Swiss Re’s Gianfranco Lot examines how the growing risk complexities in the decades ahead call for closer collaboration between (re)insurers and governments.
The growing risk complexities in the decades ahead call for closer collaboration between (re)insurers and governments
Some would say now’s not a good time to talk too loudly about global progress on the resilience and sustainability fronts. Events and developments over the last 20 years, after all, tend to add weight to this view. We only need to think about 9/11, a devastating pandemic, deteriorating geopolitical relations and insufficient progress in combating climate change. Some of these developments – not all of them, I might add – were admittedly “unknown unknowns” that no one could have foreseen. But today, writing this, I am convinced that we’re now far better placed to detect risk drivers.
Withstanding future shocks
A generation ago in the US, Swiss Re only had limited ability to determine the true flood risk for a location. Today, its probabilistic model can identify differing flood risks within the same flood zones. This means that insurers can offer flood coverage on a house-by-house basis. The flood example demonstrates how increasing amounts of risk-relevant data should facilitate more efficient and personalised insurance solutions.
Climate change, with its increasingly severe and volatile catastrophe losses, will substantially increase the property risk pool, with rising income and urbanisation the main drivers of exposure growth in emerging markets.
The environment going forward will likely be characterised by investment in green infrastructure to replace existing structures to cut emissions and upgraded building codes to improve insurability. Low-carbon energy and digital investments are critical enablers for achieving the Sustainable Development Goals and Paris Agreement commitments. Moreover, green infrastructure will likely lead to a property premium increase.
Contributing to road safety
In the broadest sense, sustainability will also entail reducing personal injury and losses resulting from car accidents. Here, too, Swiss Re has solutions to offer. Take our motor business – it provides another example of how we’re addressing sustainability risk.
Swiss Re’s Sigma economists say that global motor premiums will double by 2040. This development will be accompanied by the strengthening introduction of safety technology in car fleets, such as the widespread adoption of advanced driver assistance systems. Swiss Re’s cutting-edge technology for driver coaching and assessment, Coloride, can be activated when a new driving journey starts. At the end of the ride, the app provides the driver with recommendations on how to develop a safer driving style.
According to Swiss Re’s latest Sigma report, “More risk: the changing nature of P&C insurance opportunities to 2040”, car safety and automation will reduce accident frequency and claims. Digital technology, the report’s authors say, however, will subject insurers to new risks.
Facilitating transformational changes
Even without the unknown unknowns, it doesn’t look as though the coming two decades are going to be plain sailing. The ever more complex and ever riskier geopolitical, societal and commercial environment will continue to have a major impact on the way we do business. Some of these developments will, quite simply, be beyond our control. As (re)insurers, what we can and must do is to continue facilitating the transformational changes taking place in the economy, society and in technology. But this will only be successful through collaborative action on the part of the public and private sectors. For instance, climate change is the main risk to the global economy. Insurance can provide compensation for damage to property resulting from extreme weather events, but an institutional framework to encourage investment in green infrastructure, and upgrading zoning and building standards, are equally important to ensure insurability of property risks. Likewise, with expanding liability regimes, unsustainable social inflation needs to be curbed through legislation and regulation.