Stronger forces of unprecedented change seen in any lifetime; the continued protection gap for catastrophe risks; the urgent requirement for insurance to be relevant and innovative as needs for covers are still unmet – these are some of the issues brought up at the record breaking 13th SIRC. Asia Insurance Review, the official media partner, brings you highlights of the conference themed “Managing Risks in an Uncertain World”, which was attended by about 1,000 participants.
The uncertain world facing the industry was perhaps best highlighted by Mr Albert Benchimol, CEO, AXIS Capital, in his industry keynote address. He said: “The significant challenges facing the industry are forces of change that are likely stronger than most of us have seen in our careers.”
But he added that while these challenges may present significant difficulties, if the industry remains true to its creative capacity as demonstrated in the past, they will ultimately be seen as the roots of opportunities.
Unmet needs and emerging risks
Mr Benchimol also pointed to the declining relevance of insurance to the economy as measured by claims as a percentage of GDP – likely due to the gap between new risks in the economy and the insurance industry’s ability to develop new products to match new risks.
“In order to thrive in the new century, we can and we must develop new products to address unmet needs and emerging risks, and increase our relevance and penetration in the marketplace. And as we do so, we should be mindful of the pivotal societal role that we can and should play in signalling risks such as those arising from climate change,” he said.
For example, on excess capacity and alternative capital, he said the industry should come to terms with it, and should take advantage of the larger capacity and cheaper available pricing to deliver products to more people who need it. “The fact remains that large amounts of economic risks have remained uninsured in many parts of the world.”
The influx of alternative capital has changed the game in fundamentally important ways too. “We have historically been limited by our own capital. Now, if you have a better product or approach, you can access all the capital in the world,” he said.
We also heard from Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore about capitalising on the opportunities of new and emerging risks, and serving the wider society. (See “Message from the regulator: Capitalising on opportunities from new risks” below.)
Rising to the challenge
Meanwhile, at a panel discussion on innovation, Mr Marcus Taylor, Chief Executive of IAG Re, cited the Asia Insurance Industry Award’s “Innovation of the Year” and noted that since the event’s inception till now, “there has not been a reinsurance broker or reinsurer that has won the award”, and that spoke volumes about the state of innovation in the reinsurance industry.
Innovation, panellists said, seems to be focused more on the process rather than the product; it was mooted that even Uber was about the process of getting a cab for the ride, and not changing the ride. So is it really possible to innovate the reinsurance product per se? This is something players will need to be clear on.
Peak Re CEO Franz Hahn and Dr Jürgen Dümont, Head of Solvency Consulting, Munich Re, both mooted the point that if reinsurers are serious on pursuing innovation, then they should consider a “project-based” approach. Dr Dümont added that the innovation project or initiative will need to be “insulated” from the confines of traditional reinsurance processes and bureaucracy in order for it to effectively take root and flourish.
A market for all sizes
M&A and size of (re)insurers were also hot topics of discussion at the conference, given the recent spate of deals. Panellists at two of the breakout sessions said that while M&A in the industry is set to continue, size will not be the determining success factor as there is space for (re)insurers of all sizes.
Mr Stephen Postlewhite, CEO, Aspen Re, at the breakout session on “Does Size Matter in Reinsurance?”, said the right question should be on diversification, particularly for reinsurers. “You can be a mid-sized reinsurer and have a lot of diversification, or you can be a large reinsurer and not be diversified. People often confuse size with diversification. If size equals to commoditisation, that is a losing strategy.”
Dr Oran Vongsuraphichet, President & COO of Thai Re, said that small reinsurers have to find their niche. “You have to work more like a consultant and a service provider to the cedants and not compete on capacity,” he said. “Size matters but strengths such as local expertise to help cedants create better products suitable for the market, and claims expertise which understand the market better will make size less of a factor.”
Mr Michael Gourlay, CEO, MSIG Singapore, said: “From a cedant’s point of view, we want to involve all the large and financially secured reinsurers, of course. However, we also need to diversify our panel of reinsurers for counter-party control and optimisation. We utilise all parts of the market. While large size is important, mid- and small-sized reinsurers have their places as well.”
Finding a niche
Size was also a topic discussed in the breakout session on “Impact of the ASEAN Economic Community on the Insurance Industry”.
With AEC expected to result in fiercer competition among (re)insurers in the region, a question on the viability of smaller-sized (re)insurers was posed to the panel. Mr Augusto Hidalgo, CEO, National Reinsurance Corporation of the Philippines, said one can learn from the experiences of other economic blocs and insurers should invest in ERM and systems to meet global standards.
“Executives also have to decide what they can compete on. If it is not size and capacity, they will need to find a niche, or excel in other areas such as on the customer service front,” he said.
Mr Matthew Harris, Chief Executive, AIG Asia Pacific, concluded by saying that AEC is just one of many external factors that (re)insurers have to cope with. A (re)insurer will have to be clear on its strategy, and how to deal with external factors or it will be relegated for failing to cope with changes, size notwithstanding.