Focus on loss prevention is key to cope with climate risks

Deutsche Rück Group is on a roll. In May, the German reinsurer reported gross written premiums up 16.8 percent during 2023, with solid growth across all lines. Nat cat claims, meanwhile, were significantly lower than in 2022. At the end of last year, S&P Global affirmed its A+ rating for the business.

Chief underwriting officer and member of the executive board Achim Bosch told Monte Carlo Today the company has seen strong growth across the business. That includes its core German and Austrian markets, where it’s a market leader, as well as Europe and its newer international markets in the Middle East, Latin America and Asia. 

“We’ve continued to strive for more geographic diversification in our portfolio,” Bosch explained. The diversification is not purely geographic: in May, the group announced it would start underwriting life and health reinsurance in the Middle East and Maghreb region. 

The soft belly of a hard market

If these developments help explain the company’s success, they also reflect the strains and challenges facing the business and wider sector. These are manifold. 

“The demand for reinsurance cover is not declining so far, and we do not expect this situation to change in the medium term. We see a greater risk appetite from existing reinsurers, but no significant new players have emerged in the market.”  

But for a start, while much is made of the continuing hard market benefiting re/insurers, he argues this is easily overstated. It might be true of nat cat lines in certain areas, but elsewhere, it’s less clear. 

“People always talk about situations where premiums are going up as a hard market, but that’s not enough,” he said. He cited the motor business in the UK or Germany, where premiums have been rising, but inflation for parts, materials, and labour has wiped out any profits. 

The industry faces other significant factors such as geopolitical risks, both current and potential, with escalating tensions between China and Taiwan. Related in some ways are continuing worries around cyber risks, that geopolitical events can exacerbate. The upcoming US Presidential election, for example, could bring an uptick in politically motivated cybercrime and attacks on big players, the wider finance sector, energy, defence and political institutions and parties. Regulatory risks persist, too. 

“They are different types of risks, but all burdens for the industry,” Bosch explained. 

“Especially where there is a hard market, such as in nat cat coverage, there are tensions.” 

Governments fail to face up to climate risks

For Bosch, one challenge is fundamental in this context: “the significant insurance protection gap”, as he put it. 

That is true not just in developing markets but also in mature markets, where re/insurance demand is growing due to the impacts of climate change. This includes the rise in secondary perils such as hail, wildfires and cloudbursts. 

“I would rather we focused on climate-related loss prevention programmes.” Achim Bosch

To date, statements from politicians  when it comes to closing that insurance gap are not adequate, according to Bosch.

“When I listen to politicians, their main goal seems to be to eliminate the financial burden on government,” he said. Consequently, proposals focus on obligatory insurance schemes combined with flat-rate premiums. 

“I would rather we focused on climate-related loss prevention programmes. Because the extensive prevention at a property and regional level through collective programmes is what could prevent damage and – this is an important point – keep premiums controlled in the long term,” he explained. 

“Unfortunately, those programmes cost a lot of money, and the payoff may be far in the future, and that’s difficult for politicians.” Without them, though, the endpoint could be certain perils in certain areas becoming uninsurable, he said. 

For now, all the industry can do is contribute its expertise to the political debate. At the same time, it is important to focus on those topics that can actively advance the insurance industry, such as the use of new technologies. . Artificial intelligence (AI), for example, opens up entirely new opportunities around accounting and data processing and to develop core competencies further. 

“One of the core competencies of reinsurance is analysis, evaluation and the management of large amounts of data. AI creates new opportunities for doing that,” said Bosch. 

One field of application certainly might be risk modelling for natural hazards. This is becoming increasingly relevant. “We have to secure that our models reflect the current climate developments, which of course is a challenge”, Bosch added.

He argues that Deutsche Rück has a distinct advantage. The reinsurer specifically relies on its own risk models which are based on one of the richest data sets in Germany, that of the regional market leaders. “Therefore, we are pleased to employ a group of scientists with decades of experience. They are able to combine the latest scientific knowledge with insurance and reinsurance pricing know-how and judge the reliability and usability of vendor models which we use in other regions”, Bosch explains. 

“We can harness that scientific knowledge to enter new markets,” he said.  

Achim Bosch is chief underwriting officer and a member of the executive board at Deutsche Rück. He can be contacted at: achim.bosch@deutscherueck.de

For more news from the Rendez-Vous de Septembre (RVS) Click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.