Pandemic has been a call to arms for re/insurers: Swiss Re

The COVID-19 pandemic has had a devastating impact on businesses and people’s livelihoods and mental health, but some positives can be drawn out—people are now more aware of risk and more willing to address it, while the drive to digitisation will allow consumers to purchase good value insurance more broadly.

This is according to Russell Higginbotham, chief executive officer, Reinsurance, Asia, Swiss Re, who sat down with the Re/Insurance Lounge, Intelligent Insurer’s on-demand platform for interviews and panel discussions with industry leaders, to discuss lessons learned from the pandemic and Swiss Re’s sustainability undertakings.

Higginbotham warned: “That awareness doesn’t last forever—consumers move on, something else comes into their minds.

“The opportunity for the re/insurance sector to work with stakeholders and provide this affordable and accessible insurance is there now, but it won’t be there forever. It’s a call to arms to the sector to work together to get something meaningful done here.”

Pandemic effects

Over the past 18 months, the re/insurance industry has learned many lessons. While Higginbotham believes that the industry modelled and priced  pandemic losses on the life and health side, it was a different story on the non-life side.

“Claims came from unexpected areas so there was learning around that,” he said.

He added that the pandemic highlighted some of the inconsistencies in contract wording around the world. There was a general “lack of understanding on how contracts would respond under this sort of situation”, he explained.

But, Asia fared well on the contract wording front.

“Pandemic threats in the past meant that contract wordings were tightened up some years ago, so we haven’t had the same sort of issues you might have had in other regions,” he added.

On a pandemic risk solution, Higginbotham noted that a pandemic is an almost uninsurable event.

“Our business model is based around covering discrete risk pools and we rely on the diversification by line of business and geography—that’s how reinsurance works. A pandemic happens everywhere at the same time. From that perspective, it’s a very difficult risk for the insurance sector to provide a solution for,” he said.

Now, governments are considering pandemic pooling which, said Higginbotham, can be a good way to cover risks that are less insurable or would threaten the entire re/insurance sector.

He added: “You wouldn’t expect to see re/insurers being significant risk takers from these arrangements, but there’s a lot we can bring in terms of expertise around data modelling and understanding of the topic. We’d be keen to do that of course.”

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Building resilience

Turning to the protection gap globally, Higginbotham said the numbers are quite startling. According to the Swiss Re Institute, in developed Asia, the protection gap is $140 billion. In developing Asia it reaches $479 billion.

He added that the protection gap is a “great call to arms and areas such as climate change are where we can focus on doing something”.

The climate change challenge is a long-term one, but building resilience to climate change and climate perils now is crucial. This, in turn, will help close the protection gap.

Last year, the Swiss Re developed the first parametric flood scheme for Nagaland, India. A cash payout is triggered by an agreed event, rather than being delayed during an assessment of loss.

Similarly, Swiss Re partnered with the Vietnam National Reinsurance Corporation to create the first index-based rice insurance product adopted in a public scheme.

“You might look at these and think they’re just small examples but, unless we all take collective action and do the small things, we’re never going to get there,” said Higginbotham.

Sustainability has been on Swiss Re’s radar for decades, he said, noting that the company’s first public take on climate change was in 1979.

The reinsurer aims to have net zero carbon emissions by 2030 and is reducing its emissions from flights by 50 percent, based on a 2018 baseline next year. It’s the first multinational to announce a triple-digit real internal carbon level, he added.

On the underwriting side, the reinsurer is phasing out its capacity for thermal coal to zero, and is making similar changes for the heavy emitters in the oil and gas sector. Now, Swiss Re is reinsuring or insuring nearly 6,000 wind and solar farms around the world, and this year the company has had more than 400 client discussions on environmental, social and corporate governance as a standalone topic.

Higginbotham said: “Ultimately, this is another way we can address the protection gap. We’re a risk taker and based on our having a decent understanding of the risks, we have a strong appetite for adequately priced and controlled risk. That will be exactly the case in Asia.

“But the insurance sector can’t solve the problems of climate change only by risk transfer. Prices have gone up a lot as you see the impact of climate change coming through and that’s not a long-term or sustainable answer. Just putting prices up then becomes a question of affordability,” he added.

And, going back to the protection gap, if people can’t afford the cover they won’t take the cover and the protection gap gets bigger.

“There’s a lot we can do to work with governments, businesses and communities to build sustainable systems to deal with the threat of climate change. Insurance and reinsurance should be there to mitigate the risk that you can’t mitigate through other measures.

“While tackling climate change is a long-term problem, there’s plenty we can do in the near term to address those issues.”

Russell Higginbotham is chief executive officer reinsurance, Asia, at Swiss Re.

To view the full Re/insurance Lounge interview click here