(Re)insurance capacity could run out within the next three years: Mumenthaler

By Amir Sadiq

The purpose of (re)insurance is to make the world more resilient - but when it comes to cyber and pandemics, the industry cannot carry the risk by itself and will have to work with governments and other third-party organisations, according to Swiss Re Group CEO Christian Mumenthaler speaking during a fireside chat at the SIRC 2020 RE-MIND virtual conference.

Cyber risk – too big for insurance alone

While pandemic risk has hogged the spotlight for most of the year, the shadow of cyber risk still looms large, with bad actors or rogue states capable of launching damaging cyber attacks that could even result in human losses, given our dependence on technology.

“I’m not predicting it, but I think it’s likely that we’re going to have some significant cyber losses in the next 10 years, at some stage,” said Mr Mumenthaler.

He cautioned that despite the effort and investment the industry has put into understanding cyber better, it remains a terrifying risk that does not fulfil all criteria of insurability.

“It’s not a random event. It’s perpetuated by people,” he said. “And on the aggregation side it’s a real challenge.” Drawing parallels with pandemic risk, he highlighted certain cyber events that could result in huge damages across the world such as a virus or breakdown of cloud-based services, upon which people have become reliant.

“There are certain tail risks that are too big, in my view, for the insurance industry to carry. We can carry a certain amount of risk, and we are active in the market, but I think the capacity will run out within the next three years.”

Risk-sharing schemes in collaboration with governments will be needed, he said, and governments will need to think in advance about how they will react to the biggest risks that cannot be borne by the insurance industry to see how their strategy could interact with insurance.

The ‘last risk’ trap

The biggest challenge with preventing or mitigating risks is not identifying new risks. Mr Mumenthaler pointed out that most risks that have materialised have been identified and talked about by experts in the past.

“There are experts out there who know about the risk. The biggest challenge is to translate that into policies or risk mitigations before the risk has ever materialised,” he said. “And that’s a huge effort for the human mind because most systems, politicians and governments tend to act on the last risk that has materialised.”

He brought up how in the past, resources had been allocated to prevent certain risks that had just materialised, such as how resources were spent to prevent terrorism risk after the 9/11 attacks.

And even though the (re)insurance industry is able to help governments better understand the risk landscape and share their concerns, the ideal would be for governments themselves to have a risk officer within their inner workings to make sure resources are allocated appropriately, rather than towards the last risk that created an emotional response.

“By doing this more rational allocation of limited resources, we could save tons of lives and a cover a lot of economic damage,” he said. “But it’s a big ask – going from managing the emotions to preventing things, and I cannot over emphasise how difficult this step is.”

We know little about the scale, complexity and interconnectedness of risk: Heng

By Ranamita Chakraborty

Risk management needs to be taken more seriously and people should seek to build resilience to cope with future shocks according to Singapore deputy prime minister, coordinating minister for economic policies and minister for finance Heng Swee Keat, speaking at the opening ceremony of the Singapore International Reinsurance Conference (SIRC) '2020 Re-Mind' virtual event yesterday.

"COVID-19 has underscored how little we know about the scale, complexity and interconnectedness of risk," he said.

The need to take risk management more seriously and build resilience is especially true in Asia, said Mr Heng. He pointed out that the region has experienced rapid economic growth during the last few decades and yet there remains a wide protection gap in the region.

"Asia's growth potential remains strong but continued growth will require greater protection against large scale systemic risks. Insurers can play a pivotal role in strengthening risk resilience as the world rebuilds from COVID-19," he said.

He partly attributed the large protection gap in Asia to the lack of quality data and robust risk models to quantify exposure to natural catastrophes, infectious diseases and other emerging risks. The underappreciation of such risks by governments and companies has also contributed to the protection gap, he said and stressed that the pandemic has raised awareness of future risk and provide a greater impetus to close the wide protection gap in Asia.

"I hope the insurance industry can build on this impetus to transform by riding on two shifts - digital transformation and public-private partnerships," he said.

A digital future

Mr Heng pointed out that the pandemic has accelerated digitalisation and that some insurers have a head start. He cited the example of how Singapore Life is able to underwrite, issue policies and process claims online.

Thus, he sees the potential for digital transformation going much deeper as data can be harnessed from the end-to end-digitalisation of supply chains, satellite imagery and social media to provide a more granular appreciation of economic and risk exposure.

"With accurate and timely data and blockchain technology, risk events can be tracked in real-time. Claim payouts can be triggered automatically if predefined conditions such as a flight delay or flooding are triggered. The application of AI and big data will lead to more robust risk models and can also be applied to mitigate risk and strengthen resilience," he said.

