The global reinsurance sector highlights climate change as the top risk facing their businesses, a new survey from PwC shows, highlighting the need for the industry to innovate on solutions for this exposure.
Revealed this morning at an event in Monte Carlo at the 2023 Reinsurance Rendez-Vous de Septembre event, the ‘Reinsurance Banana Skins’ research launched by PwC with CSFI shows that climate change remains top of mind for the sector.
At the same time, when asked how well-prepared they are to handle the risks faced, on a scale of 1 (poorly) to 5 (well), reinsurers gave an average response of 3.41, above the average of 3.20 and the highest of all sub-sectors (composite 3.38, life 3.14, P&C/ non-life 3.13).
PwC sees climate change being identified as the top risk to reinsurers as no surprise, given their exposure to it.
The firm sees wide-ranging impacts for reinsurers resulting from the risk of climate change, including pricing, legal liabilities, changing consumer behaviour, alongside the net zero challenge.
Andy Moore, PwC UK partner and London Market leader, commented, “Reinsurers are acknowledging that the effects of climate change are already being felt. Combined with the fact that reinsurance is the most optimistic of all the insurance sub-sectors when assessing its preparedness to handle risks, these results make the case that now is the time to think differently and find solutions.
“It’s impossible to fully prepare for such a fast-changing and unpredictable risk, but the sheer scale of the impact on almost all areas of the market means doing nothing is not an option. Well- run companies are already taking action to enhance risk modelling, re-assess the resilience of their portfolios and implement strategic risk management reviews. Due to the ever-changing nature of this risk, companies need to put controls in place to ensure they have confidence in the data, infrastructure and policies they will rely on to remain agile in the face of the climate emergency and its repercussions. Doing this will put reinsurers in the strong position they need as they play a key role in managing the wider global transition to net zero.”
The operational risk associated with cyber crime was second on the list of the urgent risks facing reinsurers, followed by technology, as the sector showed concern in its ability to keep up with the pace of technological change.
Attracting and retaining talent was fourth, followed by regulatory concerns in five.
However, perhaps reflecting the hard market environment and the increased confidence in delivering to their shareholders, PwC noted that reinsurers showed considerably lower than average concern about their sector’s ability to achieve cost reductions to remain competitive, and its ability to manage change.
But, reinsurance was the only sector in the survey to place de-globalisation in the top ten risks, which PwC suggests may reflect the global nature of the business, and its concern about protectionism.
Interestingly, from other segments of insurance, reinsurance was itself identified as a risk, in terms of access to it and its cost, with the outlook depending on whether capital would shy away from the sector, or be enticed by hardening rates.
Andy Moore of PwC added, “Although categories are helpful in identifying trends, the risks facing our industry are becoming increasingly intertwined. AI has the potential to make cyber crime more sophisticated and complex, climate change will lead to regulatory upheaval, and the central role technology now plays means talent shortages appear more stark than ever. Arguably the biggest risk we all face is not taking action but, with its experience in assessing risks, scenario planning and analysing ever- changing data, the reinsurance industry should have confidence in its ability to innovate and overcome.”
Russell Higginbothan, CEO of Swiss Re Reinsurance Solutions, who helped to launch the report this mowning, also said, “To grow and advance insurance offerings in a world with increasing climate volatility and rapidly evolving risks, data and tech-driven solutions play an important role. This is where Swiss Re Reinsurance Solutions comes in, offering primary insurers a broad range of services and tools that cover the entire insurance value chain.”