Industry needs three Cs – collaboration, competition, courage: Howden Re

The re/insurance industry is grappling with an expanding protection gap due to the rising unpredictable losses and political violence. To navigate these challenges, the industry needs new solutions, innovation and an influx of capital, with three Cs – collaboration, competition, and courage – being key.

This is the perspective of Massimo Reina, international CEO of Howden Re. Speaking at Intelligent Insurer’s Re/insurance Outlook Europe 2024 conference in Zurich, Reina, the keynote speaker for Day Two, provided unique insights on capacity, risk, and expectations.

“The insurance and reinsurance industry is going through changing and challenging times. Reinsurance has evolved massively over the last few decades, becoming an accepted tool to manage capital more efficiently, manage volatility, achieve KPIs, and manage targets for our clients,” Reina noted. He contrasted this with the past when protection was easier to define, less expensive, and required moderate limits.

The industry’s evolution is reflected in increasing sophistication among clients, who now demand advanced services to meet evolving needs. However, Reina said that the industry is not achieving its primary goal: “We’re not really achieving what the industry should be achieving, which is to sell more insurance to reduce the protection gap to cover some of the new exposures that we are facing every day.”

Losses are increasing, changing, and becoming increasingly unpredictable. “You add frequency in severity, and this is posing great challenges to many of our clients. At the same time, global insurance premium is growing more than GDP. But the reality is that the reason it is growing is not because we are covering more risks and more exposure in percentage,” but because of increasing prices.

Reina highlighted that some recent events are unprecedented in their extremity. “Flood and wildfire in particular are increasing more than earthquake and hurricanes,” which is changing the landscape of severe weather and cyclone-related losses, he added. Additionally, political violence has become a significant issue, creating new challenges for the industry.

Some changes are structural rather than temporary, and insurance companies are now shouldering a larger percentage of risk. “There is a limit to how much these companies can retain, and we need to come up with solutions to help manage this situation in the future,” he argued.

Capital trends in recent years have shown substantial growth, with traditional insurance capital and reinsurance capital doubling over the last two decades, alongside a significant increase in alternative capital. However, Reina questioned whether this is sufficient, noting that capital inflows following major events or market hardening have not matched past levels.

“Something is really not working at the moment. The capital inflows that we have seen in the past following major events or following a hardening of the market has been very substantial. But we are really not seeing the same now,” he noted.

“After 9/11, after Hurricane Katrina, we saw new reinsurers coming through being formed very quickly. But at the moment, we've hardly seen any new reinsurer starting in the market.”

Alternative capital, which makes up about 25% of overall reinsurance capital, seems to have plateaued, Reina pointed out. “There’s lots of capital around in the world, but there is a capital scare in our market. we're still talking about a very limited number of diverse products coming into the property market and this is something which needs to be changed.”

To attract more capital and boost investor confidence, the market needs to innovate and evolve. While progress has been made, Reina stressed that the insurance sector still lags behind the banking and financial sectors.

The insurtech movement, which initially aimed to disrupt the industry, has not brought about revolutionary change. Reina believes that partnering with incumbents to improve processes, rather than challenging them, could yield better results.

“Collaboration is a key element for innovation. We call them the three Cs: collaboration, competition, and courage. We need a bit of courage to change things. Reinsurance brokers and reinsurers need to combine their unique skills to create a compelling proposition for investors,” he said. Reinsurers, as custodians of capital, and brokers, as client advocates, can together maximise capacity and manage risk effectively.

Reina concluded by expressing confidence in the industry’s potential to evolve and meet future challenges, urging leaders to join forces and go to the investors together to find new solutions for the market.

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