Focus on insurance

Four takeaways for insurers going into 2023

In the face of climate catastrophes, regulatory obligations and talent shortages, the insurance sector will have to be efficient and think ahead. Matic Zorman / Maison Moderne

In the face of climate catastrophes, regulatory obligations and talent shortages, the insurance sector will have to be efficient and think ahead. Matic Zorman / Maison Moderne

Like many sectors, the field of insurance in 2022 faced many challenges, some of which are likely to continue. Insurers therefore must keep them in mind in their strategy to create a more resilient and balanced sector.

In an online roundtable organised by Luxembourg for Finance during its first Focus On instalment of the year, insurance experts on 25 January met to discuss the hurdles ahead and their accompanying solutions. As is the case for industries, current inflationary and recessionary pressure, cyber-insurance, talent acquisition, climate change and sustainability were at the centre of the panel.

Efficiency, foresight and transparency in inflationary period

As the polycrisis of 2020 to 2022 continues in 2023, “we expect rates to go up to some extent,” Pierre-Edouard Fraigneau, chief underwriting officer at Liberty Specialty Markets in Europe, said during the panel. He explained that as insurers have begun to acknowledge that they systematically underpriced certain types of products--like those linked to natural disasters--and that, in a bid to rebalance the sector, have had to increase the price of insurance products.

In light of inflation, panelist Amandine Motte, from CNA Hardy Luxembourg, said that “insurers should follow macro-economic trends to address inflation issues on their lines of businesses”, to settle claims more efficiently and in a timely manner to avoid increasing costs, and “have a robust reserving, both in case reserves and IBNR”. If insurers must transfer the cost of inflation to their clients, they have to be transparent about it, she recommended too.

Cyber insurance might become more accessible

“Most, if not all, of the insured have already the basic cover--DNO, PI, crime--and we don’t expect to see a lot of changes in that,” said Motte on the evolution of insurance products. However, the push from regulatory authorities to cover IT concerns and the rapid growth in cyberattacks mean that insurers expect more demand for cyber-insurance.

“The cybermarket remains very challenging,” said Fraigneau, adding that “there is not enough capacity and capital on the market to meet the demand from clients and financial institutions.” The type of damages resulting from attacks have also evolved: many losses now focus on business interruptions. Question marks remain around the insurability of cybersecurity, but “the market is maturing as we’re getting more historical data. In 2023, cyberinsurance will become more available and affordable for clients,” he concluded.

Patience needed around sustainability

Many EU regulations around sustainability and ESG are affecting the insurance sector, as these are now part of overall risk management. While regulatory authorities acknowledge the complexity of this framework, “insurers are now required to review all of their underlying ESG risks, and this both from a liability perspective and from an asset perspective,” said Emmanuelle Mousel, partner at Arendt&Medernach.  

“Insurers will have to redefine the scope of the coverage of ESG-related or ESG-impacted risks that they are willing and able to insure,” she said. In terms of investments, they will have to assess “to what extent the performance of their investments may be impacted by ESG-risks.” It will take a bit of patience before seeing “a tangible and meaningful administrative practice” as many of the ESG requirements just became applicable in 2022.

Insurance sector struggles to appeal to young workers

“Insurance is very interesting” said Fraigneau at the beginning of the discussion. But it is apparent that the industry doesn’t manage to pull in younger generations. Faced with this talent shortage and the generational change in work philosophies, companies must listen, both to their young and older employees’ needs, recommended Motte. Bringing attention to a career in insurance early on, for instance partnering by up with universities, is a solution, she said.

The fight for talent is also linked to a perception issue, says Mousel: “Many insurers believe they are lagging behind the ‘sexier industries’ when it comes to attracting new talents, so insurers should become more courageous in promoting themselves, because they do have a story to tell.”

Mousel underlined the compatibility between the goals of young jobseekers--who want to work for companies with clear values contributing to the greater good--and the role of insurers in the transition to sustainability. Young jobseekers are looking for purpose in their job, concurred Fraigneau, and “we need to show them that we can deliver purpose to them and the market.”