Munich Re’s Hopke views cyber as strategic growth area, despite fact segment is still small

Cyber is one of Munich Re’s main strategic growth areas, according to Doris Hopke, member of the board of management at the reinsurer. She said that while the cyber segment part of the firm’s market “is still small” the number of incidents is increasing rapidly, and the financial impact of these incidents is becoming more severe.

“In an interconnected world it goes along the supply chain,” Hopke said.
She highlighted the 2018 hacking of the Marriott hotel chain, when the security of customer data was breached. It was high profile partly because the number of customers affected was very large: up to 380 million.

“The financial impacts of an incident like this are huge. They range from having to notify customers; financial reimbursements in case of fraudulent use of credit cards; the data recovery; the legal and regulatory implications, potentially resulting in legal fees; and penalty and regulatory fines under the EU General Data Protection Regulation.

“One can easily imagine that the list of implications of an incident like this can reach three-digit millions dimensions,” she said.

Given that the demand for cyber protection and prevention will increase, the market for cyber will also grow and “all markets are growing in two-digit numbers”, Hopke said.

Munich Re’s cyber insurance offer was “growing with the market, and we want to keep our market share of around 9 percent”, she added.

In terms of the broader European reinsurance market, Hopke said the firm had seen a hardening and stabilising market during the last year at the April, June and July renewals. “This is what we expect to continue at the January 1 renewal. We do not see room for prices going down, but there are many reasons for prices going up.”

Using the example of long tail business, she said: “On a long tail, say it was a 15-year payout pattern, the downward development during this year in interest rates makes about 10 points in combined ratio, so this has to be considered when it comes to pricing for the future.

“There are many reasons to discuss prices not going down but being stable and up.
“With respect to interest rates we see the retro market hardening a little and we see in many areas that there is increased discipline in coming back to technical prices.”

However, Hopke added: “Europe is a market where we have not seen huge incidents as we have seen in California with wildfire and in Japan with typhoons, but the technical discipline, and also for example the interest rate environment, would make us expect at least stable or upward development of prices for the January renewals.”

Trends
She said it was too early to give an estimate about the losses from Typhoon Hagibis, but she did point to a rough comparison with Typhoon Faxai, saying the route was similar, although wind speeds were a bit higher.

“It is definitely too early to give a number that is in any way meaningful. We will see in the fourth quarter once analysis and investigations are a bit more advanced.”

Returning to general market trends, Hopke said that the current price trend is unlikely to go away.

“We believe that the low interest rate is here to stay. The interest rate environment will not change dramatically in the near term.

“We believe pricing discipline for adequate profitability in our industry to be attractive for investors, with an attractive return on equity this will not go away.

“The main drivers of pricing discipline, interest environment, a trend of frequency and severity of losses due to climate change, will continue.”

Technological advances are one way that Munich Re plans to stay ahead of the competition and remain relevant.

“Our goal is to pioneer digital solutions for the insurance industry. We have been investing heavily in data analytics and artificial intelligence (AI), to support our clients with innovative methods and new products,” Hopke said.

“This means faster claims estimates and handling, and better pricing as a result of improved accuracy in risk assessment, not to mention better loss prevention in the first place.”

Outlining a product developed with the use of AI, she pointed to The Box, which is designed to discover hidden loss drivers and help clients respond accordingly.

Despite its unassuming name, it is a product that supports the reinsurer’s cedants in managing their motor insurance portfolios, Hopke explained.

“It uses machine learning to predict expected damage by adding external data, such as weather conditions, accidents statistics and/or socioeconomic information.

“This enables the tech to give loss estimates that are even more accurate, while loss ratios can be measurably lower.

“The tool is completely automatic, allowing primary insurers to price more efficiently and significantly reduce costs,” she concluded.