AXA XL reinsurance chief executive officer Charles Cooper has said that the re/insurance industry has to do better on terms and conditions after claims arising from COVID-19 led to confusion between clients and carriers over what exactly was covered under a swathe of different policies.
Speaking with the Re/insurance Lounge, Intelligent Insurer’s online, on-demand platform for interviews and panel discussions with industry leaders, Cooper warned that outdated policies terms, as well as failures to specify exactly what is and isn’t covered were issues that would continue to hound the industry if improvements were not made.
He said that carriers needed to distinguish on a pricing basis between coverage for specific risks that are clearly defined compared to broad-bases policies which provide a host of cover for clients but can make claims more challenging to process due to the ambiguity involved.
“Terms and conditions is something that we as an industry need to get better at. We started talking about this last year, that there should be a price for very specific coverage, and there should be a price for very broad coverage,” he said.
“Unfortunately, the way the market works is we typically use wordings that have been around for a long, long time. And every time something unusual happens there, there’s a problem.
“The pandemic is a classic case of it, about loss occurrence definitions, but we had 9/11 20 years ago, and that was also loss occurrence definitions. We haven’t, as an industry, nailed that down in terms of being very specific such that ‘this is a definition of an event, this is specifically what is covered’,” he explained.
“If you want very broad, vague coverage, there’s a different price that goes with it.”
Charles Cooper, AXA XL
Tighter terms
Cooper added that AXA XL had been working to tighten up its own wordings in negotiations with customers, and to specify that cover which covered a wide range of perils would have to come with a commensurate price for the risk being taken.
“As a company, we’ve been pushing that agenda, we’ve been having conversations with customers around explaining that if you want very broad, vague coverage, there’s a different price that goes with it,” he said.
“It’s a much higher price than if we can be very specific and detailed. This is what we tend to cover, because typically all that ambiguity in coverage ends up being borne by reinsurers.”
The executive said that predicted rate hikes at the forthcoming renewal seasons would likely be driven more by the need for underwriting discipline from the sector rather than any major constraints on capacity, particularly given that the market continues to attract new capital.
He highlighted the need for the industry to meet its cost of capital for shareholders as well as uncertainties around secondary perils such as climate change and cyber risk as factors which would force a more considerate approach on future pricing.
“I keep reading about record levels of industry capital. Reinsurers have discipline right now and they are getting a lot of pressure from shareholders to deliver on the significant capital that is deployed in this business, and we haven’t in the last five years,” Cooper said.
“It’s much more a price-driven market than a capacity-constrained one. So I would expect rates to go up particularly where losses have been, but I don’t expect there to be a significant kneejerk, based on a supply:demand imbalance.”
“We need to make the world more resilient.”
Towards net zero
Given the large number of natural catastrophe losses this year, which Cooper pegged at around $100 billion for the industry to date, the executive said climate change was likely to be top of reinsurers’ minds as they approach the January renewals.
However, he added, the re/insurance industry has a significant role to play in moving economies towards a net-zero emissions future, and called on the sector to take a more proactive role in providing solutions for clients.
“We’ve been talking about it for years, right? Because we do it every day, part of what we sell is protection against some element of that,” he said.
“Now it is way more broad than just our industry. Every CEO of every company on the planet is now thinking about how to adapt their business for climate change. We as reinsurers should be able to raise our profile in the context of that discussion.
“Because we’ve been living it for quite some time and thinking about it from a different standpoint, if we think about how we price goods sold, and how do we become more resilient as a planet to the impact of climate change. It’s still going to be 20 or 30 years before changes we make today are felt.
“We need to make the world more resilient, and that’s where re/insurance comes in to play a bigger role,” he concluded.
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