance initiative (InsuResilience), highlighting the importance of financial risk transfer concepts, particularly for emerging and developing countries.
The objective by the year 2020 is to expand insurance coverage against weather disasters in developing and emerging countries, an initiative from which around 400 million people will benefit. Public-private partnerships like the Insurance Development Forum (IDF), which is powered by the World Bank, UN organizations and the insurance industry including Munich Re, support projects like this.
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Our thanks to Doris Höpke for her insights into Munich Re and the reinsurance market.
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