The first major challenge facing insurers is the increase in the number of claims. This increase weighs on the accounts and raises the question of insurable risk.
The increase in the number of claims due to natural disasters has had a visible impact: “Over the past five years, we have seen that there is not enough capacity to settle all these claims,” said Jim Bichard. This has led to “a fundamental change in the pricing environment, especially with reinsurers. Prices have risen permanently.”
In addition to the increase in prices, the sector has had to re-evaluate risks, “particularly less modelled risks such as storms, frost, floods or forest fires.” This has changed their acceptance, but without rejecting these risks. While the terms and costs of cover are changing, neither Bichard nor Matt Moran believe that we are moving towards the exclusion of ‘uninsurable’ risks. The sector also has to deal with the emergence of new risks, such as the current geopolitical and cyber war risk. Cyber warfare adds another layer to cyber risk that frightens insurers. “Mario Greco, CEO of Zurich Insurance, considers them uninsurable,” noted Moran. It’s an opinion that counts.
The amount of capital ready to enter the insurance industry has increased significantly.
In the first instance, “the industry is going to work even more with governments and communities to try and make them more resilient as well as prevent some of these losses.”
But, for Bichard, the reassessment will be an opportunity to see new capital and new players enter the industry. “Certainly the amount of capital ready to enter the insurance industry has increased significantly over the last ten years. Capital from more diverse sources than ever before. But there is competition for capital. Insurers have to promote their businesses to attract capital that could be invested in other sectors,” added Moran.
For him, the current attraction of private equity to insurance will encourage insurance--“a sector that is evolving very slowly”--to accelerate its transformation.
These changes concern both business models--which are being challenged by the current rise in interest rates, which threatens the returns on their assets and therefore their ability to honour their commitments--and client relationships. These relationships are increasingly based on digital and data management.
“The digital revolution is synonymous with instantaneousness for customers. An experience that is not in the traditions of insurers. Much of our business in recent years has been about helping our clients transform their business models through technology and digitalisation to make those businesses more agile and flexible,” said Moran.
“But to attract this capital, we need to find the right balance with the regulator. Insurance is a long-term investment and the regulator should take this into account by allowing very long-term investments for hedge funds,” said Bichard.
Insurance is sold, not bought.
Does the economic crisis and the erosion of household purchasing power, combined with rising premiums, make insurance a luxury product?
“There is a saying that insurance is sold, not bought,” said Bichard. Unless there is a legal obligation, insurance remains a “discretionary” expense. “To the extent that discretionary household income has declined, there will be an impact.”
But he observes that what customers are looking to insure has evolved enormously and continues to do so. “On the non-life side, people are much more interested in securing their intangible assets versus their physical assets. And on the life side, people are much more interested in wellness, health and insurance that is going to help them have a long life, rather than a fixed retirement or savings outcome.”
Ultimately, the insurance market is probably more important than ever. It’s up to the sector to make its products more relevant to stay competitive. “I’m confident that the insurance industry will continue to grow at a rate greater than GDP, if only because people have more things to insure, whether it’s their livelihoods, their businesses or their personal assets.”
This story was first published in French on Paperjam. It has been translated and edited for Delano.