The value of partnerships

Besides digital transformation, the second shift Mr Heng sees in the insurance landscape is harnessing public-private partnerships.

He noted that the financing gap for large scale systemic risk is significant due to highly correlated exposure across countries and industries, which would trigger claims from a large number of policyholders simultaneously.

However, the ability of insurers to pool and diversify such exposures while providing broad coverage at a lower cost is limited.

"To address large-scale systemic risk, effectively, the public and private sectors must come together to develop meaningful, effective and scalable risk-sharing solutions. In the course of working together, insurers and regulators can also learn from each other. Such partnerships can eventually lead to better legal and regulatory frameworks to facilitate the deployment of disaster risk financing solutions," said Mr Heng.

He also announced the launch of the Global Asia Insurance Partnership (GAIP) – a strategic response to deal with the structural and emerging risks that Asia faces.

Regarded as a tripartite initiative among regulators, academia and industry, GAIP is expected to commence work in January next year.

Swiss Re positive on renewals and growth prospects ahead of 1/1

Tokyo 2021: The risks facing the Olympics

Since the revival of the modern Games in 1896, the Olympics have had to cope with a range of risks. From financial, security, sporting and reputational risks to diplomatic incidents and war. In 2020, that list expanded when the Tokyo Games was postponed due to COVID-19. Willis Towers Watson’s Hélène Galy outlines the risk spectrum involved

Any catastrophic event impacting the Olympic Games has the potential to result in high-impact, long-term consequences for the cities that host them. People, infrastructure and entire supply chains are at stake. Forcing the Tokyo Olympics to be postponed by a year, the COVID-19 pandemic has stolen the risk limelight, but it remains as vital as ever to remember the wider risk landscape.

People risks

Olympic Games typically involve a large population influx from various countries to a city, in this case, Tokyo, already one of the largest cities in the world. How will this work in a COVID-19 world, where physical distancing is set to be recommended for a long time?

A recent government survey showed only 0.1% of Tokyo residents have coronavirus antibodies. That is much lower than 14% in the state of New York in April, and 7% in Stockholm. The citizens of Tokyo may not want to accept the risk of an influx of people on top of managing their own national situation. The pandemic has also reduced the enthusiasm of residents to host the event, a recent poll showing only 24% in Japan look forward to the Olympics.

The multiple layers of security (including police, military and private security) will rely heavily on technology, not least to coordinate their activities. These will be the first Olympics to make use of facial-recognition technology to assist with risk management and identification.

Technology risks

With such a high-profile event, security must be ultra-tight and cyber security, in particular, is a major concern. Due to their operational requirements, scale and scope, Olympics events have the potential to trigger complex second-order effects, and cyber attackers have grown increasingly ambitious as organisers have embraced digitalisation.

At the 2018 Pyeongchang Winter Olympics, suspected state-sponsored hackers carried out extensive campaigns with TV signals disrupted, the games website crashing and ticket sales disrupted. Russia was thought to be involved in those attacks and earlier this year Japan’s National Intelligence Agency issued a stark warning on the possibilities of state-sponsored attack at the summer Games.

Earth risks

Earthquake risk is a top concern for Tokyo. The region sits at the intersection of the Pacific and Philippine Sea tectonic plates being pushed under Eurasia and forming the Itoigawa-Shizuoka Tectonic Line.

Given the structural dynamics, megathrust earthquakes along these boundaries are a common driver of risk discussions for the region. However, recent swarm activity in the Tokyo area can be interpreted in two ways. A simple view is that an increase in smaller earthquake activity leads to higher chances of a big one. However, a seismic creep could also be an indication that fault stress is being reduced in the region. Whatever the impact, the immediate response strategy remains the same.

Weather and climate risks

The first Olympics to experience heat stress issues were the 1912 Stockholm Games, where temperatures reached 32 degrees Celsius in the shade and resulted in half the marathon runners failing to complete the race. Only two years ago, the record-breaking summer heatwaves in 2018 led to the deaths of over 1,000 people in Japan. Similar heatwaves from that year have been studied in the UK, with research suggesting record-breaking temperatures are now increasingly likely due to human-induced global warming.

Flood risks

During the 2012 London Olympics, the tube link to Stratford in east London was closed after a water main flooded the tracks of the Central line, which connects the West End and City to the Olympic Park, raising concerns about the resilience of London's transport network. Flooding issues were also seen in Russia in the run up to the Sochi Winter Olympics, when flash floods caused massive disruption to the preparations. An estimated 2,000 workers were required to clean up the mess.

