International Insurance Conference, Karachi “InsurTech & Microinsurance” April 14 to 16, 2019 Evolving in a Dynamic Risk Ecosystem Christoph Spichtig CUO SCOR Reinsurance Asia-Pacific
Evolving in a Dynamic Risk Ecosystem ▪ Purpose (enabler, provider of solutions and influencer of societal changes) ▪ Recognized? ▪ Disrupted? ▪ Contested? ▪ InsurTech ▪ Transformer or Disruptor ▪ What the industry is working on ▪ Case Study ▪ An InsurTech Underwriting application 2
The UN 17 Sustainable Development Goals and 10 Principles offer a useful overview of the challenges in front of the 3 global drivers The 3 global drivers shaping-up the future 3 “blocks of powers” or 3 “groups of forces” The Governments 1 & The Land & the The Industry & the People Real Economy the World of Finance The UN 17 Sustainable Development goals The 10 Principles of the UN Global Compact Principle 1: Businesses should support and respect the protection of Human internationally proclaimed human rights Rights Principle 2: make sure that they are not complicit in human rights abuses Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining Principle 4: the elimination of all forms of forced and compulsory labour Labour Principle 5: the effective abolition of child labour Principle 6: the elimination of discrimination in respect of employment and occupation. Principle 7: Businesses should support a precautionary approach to environmental challenges Principle 8: undertake initiatives to promote greater environmental Environment responsibility Principle 9: encourage the development and diffusion of environmentally friendly technologies Principle 10: Businesses should work against corruption in all its forms, Anti- Corruption including extortion and bribery Source: The United Nations 3 1) Public Authorities: Supra-nationals, Central Governments & Local Governments
Risk is our raw material, and these 3 global drivers are facing changes and pressures which have direct impacts on the risk universe The Industry & the Real The Governments & the World of The Land & the People Economy Finance Health Climate Robotic & change Automation De-materialisation Population size & age Energy Food Urban hubs Urbanisation Wealth distribution Water Technology / Data Supply Chain IoT Management Unrest / Violence Intangible assets Infrastructure These changes and pressures are often interrelated and interdependent 4
These changes affecting the 3 global drivers can be synthetized in 3 themes for the (re)insurance industry 3 global The Governments & the World of The Land & the People The Industry & the Real Economy Finance drivers 3 themes for the (re)insurance industry Sustainable Development & Energy Intangible Economy Hubs, Networks & Connectivity Transition Accelerating climate change – Dematerialization of “old” industries Shifting social landscape and growth of “new” industries without mitigating actions enacted potential large scale migrations yet Intangible assets’ growth, dominating Changes impacting clustering of people and wealth in the risk universe Changing demographics (size, age / in many companies balance sheets growing hubs life expectancy, health trend, new Hyper connectivity and real-time as real-time connected networks middle class in some countries, new standards of communication and rural areas facing “de - population” contracting one in others) action Increasingly volatile geopolitical Increased pressure on stability pillars New wave of automation and robotics environment against government and of societies: Food, Water, Health, Emergence of new vulnerabilities corporations vs. growing inequalities Energy, Infrastructure (reputation, hacks) Increasingly fragmented and Increased focus on “way of doing interconnected supply chains things” (Corporate & Social Responsibility) 5
