Clarity of cover is a key priority for Swiss Re’s chief executive Christian Mumenthaler when thinking about systemic risks moving forward in light of the industry’s experience with Covid-19, with Mumenthaler asserting the industry “must do better next time”.
Speaking to The ReInsurer during the latest The Best Policy podcast, Mumenthaler said non-damage BI accumulations in Cat XL policies had “become significant”, forcing a review of wordings to ensure cover is only being given where intended.
“Clearly in the past, the intent of all these CAT XL covers was to cover natural catastrophes,” he said. “We were covering basically property insurance that our clients give to their customers. And so that was the assumption, that whatever is in the contract, it will cover the nat cat piece.
“However, now we discover that some of our clients have given non-physical damage BI cover to some of their clients to an extent which accumulates across and becomes significant, which means that we need to review the wording of our contracts and either include it or exclude it. But obviously including it would make it incredibly expensive and frankly, not bearable overall.”
He added: “What is happening now is that we have to clarify this and we clearly exclude this type of pandemic from the contracts because it’s a totally different risk. It’s not diversifying across the countries, it’s actually accumulating and therefore everything since late April is being renewed in a different way. And this is an agreement in the industry because at the origin, these were supposed to cover natural catastrophes.”
Looking at how the industry has responded to the global pandemic more generally, Mumenthaler said that, “from a purely rational perspective, the insurance industry has responded very well.”
He said: “I know from a lot of my clients that they were able to be there all the time for their clients, to be operationally ready to work from home and this has worked quite well, especially when it comes to paying claims. And would say the overall burden is manageable for the overall (re) insurance industry.”
However, Mumenthaler is acutely aware of the emotional element in all of this and is conscious of the repercussions here.
“There’s clearly the societal issue with a lot of people across the world feeling they would be protected through whatever they’d bought and they didn’t realise that was not the intent of the policy and that there were certain exclusions and that certain things are not covered.
“This has certainly created a bit of a negative atmosphere and it’s very dependent on the country and some countries have found a good solution to that and some others it’s still brewing,” he added. On the subject of price increases, Mumenthaler said the industry – despite what we’ve seen on the rate increase front to date – is still in “unsustainable territory,” particularly when he thinks about the risks the industry faces.
“This year was the best year so far as we had six percent nominal price increases,” he said. “But from an economic point of view, if you discount all of that, you lose about four points because interest rates are much lower so the rate at which you invest your premiums and you receive in your reserves, is much lower.”
He added: “At Swiss Re, we increased some of the risk models based on the experience of the last few years, for example in Japan, and that loses another two points. So basically, we’re standing still, year to date.” Mumenthaler’s view is that prices must go up more - “just because of interest rates and everything we’ve seen so far and all the losses of the previous years,” he said.
“My sense is the mood is definitely there, and that the consensus – from what I’m feeling in the industry and across the board – is that we are still in unsustainable territory.”