Collaboration key to tackling ‘polycrisis’

Collaboration between clients and insurers, but also with public authorities and even competitors, can help ensure the insurance industry is able to thrive in an increasingly complex risk environment. 

As the world becomes “more and more vulnerable”, the traditional insurance model faces challenges from the interconnectedness of risks, creating “risks that are too big and risks that are not insurable”, said Pierre du Rostu, chief executive officer of AXA’s Digital Commercial Platform, during the FERMA Forum 2024, taking place in Madrid.

Du Rostu described the world as being in a “polycrisis”, where “all risks are completely intertwined”. For example, climate change can provoke geopolitical tensions, which might lead to cyber risks and supply chain disruptions.

This macro-level complexity is also reflected in specific areas such as climate risk. Iris Cavalli, a consultant at AXA Climate, explained that “complex feedback loops exacerbate risks” in the climate space. For instance, climate change may reduce biodiversity, which in turn could amplify the impact of climate events.

“Complex feedback loops exacerbate risks” - Iris Cavalli

Complicating matters further, many climate risks are now emerging in regions that have not previously experienced them, making it difficult for insurers and clients to rely on historical data. “We need better data,” Cavalli stressed, not only on risks directly affecting a company but on external factors like energy infrastructure or school closures due to extreme climate events.

To tackle this complexity and the outsized potential downside of getting it wrong, du Rostu highlighted AXA’s “predict and prevent” strategy. He explained that this approach involves collaborating with clients, public authorities, and even competitors to create “an ecosystem of protection”, sharing data to better understand risks and help clients make informed decisions to reduce exposure. Du Rostu cited an EU estimate that every euro spent on prevention saves seven euros in costs.

Existing partnerships with brokers and reinsurers are a starting point, but du Rostu reiterated the need for industry-wide collaboration. “We should join forces at an industry level,” he said, “we recognise this challenge is probably too big even for a large insurer like AXA.” 

One challenge of this reliance on data, especially when it comes to client collaboration, is understanding and conveying simply and accurately what really matters to the client. Cavalli noted that some clients feel “overwhelmed with data” at times, leading to “analysis paralysis”. To counter this, AXA, she said, looks to simplify, and to translate its more than 300 climate indicators into something “very tangible that companies understand: dollars”. 

“We try to make the complex science of climate into something easy to understand by talking about impacts and making them real,” Cavalli said. 

An example of this approach is AXA’s partnership with a satellite imagery company. By combining satellite data on wildfire behaviour, vegetation density, and temperature conditions, AXA helps clients assess risks and implement mitigation measures. This collaboration “helps the client understand exposure and reduce it”, du Rostu said.

“We should join forces at an industry level” - Pierre du Rostu

AXA has also developed a real-time risk monitoring system, providing a “day-to-day score” for assessing risks.

The key to success of this collaborative approach, according to du Rostu and Cavalli, depends on the willingness of clients and the industry to share. While some clients may fear sharing data could affect their premiums, du Rostu stressed that “With the right data, I can promise you the right cover.”

Despite the challenges, du Rostu remains optimistic about the insurance industry’s ability to adapt. “We are going through an industry paradigm shift,” he said. “By joining forces, I believe we can solve our challenges and shape the future.”

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

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