Welcome to a packed Reactions double issue for this December and January, in which we bid farewell to the drama and surprises of 2016, and usher in whatever the New Year might bring. That’s the subject of our cover this month, and of a special report within, posing a crucial question to senior re/insurance market contributors: what risks will 2017 bring?
Technology, disruption, cyber risks and a digitalised world figure prominently, as you might expect. The past year has seen a number of developments that should loom large in the minds of re/insurance decision-makers.
Topics such as the Internet of Things, the emergence of blockchain for smart contracts, and a glimpse of a disruptive business model – in the shape of US peer-to-peer insurer Lemonade – have all shown flickers of what might be yet to come.
I’m reminded of a pithy but pointed “meme” seen online recently. Its gist was this: “The world’s biggest taxi firm, Uber, owns no taxis; the biggest hotels operation, AirBnB, owns no hotel rooms; and biggest media website, Facebook, writes no news. So how long until your business model faces the same disruptive forces?” A sobering thought for us all.
One sure-fire way to avoid group-think and improve decision-making at the top is, of course, for the insurance sector to do a better job at diversity and inclusion (D&I). So, in an industry the composition of which is still way too homogeneous, and particularly male-dominated at its upper echelons, Reactions again asks a selection of women leaders what needs to change.
Turning to the present, when looking back on 2016 – tough pricing and over capacity aside – reinsurers really dodged a bullet. Yet again, the Weather Gods have favoured the industry, as Hurricane Matthew glanced the US coast, rather than slamming straight into Miami as many had feared. Of course, in the world’s biggest insurance market, a near miss still causes far more insured losses than a similarly huge natural catastrophe would if it were to land a direct hit on a less mature market.
Italy and Ecuador provided lessons there, where governments were left to pick up the tab for economic losses. For an emerging country such as Ecuador, even in a known quake risk area, this might be expected. But Italy? There lies good reason for the governments of natural catastrophe-exposed countries, whether in Europe, Asia Pacific or elsewhere, to do more to encourage risk transfer through reinsurance, and also to set up catastrophe risk pools where they can help, rather than rely on divine providence to see them through future years.
Governments have been the other major story of 2016. Populism is – once again – a political force to be reckoned with. Insurance, a naturally conservative industry, is well used to political lobbying, particularly in the US market. With the shock election win of President-elect Donald Trump, and the advent of a new US administration in 2017, the industry might be just one of many which needs to place renewed emphasis on its lobbying efforts.
The London market is already experiencing this risk, following the shock Brexit referendum result back in June for the UK to leave the EU. The forces behind Brexit have been widely touted as an augur of Trump’s US victory, and maybe for things yet to come for Europe, as right-wing alternative populists and popular discontent with the establishment and against globalisation threaten to boil over.
The threat to roll back globalisation ought to trigger an alarm for the reinsurance sector. Reinsurers need globalisation at the core of their business model: to diversify, spreading risk geographically while not facing capital fences and hurdles as they accept risks across countries and continents. This forms another feature within this issue. I hope you enjoy the magazine.