Specific challenges and opportunities for corporates, insurers, and reinsurers arise from each of these 3 themes Sustainable Development & Hubs, Networks & Intangible Economy Energy Transition Connectivity Growing frequency and severity of man- Transformation of the nature of insurable Growing frequency of Nat Cat events “goods”: from tangible to intangible made events Challenges & Opportunities for the P&C (modelled and non modelled) Need of “insurance covers” for new risks Growing severity of Nat Cat events when Societal role of insurers as agents for impacting populated / costal areas (e.g., cyber, reputation, residual value on change & facilitators of the transitions: non-mobile assets) Need for “insurance cover” to support the funding of alternative replacement (re)insurance sector resilience of hubs and networks Development of customized new covers scenarios via insurance using parametric triggers, double-trigger Increased demand for PCR, Cyber, support traditional energy companies in indemnity, and structured solutions supply-chain vulnerability covers their transition Acceleration and increased Need to adapt traditional products (limits, Evolution of “insurance cover” needs interconnectivity in ‘risk chain reactions’ exclusions, PMLs, definitions) from Property towards Liability/ amplifying clash, correlations, and Health/Savings – with geographical accumulations divergences Moving from post-loss surveys & Importance of ‘non - traditional’ insurance settlements to loss scenarios & pre-loss buyers / decision makers (NGOs, MLIs) crisis management plans Growing weight of CSR criteria 6
The (re)insurance industry’s ability to take up the challenges and seize the opportunities goes with 2 goals and 3 objectives Goal 1 “De - commoditization” Goal 2 Expand the sphere of insurable / insured risks & Grow penetration rates for insured risks Objective 1 Be positioned at the centre of the risk solution ecosystem Objective 2 Build and invest in people Objective 3 Transact business in the most efficient way 7
(Re)Insurers must aim at being at the centre of the risk solution ecosystem, to act as federators and be “project managers” for the research, development, and successful implementation of long term solutions 2. Capital 1. Major Risks Own - borrowed - 3 rd party 3. Solutions Private – Public – PPP I. Risk Awareness III. Risk Management IV. Risk Transfer V. Risk Financing II. Risk Knowledge New Techs and Data are increasingly shaping- up the (re)insurers’ playing field 8 Market participants must either be the best at a single function within the system, or preferably be multi-functional and influential across the entire system
Insurers’ needs from reinsurers are expanding beyond traditional products to cover profitability, solvency, growth, and services RE RE Capital Protection contingent Earning Claims INSURERS Stability RE INSURER NEEDS REQUIRED CAPABILITIES 9
P&C InsurTech - what the industry is working on Transitory Necessary High Industry Adoption Low Threatening Experimental Low Market Strength High Customer engagement Underwriting & risk selection Claims management & prevention Product design & distribution 10 Source: CB Insights, “2019 P&C InsurTech Trends”
A successful digital strategy for incumbents reduces expenses to enable faster growth P&C Combined ratio in % (2010-2014) P&C Revenue Growth CAGR (2010-2014) 6.2% 102% 96% -6% 32% 26% Expense ratio + 1.8X P&C Industry: 4.2% 3.5% 70% 70% Loss ratio Top quartile digital insurers 1 Top quartile digital insurers 1 Rest Rest Source: SNL, McKinsey; 1 P&C carriers in the top quartile of all North American companies (across sectors) by total McKinsey Digital Quotient 11
Case study: Marine Treaty team is using Windward to better understand marine risk How Windward works External & Ship Operational Profile Accident-specific Ship risk score Fleet risk score Internal Data risk scores • Windward’s machine learning models use vessel operating patterns to apply a risk rating to ships / fleets, measuring the likelihood of a vessel having an accident in the year ahead and supporting risk selection decisions in real-time • Use cases include claims analysis, pricing model augmentation, evaluating new business, and predicting the risk of fleets to maximize portfolio strategy 12
Certain behaviors are highly predictive of marine losses 2016 – Mechanical Breakdowns 2016 – Contact Accidents 2015 – Port 2015 – Time in Least Most Lowest Highest approach speed high winds time time speed speed 2016 – Grounding Accidents 2015 – Duration of nighttime Lowest Highest voyages at dangerous depth 13 duration duration
This is our SBS Marine portfolio Portfolio risk distribution – common rating categories Portfolio composition 231 Supply vessel Fleets Bulk carrier handymax Tug 5,237 Vessels Container handysize Bulk carrier panamax 2,392 Oil products tanker handy Cargo Bulk carrier capesize 1,687 Bulk carrier handysize Tankers Oil products tanker Mr 1,158 Crude oil tanker suezmax Other 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 400 14
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