A new way of working

Change is in air across cedants’ operating environment, calling for stable reinsurance partnerships, says Moses Ojeisekhoba, Swiss Re’s CEO of Reinsurance.

How to deal with large losses, the fallout from the COVID-19 crisis and historically low interest rates will dominate renewal negotiations. But, positioning for growth and tackling climate change will also be on the agenda, Moses Ojeisekhoba, Swiss Re’s CEO of Reinsurance tells Reactions. 

“The reinsurance market is vibrant and there are clearly lots of factors influencing it now. Some of those are challenging but some present opportunities,” he says. 

Despite global insured catastrophe losses, without COVID-19 claims, in the first half of this year being lower than average – $31bn, according to Swiss Re research, down on the 10-year average of $36bn, Ojeisekhoba states: “Our customers are concerned about the high losses they’ve suffered. Those aren’t just related to COVID-19 or natural catastrophes, but also other large property and casualty losses.”

Insurers are also looking to their reinsurers for support “to protect their earnings, manage their capital and shape their portfolios to deliver their expected earnings.” The use of technology is another area of concern as the insurers are looking for ways to improve end customer experience, keep operating costs low and strengthen their understanding of risks – for example by leveraging data analytics.

But, they need help as well to mitigate increasing exposures, resulting partly from the economic rebound as the world emerges from lockdown, but also as a consequence of the changing nature of business due to developments such as digitisation and increasing cyber risk, he argues. The insurance protection gap is forecast to grow to a record $1.24 trillion, according to Swiss Re research.

Need for price increases

The size of the final insurance bill from the pandemic remains unclear, but forecasts that it will be the largest-ever insured loss by far now look unlikely, he says. “It’s hard to see it ever reaching $200bn; we will stick with our estimate of $50bn–$80bn market impact on P&C lines, which I think is a reasonable figure.”

Still, the increasing loss trends in combination with lower interest rates will lead to increased pressure on prices to go up. “The financial markets and interest rate movements are having a big impact on the supply side,” he says. “Even before the COVID-19 crisis, most major markets had below-average profitability and this is not sustainable anymore. 

Swiss Re’s clients can expect it to be “a stable, prudent partner” in renewals negotiations, says Ojeisekhoba. “We will look at our global portfolios and take a view on which areas need underwriting action. But, we will also consider how individual clients’ portfolios have performed.”

The historically low interest rates available in the financial markets will inevitably have an impact. “With running yields being lower than expected, most companies are also lowering their target combined ratios to address the issue.”

Greener, faster, more inclusive

But the discussions won’t all be about pricing. “We’ll also talk about helping clients address their own priorities, such as how to grow their own businesses or improve their underwriting. Sustainability is another important issue.”

The industry could do far more to help the environment. “We can take concrete steps to tackle climate change by supporting new cleaner alternative energy sources while withdrawing from underwriting the worst emitters. We’ve been doing this at Swiss Re, but I think the industry needs to embrace this too.”

In 2018, Swiss Re stopped re/insuring companies that generate more than 30% of their turnover from thermal coal and will stop covering the most carbon-intensive oil and gas companies by the end of this year. Also, Swiss Re has switched its entire investment portfolio to ESG benchmarks. “Our industry is also one of the world’s biggest investors and I think we should speak with one voice to say that we won’t invest in certain industries.”  

The global lockdown will help the industry slash its carbon footprint from business travel and should accelerate its embrace of technology. “It’s remarkable that, despite the tremendous disruption, the April, June and July renewals went largely without a hitch,” he argues. “Our industry should take a lot of credit for that. But, it also proves that it simply isn’t true that the old way of working is the only way. We’ve migrated to digital platforms throughout the value chain, from sales through to claims payments. That should give us comfort to know we can accelerate change. There are tremendous gains from working digitally. We’re determined not to go back to the old world, but, instead, to find a way of mixing the best of the old ways with the best of the new.” 

The switch to more remote working should also help the industry address its diversity problem. “I think unconscious bias is a big issue. People just assume someone can’t do a job because of one reason or another. Digitisation gets rid of some of the excuses that people used before.”

The insurance industry needs to step up the pace so that its diversity reflects that of the wider society – particularly at executive level.  “Our industry has improved, but we need more radical change if we truly believe what we say. Awareness is strong now, but that needs to be matched by action.”

He concludes: “If you don’t have challenging KPIs related to diversity and inclusion, and if remuneration isn’t linked to those, then you’re not sending the message that these issues are important to you.”