The need to improve resilience

By Ranamita Chakraborty

It would be common to assume that the global economy has grown to be more resilient after experiencing several economic crises over the last decade. However, that is not case according to Swiss Re group chief economist Dr Jérôme Jean Haegeli in a keynote address on the third day of the SIRC.

In fact, the world economy is less resilient than it was 10 years ago mainly due to a high debt burden of over $70tn, negative yielding bonds of $14tn and economic growth that is lower by 2 percentage points.

Meanwhile protection gaps have more than doubled over the past two decades with Asia seeing the largest gap at more than $500bn. In addition, there is a 35% likelihood of a US recession with the US-China trade war posing the biggest risk.

Insurance builds resilience

This is where the insurance sector has a large role to play in fixing the system by helping markets and the global economy become more resilient, said Dr Haegeli.

"Despite such huge fiscal spending, having loaded so much debt and so much monetary policy accommodation, we have not achieved the income trend growth that we had seen before the crisis. To me, it's a clear signal that not only is the economy less resilient but that we need to do things differently."

Referring to the latest sigma research report produced by the Swiss Re Institute entitled, ‘Indexing resilience: A primer for insurance markets and economies’, Dr Haegeli pointed out that the global economy has less capacity to absorb the impact of a shock than it did 10 years ago.

However, he noted that the resilience scores for Asia and Oceania have been relatively stable despite the weakening of global resilience according to the jointly-developed Swiss Re Institute-London School of Economics macroeconomic resilience index.

Asian economies improve

Even though advanced western economies such as Switzerland, Canada and USA ranked as the most macro resilient, Dr Haegeli said it is important to find out about the economies which have improved and moved up the index from 2007 to 2018. These economies are Japan, South Korea, China, Australia and New Zealand.

“The top movers over the last 10 years of economies are either Asian or associated with Asia. I wouldn't expect this picture to change over the next 10 years. I would expect the ranking of some of these countries to actually improve further,” he said.

The index assesses countries based on macro buffers like fiscal policy space and monetary policy space as well as structural factors like banking industry backdrop, labour market efficiency and financial market development.

More than just GDP

“We need to go beyond just looking at a traditional GDP factors. This is what we do here with our analysis,” said Dr Haegeli.

According to the report, Swiss Re defines resilience as the capacity of an economy or society to minimise income and asset losses resulting from shock events.

With the United Nations Sustainable Development Goals including insurance as a main tool to strengthen the resilience of societies, insurance is regarded as a central component of building resilience at the macro and micro levels across disaster-risk reduction and achieving development goals such as inclusive and sustainable economic growth, social protection, food security, agricultural as well as rural and urban development.

Bridging the protection gap

Based on Swiss Re Institutes’ separately developed insurance resilience indices, insurers have an opportunity to close a combined record protection gap of $1.2tn in 2018 premium equivalent terms across three main areas of risk: Nat CAT, mortality and healthcare. The reinsurer estimates that closing this protection gap would improve global financial resilience by more than $1tn each year.

With increasing extreme weather events, the global Nat CAT global protection gap now stands at $222bn with unprotected Nat CAT losses comprising 76% of all losses according to Dr Haegeli. However, this protection gap is the most pronounced in Asia with 96% of unprotected Nat CAT losses in emerging Asia and 80% in advanced Asia.

Call for capital

“Record high protection gaps are opportunities to strengthen economic resilience. We need more private capital and insurance solutions,” he said.

To develop resilience, Dr Haegeli called for the industry to take action in supporting trend growth, building financial market infrastructure, leveraging data analytics, enabling regulation, pushing forward private market solutions in addition to lowering excessive debt.

He also urged insurers to adapt to the current economic situation by employing a more disciplined underwriting strategy and incorporating technology in order to be prepared for additional risk pools which are untapped resilience opportunities.

Blurred lines, evolving roles

By Amir Sadiq

(L-R): Mr Herbert Fromme, Mr Talal Al Zain, Dr Jérôme Jean Haegeli, Mr James Nash, Ms Claudia Salem, Mr Devesh Srivastava

As technology marches relentlessly forward, the roles of insurers, reinsurers, and brokers will evolve and face a certain degree of convergence, according to a panel discussion on the third day of SIRC 2019.

“The whole ecosystem is changing because of technology,” said Swiss Re manging director – group chief economist Dr Jerome Haegeli.

And while the lines between insurers and reinsurers will continue to blur as technology advances and global markets change, he does not expect insurers and reinsurers to swap roles completely.

Trust Re Group CEO Talal Al Zain agreed that technology will force insurers and reinsurers to evolve, similar to the way that the banking world has embraced technology. He added that insurers and reinsurers will grow together and continue to support each other.

“There are sources of capital that reinsurance can bring to the market to allow insurers to continue to write business,” he said.

Will brokers continue to be relevant?

Insurers and reinsurers are constantly under pressure to cut their costs, and panel moderator and Suddeutsche Zeitung insurance correspondent Herbert Fromme asked if the role of the broker will diminish in the future.

Guy Carpenter International CEO James Nash said that brokers will decline if they focus solely on the transactional aspects of their role.

“We’re focused on delivering value and insights, particularly as we move into a new world,” he said.

Allianz Asia Pacific CEO P&C Claudia Salem shared those sentiments. She said that the entire industry is under increasing cost pressure and it needs to change if it is to cope with the disruptions that are heading their way.

“The winners will be the businesses that are able to create the capability to reinvent themselves and reinvent their solutions and their approaches as the changes come. Because we don’t know what’s going to happen, but we know change is coming,” she said

GIC Re general manager Devesh Srivastava added that brokers will remain a critical part of the insurance ecosystem. “As the market matures, the importance of a broker grows,” he said.

He said that many people, particularly from the younger demographic, value the convenience of having an intermediary involved and are more than happy to pay for their services.

EAIC: From K-pop to Coex

By Paul McNamara

The third day of the SIRC came to a close with a special address from Korean Re CEO Jong-Gyu Won in his capacity as the head of the East Asia Insurance Congress (EAIC) organising committee.

The EAIC was founded in 1962 with the aim of furthering and developing international collaboration in the field of insurance of every sort.

Mr Won confirmed the dates of next year’s EAIC as 30 August-2 September in Coex, Seoul, the Republic of Korea. The theme for the congress will be ‘A brave new decade for insurance’ and Mr Won said that the event would “provide insights into the insurance landscape over the next decade.”

Seoul, he said, as the epicentre for K-pop “has a unique combination of modern and traditional” and he expressed his hope that “the wonderful programme lined up” would help “promote the development of the insurance industry.”

Visit the official event website here.