Nat cat pressures on the re/insurance sector are growing fast

The reinsurance and corporate insurance sectors are under pressure from natural catastrophes—particularly following a challenging year that has brought large scale natural catastrophes to the US, Australia, some European countries, and the Asia-Pacific region.

Tanguy Touffut (pictured), founder and chief executive officer of climate risk parametric insurer Descartes, highlighted the impact of the increased frequency of events.

“We see that the frequency is increasing very fast, typically for wildfires and bushfires,” he said. “There is absolutely no debate about the impact of climate change on the frequency increase. But for some risks, it’s more difficult to understand the full impact at this stage—it will take a few more years,” Touffut told Intelligent Insurer.

He added that in some cases, such as cyclones in certain regions, a lower frequency but increased intensity has been observed—and this is linked to sea surface temperature.

While COVID-19 has had a big impact in the past few years, he emphasised the high impact of climate change within the same period and in the future.

“If we look at the losses related to climate change, it’s more significant, and there is no reason why there will be any slowdown, so there is no doubt that it will be the main challenge for the insurance industry in the next 30 years,” he said.

In the face of these challenges, Descartes is committed to ongoing innovation and diversification, creating cover for very specific risks such as hailstorm cover for solar farms, and cover for lack of wind, which has found some success in Southeast Asia.

“We are trying to innovate in the face of climate change, so we are working to launch more products, and to develop unique product features to make sure that when there is a claim, we will pay a claim very quickly, usually within five working days,” Touffut said.

Descartes works to lower claim-handling costs, to bring the expense ratio down and pass the savings on to insureds.

“There is a big issue around transparency,” he added. “In our case, we are highly transparent about what is and what isn’t covered, so there are no surprises. This is a new trend in industry, and it is very important to increase the level of trust people have in the insurance sector.”

He said that Descartes has one of the largest modelling teams in the weather space worldwide.

“Hopefully we will be number one in the next 12 to 18 months—we have more than 80 people working on analysing climate change impacts on natural catastrophes,” he said.

Descartes takes a historical view of risk but also uses science to look ahead and enhance projections.

“Typically, for wildfires, we use 50 different factors to understand events that will occur in the near future, but have never occurred in the past,” said Touffut.

“We are trying to have a different view of the risk to be able to better explain it to our workers or clients. If you look only at historical events, you will miss the subtle shift in some patterns.”