Insurance will be central to mitigating transition risk caused by 21st century megatrends, delegates heard at the latest Guernsey Insurance Forum.
Rowan Douglas, Chief Executive of Capital Science & Policy at Willis Towers Watson and a member of the first panel session at the recent London event, said that reinsurance was the ultimate global community product to fund post-disaster relief and that insurers had a leading role to play in protecting against the impact of natural disasters.
He stated that there was a 1% chance of the world suffering approximately $1.3 trillion of natural catastrophe losses in 2018, suggesting that such a devastating scenario might be expected to occur once every 100 years or so.
"That is increasing because of growing exposure and the gradual effects of climate change," Mr Douglas said, before also discussing the future of technology in the insurance sector and how InsurTechs were helping the industry become more efficient and increasing direct supply and distribution changes.
"What will really change [in the sector] is how resilience-related services and transactions are wrapped up and integrated within mainstream [insurance] business. That is the revolution – it's not about technology, it's about rethinking how resilience is going to be incorporated into core financial valuation and how that's going to be transacted and traded.
"And that's very exciting because it's our industry, not banking, or even asset management, that sits at the heart of that revolution."
Natural disasters, or environmental issues, and technology were two of the top five megatrends highlighted by PwC Global InsurTech Leader Jonathan Howe along with changes in society (demographics, ageing population, ethnic mixes, urbanisation), economic change and politics.
Mr Howe also noted how important it was for different parts of the industry to work together - especially start-ups and incumbents agreeing that there was a place for them not only to co-exist, but to collaborate. He claimed that InsurTechs need the industry because they lack vital elements such as money, customers and data, but insurers also need access to the flexibility, innovation and new ideas offered by InsurTechs.
"I think it's the only way forward," he said. "People said there would not be much disruption in insurance and I think that's right. By far the majority of InsurTech start-ups I see, probably well over 90%, are not trying to be insurance companies end-to-end. These are companies that have some technology and are looking at a very specific part of the insurance value chain, a really small niche, and saying they can do that better and can solve that problem. You could build it in-house, but it takes three or four years and the end result is generally disappointing. It's flexibility at speed and they need each other to move."
The other members of the panel session included Airmic Deputy Chief Executive Julia Graham, who agreed that collaboration was key in the future and stressed sensible, basic risk management; and International Association of Insurance Supervisors Senior Policy Adviser Peter van den Broeke, who suggested that coming up with best practices from a regulatory and supervisory perspective required a new, flexible, attitude based on core regulatory principles rather than simply seeking to adapt existing practices to meet the needs of new business models.
More than 160 delegates attended the Guernsey Insurance Forum. The event was sponsored by Appleby, Artex, Bedell Cristin, BWCI, Carey Olsen, Ogier, Robus, Royal London, SunTrust and Willis Towers Watson.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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