Industry must better grasp systemic risks, finds panel
The risk-transfer industry must find ways of better managing some of the most pertinent systemic risks, such as cyber risk, or risk facing a scenario that could be catastrophic for the insurance industry.
That was one of the themes of a panel debate that took place at Intelligent Insurer’s Re/insurance Outlook Europe 2023, conference taking place in Zurich this week (June 19-20).
The session, called ‘Tackle systemic risk: manage interconnected risks that render traditional risk transfer mechanisms unsuitable’ featured Joachim Racz, group director of reinsurance, Ageas; Veysel Geylani, CEO and founder, Mando; Fabian Willi, head of Cyber EMEA & Product Centre, Swiss Re; and Michel Dacorogna, partner, Prime Re.
Willi at Swiss Re acknowledged that cyber has the potential to create systemic risks, and the industry has had some near misses in the past – but before cyber was as widely distributed as it is now. He said the cyber market is worth some $13 billion in premium but this is expected to double. But he also stressed the market’s relatively small pool of players and reliance on reinsurers.
“If you consider who is writing cyber, it remains a small market. But there needs to be more collaboration across the entire risk transfer value chain. Insurers need to manage their risk to a level they are comfortable with and perhaps not insure firms that fail to adhere to certain standards.
“As an industry, we need to discover a level of cyber resilience that can allow us to write the business profitably.” He noted that some 50% of the risk currently ends up with reinsurers – and that insurers need to become more comfortable underwriting the risk.
He added that he thinks the industry will gradually move away from using traditional methods – such as a client answering a questionnaire – to underwrite cyber risk. “There are developing technologies we can use to assess and develop the risk,” he said.
Geylani made the case that cyber insurance products need to be simplified. “You don’t buy an apple without seeing it so how can you buy insurance? We need to simplify insurance. We must define it and simplify it while also shifting from underwriting based on a view in the rear-view mirror to looking forward and checking available data real time as much as possible. If you cannot measure something, you cannot control it.”
Dacorogna agreed that the industry needs to develop a common language to set out what exact cyber risks it covers. “We also need a simpler product. We need to offer products where we control what we are actually insuring,” he said. “We will continue to have an imbalance as long as we are unclear on which risks we are trying to transfer.”
Racz added that good data remains key to the industry managing any systemic risk but also issued a warning: “We talk about data but as an industry we have an awful track record of understanding data. Only after Covid, did we realise we should exclude communicable diseases. We only learn through pain, but with systemic risks globally we might run out of time. We might be gone, as an industry. We need inspiration, ideas and new scenarios.”
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