Reinsurance in uncertain times

Nico Conradie, Chief Executive Officer, Munich Re of Africa

It is that time of year when the inboxes of industry executives are flooded with media requests for our views on the challenges and opportunities facing the re/insurance sector in the coming year. What they ask is what do we expect in 2022? And how do we intend to steer our businesses through the economic, political and social uncertainty as the world emerges from the pandemic?

Reinsurers do not have a crystal ball to glimpse into the future; but we are armed with data and statistics that allow us to identify and analyse trends and reflect on the impact that these trends may have on our clients, our partners and our underwriting experiences. As we enter 2022, much of our focus remains on the impact of systemic risk on the long-term sustainability of the insurance industry. The Covid-19 pandemic is ‘top of mind’ in South Africa, and globally, as we study the disease’s impact on mortality and morbidity experiences; and consider the potential effect of long-Covid on society.

The pandemic environment is dynamic, and it is impossible to predict how the pandemic risk will evolve through 2022. At the time of writing this, we had just learned of the emergence of a new Covid variant (Omicron), which was followed almost immediately by tough travel bans on South African passport holders. Suffice to say, reinsurers will, for example, spend many hours over the coming months in proposing insurance solutions for future pandemics, perhaps in partnership with governments worldwide.

The pandemic is not the only systemic risk we face going into 2022. The recent COP26 Climate Change Conference has refocused business and political leaders on the need to take meaningful action on climate change, and there will be renewed pressure on reinsurers to use their significant influence and capital position to contribute to achieving net-zero carbon emissions targets by 2050. From an Africa perspective, we remain concerned with the number of climate vulnerable countries on the continent, with the entire Sub-Saharan Africa (SSA) region being susceptible to drought, flood and extreme weather events.

Cybercrime has also emerged as a major concern for the reinsurance sector. The rising frequency and severity of cyber events demand a comprehensive approach from underwriters, who will turn to risk mitigation and prevention strategies and alternative forms of risk transfer to reduce exposures through traditional insurance arrangements. The best response to adversity and uncertainty is for reinsurers, our clients and the end insureds to take a disciplined approach to risk management and find ways to prevent losses from occurring. This is a better alternative to simply relying on the industry to cover every loss following a disaster.

The losses suffered by global insurers and reinsurers over the past two years suggest that hardening market conditions are likely to persist. We can therefore expect tough renewal negotiations and ongoing upward pressure on premiums in the coming year. This is especially true in South Africa, where both life and non-life insurers paid out billions in pandemic-related claims during 2021. To make matters worse, the country’s special risks insurer recently confirmed that it had received claims totaling ZAR32 billion following unrest in KwaZulu-Natal and Gauteng in July 2021.

And yet, we also see – and certainly strive to leverage – some positives of the changing landscape. For example, the struggle with the pandemic, which has been ongoing for almost two years, has led to accelerated and irreversible adoption of technology and fast-tracked improvements to many operational aspects of insurance and reinsurance businesses. We will focus on maximising the potential in technology. Globally, new solutions are being developed using advancements in augmented underwriting, improved risk assessment models that integrate at point of sale and enhanced claims rules engines, among other innovations; locally, our efforts will be aimed at customising these solutions for the SSA market.

As an optimist, I am looking forward to positive surprises for all of us next year for a change.