Swiss Re, as host of its Nordic Risk & Insurance Summit (NORIS™) conference, warned that the “economic environment in the wake of the financial crisis is still very challenging and turbulent.”
Swiss Re described the insurance industry as “moving from coping and survival to fixing profitability, product development, risk management and maximizing capital efficiency.”
In particular it pointed out that life insurers “still have a heavy focus on savings-type products with expensive guarantees,” and that refocusing after the crisis “will have massive consequences for cash flow, product distribution, and the skills needed to run these firms. But there will also be new business opportunities.”
Thomas Hess, Swiss Re’s Chief Economist and Head of Economic Research & Consulting, warned that the consequences of the worst global financial crisis since the 1930s have yet to fully play out. “After three years, we can begin to draw some conclusions,” he stated. “The global banking system teetered on the brink of collapse. The insurance sector remained functional throughout the crisis. Its business model proved robust even in times of extreme financial stress, but it’s unclear if we can continue as before. The tectonic plates of capital and insurance markets have shifted.”
Nordic countries were to some extent spared the worst of the financial crisis, as “none suffered exceptional insurance sector damage.”
Hess indicated that non-life insurers would face less of a change in the business model, but would need “tighter cost controls and higher premiums to counter lower investment returns and higher claims expense inflation. The new solvency standards under the EU’s Solvency II regime will challenge companies that are less well capitalized.”
Reto Schneider, Swiss Re’s Head of Emerging Risk Management, described some of the risks/challenges the industry faces. “One major cluster of risk relates to food, water and energy security,” he stated. “These things must be successfully managed based on future population and economic growth, which in turn will create tremendous pressure on the environment. In light of global governance failures and the widening economic disparity between rich and poor countries, the potential for geopolitical conflicts is on the increase.”
As a result he indicated that it’s possible to identify sectors with growth potential for innovation and new business opportunities. Schneider pointed out that “in order to successfully manage the global risks of the future, we need dramatic improvements in energy efficiency, renewable energy, energy storage. We also need a boost in the development of clean technologies. The insurance industry can play a pivotal role as an enabler of this urgently-needed technology transformation. But to ‘de-risk’ these new technologies, we also need a mutual and sound understanding of emerging risks among the stakeholders involved.”
Source: Swiss Re
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