Q&A with Jayne Plunkett: Swiss Re’s new Silk Road

Emerging markets, particularly China and emerging Asia, will drive global demand for insurance for many years to come. The growth gap between the advanced and emerging markets has narrowed since 2008, but this does not lessen the importance of emerging insurance markets, nor negate the trend of insurance growth shifting from west to east.

Wealth in the emerging markets has grown significantly and a 1-ppt rise in GDP 2018 has much greater impact in premium volume terms than it would have been had a decade ago. In addition, many emerging markets have progressed to the steeper area of the insurance ˝S-curve˝ and consequently, the impact of income growth on insurance demand is much bigger.

JP: Asia business makes up 25% of Swiss Re’s business, but we want this to become a much larger part of what we do, not because we expect the other areas to shrink but because we see such growth in these high growth markets.

Our plan for the region is to support the growth of the insurance industry and that support comes in a few ways – reinsurance, but more importantly, finding new models.

What makes opportunities in Asia unique?

JP: I think we have this unique time in history where we have the growth in the insurance market, the need for new coverages, and these really exciting advancements in technology. It’s all happening at the same time, and I believe the market that can probably capture all of this the best are the new ones because they don’t have the legacy of the old way of doing things.

We see this play out time and time again in our markets in Asia. Many of them are very technologically advanced already and we’re creating new forms of insurance and new coverages at the same time, so I think this combination will be really interesting for the rest of the world to look at.

What key areas are you focusing on?

JP: Reinsurance, product innovation and supporting companies as they find new ways of distribution.

On innovation, the impact of better data has been incredible. It all starts with recognising trends in the way in which people live their lives which is something the insurance industry has to think more about. Insurance is typically sold, not bought, but what we’re finding with these new distribution avenues and new approaches, are new ways to integrate insurance more in people’s daily lives, for example, pay as you drive, or flight delay triggers. These are simple example of parametric insurance, but we can see how this can be used on a multiple of risks and policies.

How are developments in the region creating opportunities for you?

JP: China is the biggest driver of growth from an economic standpoint. One of the biggest support mechanisms of this growth is the Government. It has done a terrific job in supporting some areas in the market which has allowed for the P&C market growth – mainly in the agriculture and motor industries. But now they’re pushing liability which is obviously a really nice growth option

 

There is also the One Belt, One Road initiative. We’ve already seen trillions of investments going into the belt projects which have so far been identified and there’s a need for all the insurance coverages around that – that’s pure growth for the industry.

There will be more projects over time and no doubt a need for more and more coverage to support these projects. They’re very complex so they speak to the skills of reinsurers to help with that as well.

How else can the industry support the region?

The glaring protection gap following major nat cat loss events plays itself out time and time again in this region. We know that 57% of economic losses from nat cat is uninsured in Asia specifically.

The protection gap is something like 98% for flood, 80% for storm and equally high for earthquake. The concerning thing for us and should be for the industry is that we have mechanisms to insure these things, so the worst thing is when someone’s life is disrupted, or a business’s future earnings are disrupted because of a nat cat disaster and that’s because it could have been provided for in advance – we have these protections in the industry.

The biggest thing we could tackle as an industry is to get more of this nat cat risk insured in Asia. But it’s frustrating as it’s been a topic for a long time, but yet the region remains cripplingly under insured.

If the margins are there, everyone wants to write it, but the state of the market presents obstacles, so we have to get better at improving the models which is where we focus a lot of our work and expertise.

To do this, we can look at some of the models we’ve created in other parts of the world and tailor them to this region. However, if it was just a simple answer, we would have already mastered it and we’d be talking about how big the market is.

How can you better understand the risks and manage the exposures in the region?

JP: The collection of data to better understand the risks in the region will be crucial, but the other area is financial literacy – being able to explain the value of this kind of insurance. And we must make sure that the rates are reflective of the risk and that’s been a challenge in many parts of the markets. The amount of commercial property that does exist where the rates aren’t often adequate enough for the risks that we see in terms of the nat cats. And we have to look over a long-time span to capture the events that have happened and that’s something in a new region that can be tricky.

As an industry, we also have to be bolder when it comes to reemphasising to brokers and clients that the price we want to set is reflective of the risk exposure. I think everyone is happy to insure it, but it always comes back to this and we still can’t get it right.

What do you view to be the biggest hurdles for growth?

JP: Talent. I don’t like to say it’s a young region, because I don’t believe that either, but we don’t have enough talented underwriters, and this continues to be challenge. Companies compete on talent which means that turnover rates in Asia are higher, people will move from company to company and because of that, a lot of momentum can get lost because turnover is high for everyone – particularly within the international companies, including Swiss Re.

We face normal geopolitical challenges and we have currency fluctuations and regulators who would like us to keep more of the business in their country. On the one hand I can understand, however, to be able to provide risk diversification, we also need to be able to flow the capital in and out, but I think this is solvable over time.

Earlier this year, you established your Singapore hub – why Singapore and why now?

JP: Basing ourselves in Singapore brings our Asia business in line with our other two regions – we have subsidiaries for American business, European business and now Asia business. Significantly, it recognises the importance of the region to Swiss Re and shows our commitment to the market. Asia represents the largest growth element for Swiss Re going forward and we need a proper entity and structure to hold onto all that growth.