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Whenever there is a disaster somewhere in the world and news about it comes to the dinner table, my family invariably asks me, “Will you help with this?” I love how this question gets to the heart of the reinsurance industry and the vital role our sector plays in the world.
I have often used the analogy of a “shock absorber” to illustrate the role of reinsurance. It is a simple way to explain a complex business. While this is clearly important to our clients, reinsurers bring much more to the table. At Swiss Re, we are a partner across the spectrum of risk awareness, risk management and risk transfer with our broad product offering, global reach, expertise and tools.
Reinsurers as shock absorbers to increase society’s resilience
In 2023, the reinsurance industry will pay out more than $150 billion in claims globally across property, casualty and specialty lines. These payments span a staggering breadth of incidents, including major industrial fires, riots, defective products, damage to wind farms and bridges, ransomware and supply chain disruption, as well as earthquakes and extreme weather events.
When we look closer at the devastation caused by man, natural disastersAnnual global insured losses of more than $100 billion have become the new norm. The exact amount reinsurers contribute to natural catastrophe coverage varies by event; for high-severity events, it can amount to more than two-thirds of total insured losses. For example, Swiss Re estimates that reinsurers will fund about 80% of the Caribbean losses from this year’s Hurricane Beryl, the earliest Category 5 hurricane on record.
The reason reinsurers can play the role of shock absorber is largely due to two factors. The first is sheer financial strength – enough to absorb large losses and maintain solvency even in the event of major catastrophes. The second is global diversification, which helps spread exposure across geographies and industries and creates deeper insights into the overall risk landscape.
At Swiss Re, we have 50 experts managing 200 proprietary natural catastrophe models, supporting colleagues in 80 offices around the world who understand local dynamics and can respond quickly to our clients’ challenges. This type of close collaboration between insurers and reinsurers is essential for building resilient societies and economies; but more is needed to close the protection gap.
Reinsurers as a springboard to address protection gaps
Despite the ability of reinsurers to increase economic and social resilience, global protection gap (the difference between economic and insured losses) for natural disasters alone will reach $172 billion in 2023 (and $1.83 trillion for all perils, including life and health). If we are to close this gap, we need a multifaceted approach that addresses the disparities in insurance coverage across populations and countries.
Fostering partnerships between reinsurers, insurers, governments and non-profits is an important part of creating affordable and more accessible insurance products. Since 2011, our Solutions for the public sector The company has completed more than 1,400 transactions in over 80 countries. This public-private approach facilitates investment and economic growth in areas such as international trade, agriculture and infrastructure development. It also helps protect natural resources and supports new industries needed to meet decarbonization goals.
These partnerships also provide vital disaster recovery funding to communities around the world. One of the many powerful examples follows the Turkey Earthquake in 2023. For more than two decades, Swiss Re helped grow the Turkish Catastrophe Insurance Pool, which provides coverage to people who would otherwise likely have no insurance support. Thanks to this foresight and successful public-private partnership, more than 500,000 Turkish households received benefits after the devastating earthquake.
Reinsurers as a compass for data-driven decision-making
To move forward as a reinsurance industry, we need to use data to better predict future risks without being too tied to past biases. As a reinsurer investing in the power of data and technology, we are here to support clients with the tools and solutions essential to understand and mitigate risk, unlock innovation and improve performance.
For example, Swiss Re recently acquired Fathom to improve its understanding of flood risk. Now linked to our CatNet® PlatformThis has the potential to unlock new underwriting opportunities and improve insurer performance. Natural catastrophe ownership models also help our clients gain valuable insights into over 90% of the world’s insured exposures to extreme weather events.
To further push the boundaries of insurability, it is vital that data flows effectively across the value chain. As perils emerge or increase, such as extreme weather, rising jury awards in the U.S., or cyber threats, we need accurate and timely data to recalibrate models and provide forward-looking scenarios that help us price risk accordingly. These insights also facilitate deeper conversations and greater collaboration to create optimal reinsurance structures and find innovative risk-sharing solutions.
Working together for progress beyond risk transfer
As a reinsurer, Swiss Re helps clients navigate other headwinds, including macroeconomic volatility, geopolitical instability, climate change and energy crises. In addition to traditional risk transfer, we provide insights, knowledge and tools that enhance risk awareness and inform effective risk management strategies.
We are a partner for our customers’ progress – a predictable shock absorber, a springboard for new ideas, and a compass to guide decisions about the best path forward. I look forward to discussing all of this and more during the conference season as we work together to bring these different roles to life in practical and purposeful ways.
Going back to my family dinner discussion, I’ll probably spare them all the details. For now, I’ll stick with the “shock absorber” analogy, and if they ask if Swiss Re is helping, I’m happy to say, “Yes, and we want to do more.”
Urs Baertschi is CEO, Property & Casualty Reinsurance at Swiss Re
