Following rate improvements in many markets, and particularly in loss-affected segments, Swiss Re expects further rate hardening across all lines of business. At the same time, the reliance on underwriting profits increases in the low interest rate environment. Swiss Re also expects more opportunities for re/insurers due to a combination of improving insurance demand and growing exposures.
Swiss Re expects prices to continue to increase driven by the combination of lower interest rates and the need for prices to cover increasing loss trends as demonstrated by recent experience across the world.
Overall, Swiss Re expects the non-life insurance market to continue to grow, driven primarily by exposure growth. Swiss Re Institute forecasts a global growth rate of 3.3% in real terms for 2021. Other factors driving demand are the awareness, triggered by COVID-19, of the danger of being uninsured and the increasing frequency of weather-related events.
Swiss Re’s chief executive officer, reinsurance Moses Ojeisekhoba said: ”In these unprecedented times it’s more important than ever to support our clients with risk knowledge, capital strength and tailored solutions. In the end, it’s about tackling protection gaps together to make the world more resilient.”
Later addressing a virtual media meet Ojeisekhoba commented: “Asia was better prepared than other regions including the language in contracts. We need to see this in other regions. There are some significant lessons from Asia but there is also room for improvement – especially around the economic impact of lockdowns.”
Chiana seems to have recovered well and India is recovering now, he said adding that the continent has had different experiences dealing with the virus.
He said it is clear the market cannot pay for pandemics alone and that it needs to work with governments in order to help absorb costs.
“We are already talking with multiple governments over the issue,'' he said. .
The reinsurer is looking to remove ambiguity for the scope of coverage in pandemics, with a focus on contract certainty, and communicating with clients, brokers and regulators to develop clearly worded terms and conditions.
The reinsurer estimates market cost of Covid-19 is likely to be between US$50 billion to US$80billion, with around US$20 billion registered in claims so far.
Thierry Léger, Swiss Re’s group chief underwriting officer, said underwriting margins will need to improve by as much as 7 to 12 percentage points to compensate for lower interest rates as investment returns on new business reach zero.
Hurricanes are frequently affecting areas where exposures have grown as a result of wealth accumulation. This leads to increasingly severe losses, as demonstrated in the past few years. 2020 is forming up to be no better. The current Atlantic hurricane season is the first on record to see nine tropical storms forming before August and 13 before September.
The situation is further aggravated by the higher frequency and severity of secondary perils, such as floods and wildfires, leading to rising claims and highlighting the need for insurance protection.
While low interest rates have been affecting the industry’s profitability since the global financial crisis, further rate cuts aimed at fighting the economic impact of COVID-19 will only exacerbate this problem.
In “Low interest rates: the new norm and what it means for insurers“, Swiss Re Institute concludes that, to achieve a reasonable return on equity through 2021, non-life insurers in G7 markets need to improve underwriting margins by as much as 7-12 percentage points to compensate for lower interest rates.
Ojeisekhoba said: “Even before the COVID-19 crisis, most major markets were operating at below-average profitability. To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed.“
Importance of underwriting discipline
Against the background of ensuring pricing adequacy, underwriting fundamentals such as risk selection and costing, portfolio steering, appropriate terms and conditions, and contract wordings will be critical to writing future business.
A move to a more scientific, technology-driven approach will continue to strengthen underwriting. Advanced data analytics are already available to enable real-time views, market awareness, portfolio analytics and dynamic feedback loops to improve risk selection.
Swiss Re is making use of advanced technology to lead the way in underwriting. This includes enriching client exposure information with geospatial data to improve both the accuracy and speed of risk and loss assessments. In contracts, natural language processing complements human contract reviews, which helps to flag favourable vs potentially problematic clauses and generate new wording insights.
Swiss Re’s Group Chief Underwriting Officer Thierry Léger said: ”At Swiss Re, we have accelerated digitisation and the use of more and better data sources across the entire underwriting process. With these capabilities and the risk insights from Swiss Re Institute, we can improve our own decision-making and effectively support our clients in their underwriting.”
Swiss Re builds on solutions and risk knowledge in partnering with clients
In addition to sharing its risk know-how, Swiss Re partners with clients to help them grow and improve their efficiency and profitability. One such example is in the area of data analytics. Swiss Re’s analytics platform and bespoke advisory services provide detailed portfolio insights to insurers. This helps them gain a better understanding of their risks.
Technology is also used to support Swiss Re’s partners in delivering streamlined, digital and affordable protection products: iptiQ, Swiss Re’s digital white-labelling B2B2C insurance platform, helps these partners to improve customer journeys and access new customers.
Swiss Re builds on the insights of Swiss Re Institute to offer tailored solutions to its clients. Based on its proprietary risk models for natural catastrophes, for example, Swiss Re has supported clients in underwriting US flood business, an area for which it was previously very difficult to offer insurance solutions. Other topics include forward-looking modelling in liability and motor research, and cyber risks.