Edouard (Eddie) Schmidt is responsible for Swiss Re’s Property and Specialty Sectors around the world, which covers around a lot of ground. He explained how much, and what some of the difficulties he encounters are at an interview in the Swiss Re pavilion at the Reinsurance Rendezvous in Monte Carlo.
“My teams around the world underwrite the businesses in these lines,” he said. “Property – with a compass we insure all the buildings, the factories, the physical assets around the world against fire, explosions, natural perils. The specialty lines are more the niches covering areas such as the construction business and infrastructure projects.” It also includes agricultural coverage for crops, marine, aviation and trade credit. “We make the world go around,” Schmidt said.
While the bulk of Swiss Re’s activities remains in the developed world – the U.S., Europe, Japan and Australia – it has an increasing presence in emerging or “high growth” markets. “They’re increasingly contributing to our total business,” he said. Countries figuring notably in the growth figures include China, India, Latin America, Brazil, Indonesia and Mexico.
While growth in mature markets is pretty much “in line with economic growth, which is a bit moderate, particularly in Europe; in these high growth markets the economic growth, and of course the growth in insurance business, is much steeper than in mature markets. My attention has therefore shifted a bit more to these high growth markets. However the established markets continue to play an important role.”
He pointed out, however, that “there’s a huge protection gap in both mature markets, and in what we call emerging markets. There’s a lot of risk out there that’s still not insured or reinsured.” While some natural catastrophe risks are widely covered, as shown by the fact that the re/insurance industry “pays out on average claims per year something like $50 billion.
“But if you look at the total economic losses they would be something like $150 billion… less than one third of the total risk out there is insured.” While the gap is larger in emerging markets, such as China and Indonesia, they also exist in mature markets.
A surprising example is Switzerland, Schmidt’s home country, which, while it’s one of the most insured countries, has a history of seismic activity, but has very little coverage for earthquakes. California, where “less than 10 percent of homeowners would buy an earthquake policy, protecting them against the risks of earthquakes,” is another example.
Product development is another area Schmidt oversees. Emerging markets are at present primarily interested in “basic products” – cars, liability, properties, industrial properties and the construction business – with coverage for fires and natural perils. These markets, however, will very soon become interested in newer products for different perils.
“New types of risks, like cyber and supply chain risks are key concern of many corporates,” Schmidt said. Business interruption now includes supply chain disruptions, or contingent business interruption. The insured may not have suffered actual damage, but may have suffered a substantial loss, as the company cannot manufacture certain products without the necessary component parts. He cited the Thai floods as “being a perfect example of just how interconnected today’s world is in economic terms and manufacturing terms.”
It’s a major challenge for re/insurers to design coverage for these types of losses, which “requires a certain amount of transparency,” as it’s necessary to learn the real situation of the policyholder. But “there are no easy solutions,” and both insurers and reinsurers are still working on it.
There have been some claim, “but probably the big claims surprises have not happened – yet,” Schmidt said. “But my feeling is that supply chain risk is a bit underestimated. It just takes an event, affecting a manufacturer, that really becomes a bottleneck to others around the world.” A recent example was a fire at the factory in China that supplied semiconductors to both European and U.S. clients. The event triggered a number of policies, covering lost production; i.e. contingent business interruption.
“Cyber risk is definitely high on everybody’s radar, “Schmidt said. It’s another example of “interconnectivity and also shows the regulatory activity around data protection.” The re/insurance industry “cannot hide. We need to be progressively engaged with the policyholders and then find solutions. I think it goes beyond just providing the coverage; it’s also insurance companies also provide services to help – we are mitigating these risks.”
Part of that assistance is preparing business to “plan for their continuity in case something happens. So we engage with our clients – insurance companies – to help them find ways to provide protection for their policies around cyber. There’s cyber liability; there’s also the ‘first party’ parts. Out of cyber tech you can also suffer a business interruption, and that’s also a major concern for many companies, and that’s also where we need to engage.”
In addition cyber carries potential “accumulation problems,” as “a computer virus could affect many companies at the same time, and create quite an accumulation of losses, and there we need to find ways to manage these accumulation risks. It’s a bit similar to a nat cat risk, where you have something that affects a significant number of policies out of the same event.”
Schmidt also explained that although Swiss Re’s direct clients are primary insurers, with the more complicated kinds of risks, especially where mitigation and pre-loss protective measures are required, it’s desirable to work with all parties.
“We think this is really at the heart of our value proposition,” he said. “We also launched our new brand promise – so to speak – that we work smarter together. So our clients, the insurance companies, work with their policy holders, and we try to support them in the best possible way – to really find solutions to all the big risks that are out there.
And all the parties, the policyholders, the insurance company and the reinsurance company – Swiss Re – can really add [something] to deal with these risks in a better place.” In the end this approach makes “societies more resilient against the vagaries of the world out there.
“I think we have a good track record, but there’s significantly more that we can do. It’s much more than just providing capacity at a price. It’s really up to us to find ways for our insurance clients to grow their business, to help them with their strategies; it’s not just the narrow minded reinsurance coverage that has a certain price; that’s negotiated at one point in the year.
“It’s a more comprehensive relationship that we try to support our insurance clients across the board, and make them successful in their business.”
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