Changing natural catastrophe threats and the fast-evolving cyber market have combined to make the art of underwriting more important than ever, and something that unites the whole re/insurance market.

That was the central message of the opening speech at the second day of the Singapore International Reinsurance Conference (SIRC) by Achim Kassow, member of the board of management at Munich Re.

Kassow stressed that Singapore and the Asia-Pacific region are obviously of paramount importance to attendees at the conference and that SIRC is the most important reinsurance conference in Asia, providing a key platform that brings everyone together following the Monte Carlo Rendez-Vous.

“We’re operating in a complex and uncertain world,” Kassow warned delegates. “We see increasing globalisation, prevailing inflation expectations, social inflation, geopolitical uncertainties, and changing trends at the local level.

“In this context, we expect the global reinsurance market to see a slight uptick in real average annual growth."

Kassow highlighted a number of specific topics that the market must address. First, he said, it continues to be very important for insurance and reinsurance to be accurate in their estimates of inflation, and how that will develop. He admitted that inflation has started to fall, but pointed out that the average consumer price inflation in many industrial countries is likely to remain above central bank targets.

“Even the baseline scenario is still well above the inflation rates that have been seen in recent years, increasing the amount of uncertainty,” he said.

“Many risks are changing, with the case in point being natural hazards. There is no compelling reason to assume that the trend of natural disasters becoming more frequent and more severe will stop or even reverse any time soon.”

He specifically highlighted the numerous Asian windstorms in 2023 and the devastating earthquakes in Turkey and Morocco as being prominent examples of recent disasters. He called attention to the fact that the secondary perils, such as floods and wildfires, are far from being secondary when it comes to loss magnitudes.

Losses from these events now resemble those reported from major events. On top of that, repair costs have risen significantly, also due to inflation.

Cyber challenges

Kassow said that losses are on the rise in cyber insurance, with economic losses from cyber attacks expected to triple in the next three to four years. That is why the key challenge in cyber is transparency and coverage to ensure accumulation control.

“For these reasons, a few years ago we agreed to support the call for the establishment of a standalone line of business for cyber, eliminating the hidden side,” he said. “That is why we need clarity and learning, for example with regard to the exclusion of war, and systemic risks.

“Doing this is the best way to facilitate a sustainable and profitable cyber insurance market.”

Two major problems

Kassow said that from his perspective, the reinsurance and insurance industries are currently tasked by society with two big problems to solve. First, taking care of the risks connected to the transformation of economies to stop the climate crisis. He said that renewable energy is needed on a large scale, along with efficient storage systems and new mobility systems with environmentally-friendly engines.

All of those come with new risks. The same is obviously true for digital transformation and interconnectedness, and artificial intelligence opens up a whole new world.

“We have to acknowledge that so far, only a fraction of those emerging risks are covered by insurance,” he added. “We have to become even more innovative and expertise-driven to fulfil the role we have been asked to playoff being an enabler of transformation.”

The second problem is underinsurance. In Asia, in many cases, the insurance gap is wide. Many victims of natural disasters in the region have to bear the financial impact themselves. On an aggregate level, economies with a low insurance penetration need much longer to recover from natural catastrophes.

Kassow said that the industry has to come up with scalable solutions to bring Asian societies to a significantly higher insurance penetration level, but he feels it is possible.

“Our commitment is for our clients to know that they can count on us, especially in uncertain times,” he concluded. “It is my firm belief that we as an industry can have a positive impact on mankind.

“I know it’s a big claim, and a huge responsibility. However, if we work hard on the tasks mentioned, I’m convinced that our industry, with all of our solutions, can make a difference together.”