Expect the unexpected

It is still unclear whether the Tokyo Olympics will indeed happen in 2021. The current climate has reminded us that we should always expect the unexpected.

Taking extreme events and stress-testing them, whether through quantitative modelling or qualitative scenarios is one way to build resilience to global, complex risks and decide what to do next. As COVID-19 has demonstrated, society has developed in such a way that the impacts of past events are no longer a certain guide for the future, and this event presents an opportunity for all to make changes beyond the organisation of these games and leverage insights from science to increase their resilience.

Ms Hélène Galy is director, Willis Research Network, Willis Towers Watson

Pandemic-induced cyber threats heighten need for insurance

By Ranamita Chakraborty

With the COVID-19 pandemic spurring organisations to accelerate their digital transformation to keep up with new limitations, their systemic vulnerabilities to cyber attacks are inevitably increasing. This development has accentuated the need for effective cyber insurance policies to counter new threats, spelling a possible growth for the cyber insurance market.

"As working from home continues to be the default arrangement amid the COVID-19 pandemic, questions related to the use of personal devices for work purposes, as well as having multiple devices connected to their home network create additional risks when it comes to data security," said Kaspersky general manager for Southeast Asia Yeo Siang Tiong in an interview.

Mr Yeo noted that there had been an uptick in coronavirus-related malware and phishing attacks as cyber criminals follow global trends.

Consumers have been increasingly going online to carry out activities which were previously done in-person, as demonstrated by the rapid rise of online payment services and e-commerce across the region. The greater level of online activity and digital connectedness inevitably results in greater exposure to data security risk, Mr Yeo said.

When it comes to managing the risk of data breaches and cyber risks in general, Mr Yeo points out that some organisations overlook the need to have a cyber insurance policy in place.

While some countries mandate for listed companies to have cyber insurance, Mr Yeo sees having cyber insurance as a good practice.

"Insurers are learning about cyber risks and the actuarial science around it is also limited. They are now getting their hands around quantifying and managing cyber risk," he said.

He suggests that premiums for cyber insurance could be reduced if organisations follow best practices in cyber security.

Recently, Indian media have reported that enquiries for cyber insurance increased by 60-70% since the COVID-19 pandemic began and sales of cyber insurance policies have increased by 20% over the same period.

Along similar lines, in a recent report titled 'Cyber risk in a new era: Insurers can be part of the solution' S&P Global Ratings revealed that the cyber insurance market is set to proliferate over the next decade partly due to the pandemic.

The agency forecast that the cyber insurance market will increase 20%-30% per year on average in the near future. The primary avenue for growth is expected to be small and midsize enterprises, which have considerable untapped demand for cyber insurance coverage.

In the report, S&P Global Ratings credit analyst Manuel Adam noted that there was already a lot untapped potential of the cyber insurance market as insured cyber losses are still minimal at below $5bn. However, the yearly economic costs of cyber crime already exceed $700bn.

"Insurers will have to offer more relevant products for the market to succeed and carefully evaluate and monitor exposures, in particular, related to potential accumulation risks, to maintain credit strength if they accept cyber insurance risks on a larger scale," he said.

According to an analysis from broker Marsh, a typical cyber policy provides various loss prevention and mitigation services that can be accessed both before and after an event. Some insurers also

proactively ccontact policyholders when they become aware of potential threats or exploitable vulnerabilities.

However, with the unprecedented number of people practising social distancing amid the pandemic, Marsh said that the rapid rise of remote connectivity could create new vectors for cyber claims.

These vectors are particularly under three distinct coverages – cyber, technology errors and omissions and media liability. However, some of the pandemic's unique circumstances could limit or challenge the responsiveness of these policies.

Pandemic cannot dim insurance industry leading lights at 24th Asia Insurance Industry Awards 2020

By Ranamita Chakraborty

Amidst pandemic-induced confusion in the market – and turbulent economic conditions globally – 17 heroes of the insurance and risk-management sector stood tall and were recognised for excellence at the highly-prestigious 24th Asia Insurance Industry Awards 2020 which were held virtually last evening.

These deserving award winners were selected from a total of 305 hopefuls who had sent in entries for Asia Pacific’s most respected industry awards.

With the pandemic catapulting digital transformation and the insurance industry already making huge strides by leveraging cutting-edge technology, most entries received for the awards featured accomplishments on the digital front.

The ‘Technology Initiative of the Year’ title went to Prudential Corporation Asia’s health app Pulse, which provides AI-powered self-help tools and real-time information to consumers across the region. The insurer was also recognised for helping users prevent and postpone the onset of diseases via the app.

