Swiss Re Sees Increasing Demand for Reinsurance
The reinsurance industry is witnessing a marked uptick in demand for protection, particularly in property and specialty lines, as insurers readjust to meet escalating natural catastrophe risks and an increasingly litigious environment.
This trend, expected to be a key topic of discussion at the Rendez-Vous de Septembre in Monte Carlo, draws attention to the growing complexity of risk assessment and the critical role of data analytics in shaping the industry's future.
Swiss Re, a leading global reinsurer, reports that 2023 marked the fourth consecutive year with global insured losses from natural catastrophes exceeding US$100bn. The first half of 2024 has already seen insured losses reach $60bn, 62% above the ten-year average.
This trajectory has intensified the focus on refined data and modelling techniques as essential tools for navigating the volatile risk landscape.
Urs Baertschi, Swiss Re's Chief Executive Officer of Property & Casualty Reinsurance, emphasised the industry's readiness to meet these challenges: "Faced with elevated natural catastrophe risks, economic uncertainty and geopolitical instability, reinsurance is the natural way for insurers to protect themselves from outsized losses. We are ready to support our clients with our capital, expertise and solutions."
The demand for property reinsurance is being driven by multiple factors, including higher property values, urbanisation, and rising repair costs due to inflation. These elements are particularly pronounced in areas experiencing intensifying natural catastrophe risks. According to a recent report by ClimateWise, a global insurance industry collaboration, the frequency of climate-related perils has increased by 36% since 2020, with flood events showing the most significant rise at 41%.
Technological advancements in risk assessment
In response to these challenges, reinsurers are doubling down on tech to enhance risk assessment capabilities.
Gianfranco Lot, Chief Underwriting Officer of Property & Casualty Reinsurance at Swiss Re says: "To further progress as an industry, we need to leverage data better to predict future risk without being too anchored in the past. As a reinsurer we want to be a facilitator for our clients, helping them achieve greater precision to manage what's ahead of us."This push for precision is evident in the industry's adoption of advanced modelling techniques.
A 2024 survey by InsurTech Insights revealed that 78% of reinsurers are now using machine learning algorithms to enhance their catastrophe models, up from 62% in 2022. These models incorporate a wider range of data sources, including real-time satellite imagery and IoT sensor data, to provide more accurate and timely risk assessments.
The cyber insurance conundrum
The cyber reinsurance market is poised for continued growth, driven by increasing awareness of both the frequency and sophistication of cyber attacks. However, the management of accumulation risk remains a critical challenge for efficient capital allocation in this sector. A recent study by CyberCube Analytics indicates that the global cyber insurance market is projected to reach US$34bn by 2025, with reinsurance playing a crucial role in managing capacity.
To address the unique challenges posed by cyber risks, reinsurers are developing specialised products and services. Swiss Re, for instance, launched its Centre of Competence for Renewable Energy in 2023, aimed at supporting clients with expertise and products in managing their renewable energy portfolios. This initiative reflects the industry's broader shift towards sector-specific solutions that combine risk transfer with advisory services.
US litigation environment: A growing concern
In the United States, the elevated litigation environment poses a significant challenge for the reinsurance industry. US liability claims growth has outpaced economic inflation over the last decade, driven by a growing number of large court verdicts. In 2023, there were 27 cases where courts awarded more than US$100mn in compensation. This trend is prompting reinsurers to reassess their approach to casualty lines. Industry experts predict that the impact of claims growth will outweigh the benefit of higher interest rates on casualty lines within the next one to two years, potentially leading to a further reduction in available capacity.
**************
Make sure you check out the latest industry news and insights at InsurTech Digital and also sign up to our global conference series - FinTech LIVE 2024
**************
