Insurance and reinsurance need to learn to adapt to the challenges it is facing, Denis Kessler, chair of the board and CEO of SCOR Re, has warned.
Kessler, who presented a global industry keynote speech at this year’s European Insurance Forum, likened the insurance and reinsurance industry’s journey to an airplane's flight path, along which it’s susceptible to headwinds, crosswinds and tailwinds.
The headwinds threatening the industry include macro economic uncertainties, low interest rates and financial regulation overload, while increased supply driving down prices is a worry for the reinsurance market.
Focusing on macro economic uncertainties, Kessler said that the economic slowdown of the last 10 years has “hampered reinsurance and insurance industry demand”. He noted that some sectors, such as oil and gas, in particular have suffered adverse developments, while investments in housing and infrastructure have declined.
Kessler said: “This combination of factors has resulted in a subdued insurance and reinsurance demand.”
Kessler also discussed low interest rates. He noted that even though rates have increased in places recently, they still remain extremely low, especially in Europe.
"This ultra low-yield environment has resulted in a strong decrease on the asset side of contributions to insurers and reinsurers’ bottom line.”
He then moved onto the ‘tailwinds’. Examples include expanding the risk universe and major protection gaps.
Discussing the expanding risk universe, Kessler suggested that while traditional risks remain, new risks are emerging or transforming and increasingly complex interdependencies are drawn between them. He said: “The insurability frontier needs to be pushed further for this risk universe expansion to be a true tailwind.”
Finally, Kessler touched on the crosswinds of the industry, including disruption, suggesting that some developments have raised questions about the relevance of the traditional insurance and reinsurance model.
He believes that insurance and reinsurance need to cope with disruptions by adapting, innovating and transforming to meet developments.
Kessler posed the question: “Will insurance and reinsurance transform to adapt to the digital revolution, or will some new entrants disrupt the sector and create a new insurance model, thereby replacing age-old incumbents which have failed to adapt?”
