Swiss Re seeks more risk transfer from public sector

Reinsurers should do more to close a widening protection gap, but governments remain hesitant to transfer risk to the industry.

“Reinsurers are not doing enough to cover public risk,” Martyn Parker, chairman, global partnerships at Swiss Re, said during the Guy Carpenter Reinsurance Symposium in Baden-Baden.

The gap between the average total economic losses and the insured losses is widening and the industry must do more to attract risk from the public to the private sector, Parker suggested.

Uninsured risks may include public physical assets, emergency response costs, foregone revenues, uninsured private assets and livelihood assistance, according to Parker’s presentation.

Such risks are carried particularly by governments, but also by businesses, homeowners, farmers or individuals.

This risk exposure can be alleviated through risk transfer solutions for sovereigns to cover their direct or indirect costs, by insurance schemes and polls to increase insurance penetration or by simplified products distributed via aggregators such as monetary financial institutions, non-governmental organisations and corporates, according to the presentation.

Swiss Re has been exploring the public sector business through a dedicated team called global partnerships since 2011.

“The role insurance plays as a partner to government and public sector entities is growing when it comes to providing intelligent contingency financing for catastrophic events,” Parker said.

“Ultimately insurers have helped to organise governments’ risk and fiscal planning, enabling them to save lives and protect infrastructure, limiting damage to the entire economy,” he noted. 
In addition, resilience planning allows for a quicker recovery post disaster.

“One current innovation in the pipeline is a pandemic bond called pandemic emergency facility, which should go to the market before the end of 2016,” Parker said.

“It’s important because it’s a significant risk for governments being taken off into the financial services industry,” he said.

“Once we get that public sector interest in our business, we can get them to transact and share a risk with us. They are very happy at the claims stage, but it takes so much effort to get them to that stage,” Parker said.

The public sector knows about the protection gap, and they know that it is going to get worse through financing strains, low interest rate environments and climate change, he said.

“But overall governments are not yet convinced about using our industry to close that gap,” Parker said.

“There is very little trust in the public sector of our industry,” he added—not least because traditionally the governments and the public sector have not been insuring their own assets such as roads or hospitals.

“We are telling them they should be doing something about it, we have a pricing proposition for them, but they are nervous about how much money we will make and how much money they will be perceived to have lost,” Parker said.

The pressure for governments to act is increasing, not least because of climate change. Natural disasters can damage sovereign credit, said Parker, citing S&P Global Ratings. “Now that gets the attention of ministers of finance,” he concluded.