Mumenthaler: Public-private partnerships must go beyond pandemic

Swiss Re CEO Christian Mumenthaler said that the (re)insurance market should seize the chance to develop public-private partnerships that go beyond addressing pandemic and proactively consider other systemic risks such as cyber.

“We need more thinking ahead in risk management,” he urged.

Opening Insurance Insider's (Re)Connect online conference, Mumenthaler said he believed reinsurers would only be able to provide a small part of the overall solution for pandemic risks.

"Reinsurance can play a role in the risk assessment if needed, and taking some of the risk," he said.

Efforts to progress public-private partnerships would have to come from both insurers and reinsurers, with primary carriers having the “critical touchpoints” with small to medium-sized enterprises and the ability to pay claims and distribute policies.

In a round of second-quarter results that showed material differences in approaches to Covid-19 reserving, Swiss Re added to its Q1 number to take its H1 pandemic-related reserves up to $2.5bn.

Mumenthaler stressed that reserving for the pandemic loss had been a particular challenge around BI, as there was variability in clients’ underlying wordings and portfolios, and there was little loss reporting to date as insurers are still fighting off claims with legal test cases pending.

“The reported cases were miniscule,” he said.

Significant uncertainty also remains around credit and surety pandemic claims, he noted, before adding, "Casualty is a big question mark, no-one knows what's going to happen to casualty due to Covid-19."

Meanwhile, Mumenthaler continued the reinsurer's strong line on rate remediation after the firm labelled existing price hikes "timid" during a press conference last week.

"[Rates are] taking off on a nominal basis but we have to stress how important this interest rate change is, how big a difference it makes," he said.

Having grown its P&C book 6% in the July renewals, Mumenthaler said that 4 points of that was eaten up by lower interest rates, and after rising loss costs from model change and other factors, overall he believed rate adequacy was flat.

Casualty loss inflation had been “quite extreme and unexpected” in the past few years, influenced by factors such as increased litigation funding and social injustice concerns. “It doesn’t seem to have an end, for now,” he noted. But ultimately, when higher costs translate to higher premiums, the Swiss Re leader said he believed legal reforms would be enacted to stem the surge of claims inflation.

“But that is not yet in sight,” he said, warning that Covid-19 could exacerbate the issues in terms of med-mal and workers’ compensation. “If you are a casualty underwriter in the US right now, you probably have one of the most challenging jobs.”

In terms of future pandemic exposure, clear exclusions would be enforced to return cat XoL products to their intended purpose of covering natural catastrophes.

But Mumenthaler suggested that it was inevitable that reinsurers would retain some degree of catch-all cover as they were more fit to retain this volatility than primary carriers.

“The challenge is you take all risks in reinsurance and you hope you have captured all risks in your modelling. To be fair, it may be better that the reinsurer takes some of the uncertainty rather than the people at the front,” he continued. “[But] in this specific case you have a big risk that was not thought about when costing, and that has to change one way or another.”

On technology, Mumenthaler said that he believed increased data would be more of a game changer for the industry than AI.

And while technology could create a much more efficient value chain at InsurTechs than at incumbent carriers, it was much easier for the challenger firms to partner with existing franchises to find insurance growth, he said.

The Swiss Re CEO said that InsurTech start-ups often neglected to account for the behavioural economics of insurance – the underlying reality that because consumers do not like buying insurance, traditional purchasing relationships were deeply engrained.

"People jump to the conclusion that they can set up a digital insurer and be hugely successful because they can offer 5% to 10% lower prices – then they discover people don't come."

This was why the carrier was working with companies with an existing client base through its IptiQ white-label digital insurance company that provides capacity to distributors to offer add-on insurance, the CEO said.

On diversity targets, Mumenthaler said that one way Swiss Re has achieved progress on ensuring that a range of employees keep progressing up the career ladder while maintaining fairness is to have target promotion bands that reflect the underlying gender balance of the lower-ladder peer group.

To view this discussion and other (Re)Connect sessions on demand for free, click here.

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