Increasing rates alone cannot solve climate change: AXA XL Re

The idea that challenges such as climate change can be tackled by simply increasing rates is a misconception—as is the market’s obsession with describing a hard market. Instead, the focus should be on the nature of coverage and helping clients better manage risk.

That is the view of Bertrand Romagne (pictured), the chief executive for International, Reinsurance, at AXA XL Reinsurance. Speaking to Monte Carlo Today, he said that reinsurers should refocus on how to help clients, rather than rates alone.

“I don’t like too much to talk about a hard market. I prefer to talk about conditions and coverage. We need to make sure that what we offer to our client is clear and that they get what they pay for—something that is understandable and clear,” he said.

“For me, that will be important to discuss during Monte Carlo. It’s important that we talk about the future and how we can help with the prevention of losses, and help cedants manage the risk—it’s not just about rates and money. That’s something we don’t do enough: understanding the risk so that we can prevent losses rather than just paying claims.”

The key to achieving this, he says, is science, something AXA and XL collectively have invested heavily in over the years. “That is where the innovation will come from. We believe that science is essential to what we are doing. We’ve seen some unexpected losses of late but we believe that using science is the key to better understanding risk and refining our position.”

Romagne adds that being part of the AXA group, with its large balance sheet and talent pool helps XL Re embrace the science of risk. “That is a big differentiator for us,” he said. “The science-led modelling is just fantastic and we believe this will help us better understand risks, especially in the aftermath of a number of losses that were unusual.”

This argument, he said, is particularly pertinent in the context of climate change. “You cannot deal with climate change by just increasing rates,” he said.

“We have to start thinking about how and where we build houses or industries, how we connect all those things together. It’s not just about the price and the reinsurance, it’s also about considering what is sustainable. The climate is changing, we see it in the losses and it will be even more difficult going forward. So we have to tackle that through different angles. Science is the key to that,” he explained.

Coming back to the subject of renewals, he said that the market is close to a tipping point and many insurers are looking at the structure of their businesses. Property rates are hard and capacity scarce, specialty lines are facing many challenges and the casualty side is grappling with the issue of inflation.

“The way they buy reinsurance is changing, and the structures they will use. Clearly, there is tension everywhere. In Monte Carlo, we will speak to clients about devising a structure and price suited to their needs,” he concluded.