Other insurance players who were specially commended for their digital approach were Cathay Life Insurance and Blue. They were conferred with ‘Digital Insurer of the Year’ and ‘InsurTech of the Year’ respectively.

Taiwan-based Cathay Life was praised for making insurance simple and permeating many aspects of customers’ lives by organising competitions, cross campaigns with popular brands and apps such as Pokemon GO and integrating insurance with traditional cultural events.

Blue, Hong Kong’s first digital life insurer, was awarded InsurTech of the Year for revolutionising the market by pioneering a ‘24/7 online insurance platform’ and designing unique online protection products.

Meanwhile, the awards bestowed HSBC Life with the ‘Innovation of the Year’ award for its Eldercare programme which tackles the issue of an ageing population in Hong Kong. The health and financial support programme is also the first-in-market to incorporate the innovative automatic retinal image analysis dementia risk screening that helps more accurately assess dementia risk.

This year’s awards saw repeat winners as well – Marsh Asia and Digit Insurance –the incumbent Broker of the Year and General Insurance Company of the Year respectively.

There were also joint winners for the ‘Service Provider of the Year’ category with AIR Worldwide and Medix Group both being lauded for providing innovative and effective solutions to the insurance industry.

The awards also saw a new category ‘Reinsurer of the Year’ which combined the former life and general reinsurer categories. The Philippines’ Nat Re emerged victorious in this new category after being lauded for its involvement in several initiatives aimed at promoting climate-risk insurance, pursuing reinsurance pooling opportunities and advancing risk-informed decision making.

The awards also honoured industry veteran, Mr Arun Agarwal. With a career spanning more than four decades in Indian insurance, he has contributed immensely to the Indian insurance industry.

The awards also celebrated young and female leaders with the ‘Woman Leader of the Year’ award and the ‘Young Leader of the Year’ award going to Ms Kumjoo Huh and Ms Jeanette Lim respectively.

Ms Huh is the senior vice president and managing director of Kyobo Life Insurance while Ms Lim is the regional head of agency development and incentives at Chubb Insurance Singapore and immediate past president of Singapore Insurance Institute.

The full list of award winners is as follows:

  • Life Insurance Company of the Year
    HSBC Life (International)
  • General Insurance Company of the Year
    Go Digit General Insurance
  • Health Insurance Company of the Year
    AXA AFFIN Life Insurance
  • Digital Insurer of the Year
    Cathay Life Insurance Co
  • Educational Service Provider of the Year
    The Association of Indonesian Qualified Insurance & Reinsurance Brokers (APARI)
  • Reinsurer of the Year
    National Reinsurance Corporation of the Philippines (Nat Re)
  • Broker of the Year
    Marsh Asia
  • Sustainability Award
    Generali Indonesia
  • InsurTech of the Year
    Blue Insurance
  • Technology Initiative of the Year
    Prudential Corporation Asia
  • Innovation of the Year
    HSBC Life (International) – Eldercare Programme
  • Service Provider of the Year (Joint Winners)
    AIR Worldwide, Medix Group
  • Corporate Risk Manager of the Year
    Ms Sharon Xu, Marriott International
  • Young Leader of the Year
    Ms Jeanette Lim, Chubb Asia Pacific
  • Woman Leader of the Year
    Ms Kumjoo Huh, Kyobo Life Insurance Co
  • Lifetime Achievement of the Year
    Mr Arun Agarwal

Asia Insurance Review editor-in-chief Sivam Subramaniam, organiser and host of the awards, said, “In these dark times, for the Asia Insurance Industry Awards to recognise excellence is an amazing act of belief and trust that insurance does good and can stand tall despite any odds. Hence these 24th awards are particularly significant. We were determined not to postpone them and I salute all the sponsors who kept their faith with us and urged me to continue with the awards as scheduled.”

The Asia Insurance Industry Awards are acknowledged as much sought-after recognition of excellence and peer group endorsement for insurance players and professionals in the market. They have been hosted annually since 1997 by Asia Insurance Review, the voice of Asia’s insurance industry, for close to three decades.

Sponsors this year include Aviva, FM Global, HSBC Life, ManageMy, Medix, MSIG, Muang Thai Life, Munich Re, OPTUM, RGA and Swiss Re. For more information, please visit: www.asiainsurancereview.com/asiaawards2020

Contact: Ms Jennifer Chee Email: jennifer@asiainsurancereview.com

Ms Sandy Chen Email: sandy@asiainsurancereview.com