The COVID-crisis is “game-changing”, according to Hannover Re executive board member Sven Althoff. He compared it to events like 9/11 and Hurricanes Katrina, Rita and Wilma in 2005 in the impact it was having on the reinsurance cycle.
“The difference compared to, for example 2001, is the fact that we are not seeing any immediate additional opportunities for pandemic cover like we have seen for terrorism coverage at the time,” he added in an interview. “This, of course, has to do with the fact that COVID-19 is still ongoing and that expected opportunities will often involve private-public-partnerships which will take time to develop.
“However, COVID-19 will be the catalyst for significant repricing in both primary insurance and reinsurance.”
Looking ahead to the 1 January renewals, Althoff said the reinsurance company was already anticipating significant price increases and improved conditions across many segments. Further losses in the third and fourth quarter of the year will be decisive in determining the extent to which rates on line harden, he said.
“COVID-19 is making 2020 a costly year already and if you add a severe second wave or a severe hurricane or any other large catastrophe, 2020 could well become one of the costliest years ever for our industry, with all the implications for an acceleration of the significant repricing of reinsurance that is underway already.”
Hannover Re has seen a number of additional property cat placements so far this year “as ceding companies want to reduce their volatility from that side given that COVID-19 is already testing both the asset and liability side of insurers’ balance sheets”, said Althoff. He also expects to see an increased demand for structured reinsurance solutions from clients “interested in improving their solvency ratios.
To date, the biggest claims impact relating to the global pandemic has been felt within business interruption, trade credit and event cancellation.
But coronavirus has not been the only source of major claims in 2020, reminded Althoff.
“The devastating explosion in Beirut has been a dire reminder of the threat to lives and property that man-made catastrophes can pose to people beyond natural disasters such as windstorms, wildfires and earthquakes.”
“The measures undertaken by governments and the duration and intensity of the pandemic will play a defining role in shaping loss experiences,” he added.
COVID-19 has fuelled further technological change within the reinsurance industry, said Althoff, with Hannover Re shifting to a fully digital mode for the first time.
“We have adapted pretty well to that. The April renewals were the first sign of proof that we are able to serve our clients remotely as well and through the remainder of the year, we have all adapted quite well to working remotely.”
“While feasible for some time, virtual meetings will never be a full substitution for meetings in person and we all look forward to returning to a more normal life as soon as possible,” he added. “At the same time virtual meetings will stay more acceptable also in the future so that they will not disappear after COVID-19.”
“In addition, this experience has highlighted that electronic trading with more automatic data transfer is an area of further improvement for our industry and we expect an accelerated development in this direction out of the COVID-19 experience.”
While there remain some inefficiencies in how the business is transacted, in areas such as automatic data transfer and data standards, he thinks the emergence of insurtechs and more latterly, the COVID-crisis has enhanced and accelerated the digitalisation of the insurance industry. But added that further innovation was “necessary in order to ensure that the expenses associated with handling the business can be managed”.