Reinsurers must become more proactive

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(This article featuring Nat Re President/CEO Allan Santos  was first published in the Asia Insurance Review November 2020 issue.)

Reinsurers must become more proactive

The COVID-19 pandemic’s impact on the global reinsurance industry has been intense and pronounced. Nat Re’s Mr Allan Santos shares his views on what reinsurers’ response has been to the impact of this ‘known unknown’.

by Anoop Khanna

The depth and the breadth of COVID-19’s impact on businesses, societies and economies worldwide has been more far reaching than that of any other catastrophic event. Reinsurers have also been affected.

Credible response

National Reinsurance Corporation of the Philippines (Nat Re) president and CEO Allan Santos said, “Reinsurers may also see an increase in their claim liabilities depending on the coverages of their policies. There may also be other implications on their accounting procedures and regulatory reports which vary by jurisdiction. But it goes to the credit of the industry that its response to manage such drastic and sudden market shifts has been swift.”

Speaking with Asia Insurance Review Mr Santos said, “The volatile markets have led to steep drops in stock values and put companies’ investment portfolios in the red. To manage the squeeze and muted demand in reinsurance capacity, (re)insurers have taken a more defensive stance in equity investments, increased their reinsurance rates, and practiced more prudence in underwriting.”

He said, “Reinsurers have leveraged other opportunities, such as capital solutions and medical reinsurance where reinsurance demand has increased. They have made certain concessions as well to help their clients manage the strain on their finances. Some practices include offering ex-gratia payments, grace periods or extensions of payment warranties.”

Contracting demand for a number of lines of business such as engineering, motor, individual life and credit life may offset the gains of a hardening reinsurance market.

Challenges still persist

Mr Santos said, “The pandemic also serves as a litmus test of the robustness and resilience of the enterprise risk management programmes of both life and non-life (re)insurers. According to AM Best, advancements in medicine, modelling and research suggest that the industry would be well-armed to weather the adverse effects of a pandemic.”

He said, “However, given the jolt of COVID-19 on economies around the world, emerging risks such as changes in demographics, including a burgeoning urban population and ease of movement of people, have increased the industry’s exposure and this should push reinsurers to improve their enterprise risk management assessments.

“Insurers are not only faced with new challenges but also with major opportunities which, when harnessed, can enhance the image of the industry,” said Mr Santos.

Importance of proactive innovation

Mr Santos said, “The appreciation of (re)insurers for unexplored risks, such as pandemics, tends to be low until they materialise. When they do occur, (re)insurers see an increase in consumer awareness and rise in demand for protection. Companies are then pushed to innovate by modifying products or introducing new products, processes that take time due to the need fully to understand the scope and the potential impact of underwriting such risks.

“Some companies, however, practice innovation that is more proactive. They undertake a regular and deliberate process of drawing insights from their risk assessments, the work of their research and development functions and their understanding of stakeholders’ needs.”

When the ‘known unknowns’ hit, (re)insurers that have been implementing such practices are often the ones who gain first-mover advantage – and consistently capitalise on this to stay ahead of the curve,” said Mr Santos.

Consumers are more aware and demanding

Mr Santos said, “Given the increased awareness and demands of the insuring public, (re)insurers should also consider re-evaluating the exclusion of epidemics and pandemics from their health insurance covers.

“According to ReMark’s Global Consumer Study, people’s attitude towards life and health insurance has changed due to the pandemic. People are taking a more risk-averse stance on their health and are seeing the value of protection. Both life and non life insurers have begun to capitalise on this changing perception of insurance.

“Underwriters should understand that these disease outbreaks can be quite  challenging to insure due to their systemic impacts and the limited ability for diversification,” said Mr Santos.

“It is appreciable that new public-private discussions on addressing these catastrophic and systemic risks show that there is an eagerness to understand them better including some proposed solutions,” he said.