The insurance industry is a living thing, and therefore exposed to the social, economic and geopolitical conditions that occur in the world. While their behavior has historically been cyclical, experts say we could be facing a totally unprecedented set of circumstances.
It was at the first meeting of the International Global Risks Seminars that, under the baton of Miguel Rosa, CEO of MAPFRE RE, Anthony Phillips, Chairman of Guy Carpenter in Latin America and the Caribbean, and Jim Williamson, Executive Vice President, Chief Operating Officer and Head of Reinsurance of Everest Re addressed the current situation of the reinsurance market, in addition to the immediate background and factors that have led to this unprecedented scenario.
A major disruptive catastrophe
The starting point of this new scenario could have been in 2022, when Hurricane Ian caused catastrophic damage on the southeastern coast of the United States, with scars that ended up changing the paradigm of the reinsurance sector the following year. “It was a turning point,” says Phillips, signaling the resulting tightening of the market, although noting that “it is peaking, we are starting to see it flattening out”. On this premise, Williamson commented that “reinsurance capital responds, like any other commodity, to the law of supply and demand,” and factors such as the increase in extreme weather events or geopolitical tensions have caused “an abrupt drop in the supply of capital that was available”. This loss of investment has caused a price imbalance that has put the sector in an environment not seen before.
The experts’ medium-term view is, however, positive. Everest Re’s Head of Reinsurance believes that while activity for many years did not show any great signs of gain, “we are now achieving reasonable returns, although if rates fall, the supply of capital will drop, so we expect them to remain relatively constant”. Given this situation, the Chairman of Guy Carpenter added that it is necessary “for the market to maintain its current rating so that we can attract capital. If we don’t get yields, we’ll lose it”. As an expert in the area of Latin America, Phillips remembers that while rates in regions like Brazil may continue to rise due to the unprecedented losses. “in other high-risk territories the market is starting to flatten, and we are starting to see that Single Risks have a lower rate than in previous years” and, after years of continuous increase, the market has found a reasonable balance to manage risks appropriately in a context of uncertainty.
New risks, new opportunities
After the analysis of environmental factors, Miguel Rosa put on the table an inescapable topic in any debate about the future: technology. Specifically, he started by questioning cyber risk management. “It’s a line of business that is growing exponentially, but it’s not firm yet, because it’s hard to explain its relevance. We are seeing it only in large multinationals, banks or supermarket chains that trade with credit cards, but in an incipient way. In Latin America, it is particularly concentrated in places like Mexico or Brazil, but not in other countries,” Phillips said, to which Williamson added that cyber premium volume is below the rest of the industry, although he insists that this evolving profile of crime should not be lost sight of. “It’s really a matter of time, it’s going to extend globally. The challenge of cyber is that, unlike a major natural disaster—the effects of which we can predict—it remains little known. We don’t know how the internet or interconnectivity will respond in the event of a massive attack, so it’s hard to understand what risks we are taking,” he added.
To exemplify this danger, experts shared experiences in this field, such as using AI to replicate the voice of a senior executive who requested a large transfer from a member of his team who, by failing to detect the fraud, was willing to carry it out. The most alarming thing about the case is that these types of tools, which make it possible to steal the identity of any person, are accessible to any user at trivial prices, not exceeding $5, so the average citizen’s exposure to these risks will be ever greater.
However, this technological advance also brings with it new opportunities for the sector, which is making use of it to provide a more efficient and effective service. “Today we have a wealth of information from companies, a level of data that allows us to do in-depth analysis, which helps our customers make their subscriptions. The more data we have, the better decisions we can make,” Phillips said. Everest Re, in the words of its Executive Vice President, adds to this unstoppable trend the idea that it may cause the costs of action to decline. “We’re investing in it, we’ve multiplied our investment in data analytics by six, and we’re addressing AI in a significant way. By betting on it, we can not only make prices more acceptable, but we also offer a higher quality service. It’s a win-win situation,” he said.
The Chairman of Guy Carpenter said that this was a great opportunity for the reinsurance industry, a pioneer in industry innovation, which has already begun implementing predictive models in the climate area and that, with the help of AI, it could make a big difference in the adaptation of services and coverages for the user. On this point, he threw down the gauntlet to MAPFRE, which he regards as an example of leadership in progress, and this was noted by the moderator. “For us, being efficient and trying to provide the best service to customers is key and that’s why we’re working on it,” he concluded.
Remember that you have the interviews with Miguel Rosa and Anthony Phillips at your disposal after their presentation. Don’t miss out!
