With an influx of capital into the market and a below-norm year of catastrophe losses, the insurance and reinsurance industry is looking at how to innovate. Reinsurers need to review their value offering and stay relevant in a changing market.
To address this challenge, over 300 delegates attended Aon Benfield’s 14th Biennial Hazards Conference in Australia to explore ways of understanding emerging threats and how we can collaborate with academia to build resilience around these risks of the future through new strategies.
Speakers and panellists this year provided perspectives on understanding the future through talks on big data, evolving market trends and how pending technological advancements will challenge the insurance industry to evolve.
Big picture trends examined developments in the science of natural hazards and disasters and included a panel discussion on futurist fear factors. Corporate resilience featured heavily in sessions associated with planning for the future while the conference concluded with a series of presentations looking toward opportunities in an evolving marketplace.
Seven emerging risks
The interaction between practice and research has been a hallmark of the Hazards Conference Series for over two decades.
The fundamental aim is to provide a regular forum for the insurance industry, researchers and leading-edge practitioners to meet and understand their respective roles in shaping the industry both now and in the future.
For example, Mr Stephen Mildenhall, CEO of Aon Analytics, identified seven emerging risks that present re/insurers with business opportunities over the next five to 10 years:
1. US mortgage credit: Freddie Mac and Fannie Mae are transferring US mortgage market risk in a series of reinsurance transactions, with the potential demand for US$6 billion of reinsurance limit annually.
2. Sharing economy: with individuals renting out personal assets for money in direct competition with established businesses like hotels and taxis, coverage gaps highlight an immediate opportunity for (re)insurers to offer policies which span personal and commercial exposures.
3. Reputation and brand: the #1 risk identified by the 2015 Aon Global Risk Management Survey.
4. Microinsurance: offering access to four billion potential new customers, and with opportunities for long-term growth as developing economies gradually become more affluent.
5. Corporate liability: opportunities for re/insurers to provide cover for giga losses, which require more than $1 billion of reinsurance limit.
6. Terrorism: leveraging military-based technology to better understand this risk and improve model competencies, such as accounting for factors that mitigate blast zone damage.
7. Cyber risk: as data and analytics improve, Aon forecasts that cyber risk will move from complex and undermanaged into the insurance mainstream, where markets can adequately price and transfer risk.
Mr Mildenhall described how a history of successful risk management has dampened demand for existing risk products, amid declining frequencies in road fatalities, property fires and medical professional liability payments in many countries over the past decade.
New solutions demanded for emerging risks
However, developments in the global economy provide an opportunity for insurers through new areas of emerging risks. Many of the emerging risks identi?ed by the firm’s Global Insurance Market Opportunities report include exposures that are intangible, yet nonetheless can have a considerable impact on balance sheets, income statements and shareholder value.
Risk owners are demanding new solutions for these emerging risks as they work to grow their businesses. Mr Mildenhall explained how this in turn represents opportunities for international insurers to grow through increasing the relevance of their insurance products. By investing in data and analytics, insurers will be able to grasp the potential around growth, geographic expansion and market feasibility.
Focus on three areas to achieve organic growth
Mr Malcolm Steingold, CEO of Aon Benfield for Asia Pacific, also reflected on how (re)insurers can identify and capitalise on new growth opportunities amid challenging market dynamics. His speech examined how organic growth might be achieved in the current environment by focusing on three specific areas:
• The reintroduction of products to the market using advanced data and analytics such as professional liabilities for financial institutions or product liability for pharmaceuticals.
• The development of solutions for key emerging risks such as cyber, intellectual property and supply chain risk.
• The re-privatisation of risks that were transferred to the public sector in certain regions such as, earthquake, wind, flood, terrorism and US mortgage credit.
Industry has ability to innovate and meet client needs
Mr Steingold discussed how, over the past decade, the market has become more complex with increased regulatory, rating agency and shareholder pressures. This has resulted in some (re)insurers adopting a “zero failure” mindset, which may seem to offer a degree of protection, but does in fact stifle innovation and growth.
Strategically, the industry has the ability to meet client needs, innovate and create an entrepreneurial environment that will bode well for business to rise to address the challenges it is facing. There is plenty of capital in the industry today, but there is also plenty of risk that is not currently being addressed by our industry. Mr Steingold reinforced that by developing the skills, capabilities and talent to address these risks, (re)insurers will grant themselves new, long-term revenue streams.
The reinsurance industry needs to build resilience against the risks of the future by looking at the bigger picture. Engaging in a dialogue with academia, the insurance industry, government and the corporate world will enable the reinsurance industry to become more relevant in its customers’ lives.
Mr Robert De Souza is CEO Australia & New Zealand for Aon Benfield.
Aon Benfield is the 2015 winner for Reinsurance Broker of the Year at the 19th Asia Insurance Industry Awards.