Paying claims is not enough

Reinsurers increasingly set themselves apart by providing risk management and prevention expertise and services, Laurent Montador, deputy chief executive, CCR explains to Monte Carlo Today.

It is no longer enough for reinsurers simply to underwrite risk, sit back and sometimes pay claims. Increasingly, clients expect them to be far more involved at all stages of risk management—using their expertise and resources to also advise insurers and other bodies on risk management and prevention.

That is the view of Laurent Montador, deputy chief executive, CCR, who argues that as reinsurers look to differentiate themselves, they have been forced increasingly to provide a robust service to their clients, leveraging their growing expertise and access to data and technology in the process.

CCR is a public sector reinsurer that provides cedants operating in France with government backed coverage against natural catastrophes and uninsurable risks. It also owns CCR Re, a full-service reinsurer operating on the French and international markets in the life, non-life and specialty lines of business. Established in 1946, CCR ranks among the world’s top 25 reinsurers.

“As a reinsurer, you need to do so much more than pay claims,” Montador says. “Technology and big data have transformed the industry and reinsurers have been at the forefront of many of these developments.

“The bigger players are offering robust risk management strategies for clients located almost everywhere and that is setting them apart from smaller players that do not have the resources to do it. Nevertheless, smaller players can be more proactive through leaner organisations and cross-fertilised partnerships.”

Montador notes that the logic applies to all types of clients, ranging from private insurers to governments and financial institutions, and all types of risk. While reinsurers have increasingly helped clients better understand traditional risks in the property/casualty space, they are also increasingly helping clients better understand emerging risks such as cyber and climate change.

“There are some big gaps in insurance coverages, in terms of traditional risks and also the emerging areas such as cyber, which are not as well understood,” he says.

“We are seeing reinsurers increasingly get involved in the management of these risks—and not just with private sector insurers but also alongside governments and financial institutions as well.

“In some countries, where there is low insurance penetration, such knowledge and expertise applied correctly can really make a difference to improving the situation and helping countries to prepare for future events. Many governments are not capable of handling these risks alone, and that is where the private sector can come in and help.

“It is a question of managing the risk from beginning to end and educating those involved about the nature of risk and risk transfer.”

Better data

The key to this process happening successfully, however, is the availability of quality data. The better the data available, the more likely it is that reinsurers can help their clients get a better handle on the risk.

Montador says the biggest reason for this change, and for reinsurers being able to help their clients understand risk, has been breakthroughs in the quality and availability of risk models. He acknowledges that there can be big differences between the models, but the sophistication of what is available has come on leaps and bounds and has allowed reinsurers to better understand the risks.

Flood models are probably the best example of where this has occurred quite quickly. Flood risk was regarded as uninsurable in many countries but breakthroughs in modelling triggered in part by some unexpected losses for insurers have changed that.

“We now have a much better understanding of flood risk and that has led to more coverage being put in place, whether it is for government-backed re/insurance agreements or private sector insurers.”

Climate change and big changes in demography have also played their part in making governments and public bodies more open to accepting help from private sector experts when planning for disasters. Montador stresses that this can cover fundamental issues of how governments manage land and building regulations, for example, in light of rising sea levels and more frequent extreme weather events.

“Risk prevention measures are needed but it is very important that such schemes also conduct a cost-benefit analysis. This can be based on past experience of disasters and what might happen with and without such measures in place, although factoring in climate change is far more difficult.”

While risk prevention is key, a fast response and good crisis management are also important when an event does occur. He stresses that the correct steps, taken quickly in the aftermath of an event, can limit its consequences.

“Crisis management is part of prevention—although it is not always understood in that way,” he says. “The response of all parties including insurers and reinsurers once an event happens is very important. It can save money and lives and get a society back on its feet faster. The money needs to be available quickly, but also be used in the right way.”

Laurent Montador is the deputy chief executive of CCR. He can be contacted at: lmontador@ccr.fr