Few would argue that last year was anything but awful for business. While most executives can assume the role of passenger – or perhaps backseat driver – on the rocky road through 2021, someone has to be in the driving seat.
And that someone is the CEO – of insurers, reinsurers, brokers, regulators, industry bodies – and many may no longer have a roadmap upon which they can rely. In times gone by, CEOs could rely on past models to predict how extrinsic shocks to the industry would play out but COVID-19 has put paid to that. Swiss Re CEO Christian Mumenthaler recently told the FT that insurers had been blindsided by national governments in their handling of the pandemic. No models had predicted how far governments would go to protect lives by imposing lockdowns that all but crippled economies.
As the pandemic reared its head it became clear that we could not save lives and save the economy – we had to choose. Insurer models presumed the choice would favour the economy and this proved to be wrong. “The whole industry will have to review some of these models,” Mr Mumenthaler told the newspaper.
But the travails do not end there. In the US, the UK and closer to home in Australia debate has been raging in the courts over whether business interruption (BI) covers pandemic-induced lockdowns. The court judgements emerging from these cases are far from homogenous and will not help CEOs plan very much.
Naturally P&C coronavirus claims extend well beyond simple BI and include lines like event cancellation and travel. Indeed Swiss Re estimates that industry-wide P&C losses could tip the scales at $80bn when the dust has settled – but the finally tally will be a long time in coming because the dust may settle exceeding slow.
Such has been the calamitous impact of the pandemic that there has been a growing chorus for national pandemic risk pools – based on the successful terrorism risk pools established after the events of 9/11 – and that may help CEOs address the next pandemic when it comes along.
This concept of risk sharing is central to SCOR chairman and CEO Denis Kessler’s view of the road ahead. He told Asia Insurance Review recently, “Pushing back the frontiers of insurability requires a kind of co-management of risk and a sharing of responsibilities between the carriers of risk – the (re)insurers – and those who face them. For instance, on cyber, we must work together to share information and standardise data.”
But it will not help address the changing nature of the consumer landscape and the insurance landscape – where work-from-home has become commonplace and folding cash has all but disappeared as it becomes seen as a potential virus vector.
So today’s insurance industry CEO is entering the New Year with a devastated global economy (to the tune of, perhaps, $12tn for last year and this) to contend with whilst wearing a blindfold.
That is no excuse for the insurance CEO to be timorous, as AXA CEO Thomas Buberl acknowledged while unveiling his group’s vision ‘Driving Progress 2023’. As he put it: “Bold and strategic choices have been made,” and outlined what he referred to as ‘five strategic actions’.
These include, “expand heath and protection; simplify customer experience and accelerate efficiency; strengthen underwriting performance; sustain our climate leadership position; and grow cash-flows across the group.”
Mr Mumenthaler, meanwhile, views the insurance landscape as one that has already changed fundamentally and future growth lies in asking questions such as, “Can insurance in the future be part of other products?”
This explains why Swiss Re is partnering with Ikea, for instance, which sees home insurance as a natural line extension but which does not wish to become embroiled in such a heavily regulated sector.
Asia Insurance Review