Torsten Jeworrek: Embracing the digital age

This has been a challenging first half for Munich Re, what intentions are there to counter this to the end of 2016? Or will Munich Re be weathering the storm and keeping its sights on longer-term solutions?

Indeed, the first half-year was challenging not only for Munich Re but for the whole (re)insurance industry. Losses caused by natural catastrophes in the first half of 2016 were significantly higher than the corresponding figures for the previous year. In total, losses up to the end of June came to $70bn (previous year $59bn), of which $27bn ($19bn) were insured. The main loss drivers were powerful earthquakes in Japan and Ecuador, storms in Europe and the US, and forest fires in Canada.

Furthermore, the persistent low interest-rate environment is exerting pressure on our business and the oversupply of capacity is fuelling competition in some business segments. Nevertheless, Munich Re is well positioned to succeed in the current market environment. Our capacity, expertise and customised solutions are in demand. At the same time, we maintain active cycle management and offer our capacity only where we are able to obtain risk-adequate prices, terms and conditions. And Munich Re is also fully capable of successfully adapting its business model to market changes. We are experiencing continuous growth in tailor-made capital relief reinsurance and our expertise-driven specialty niche business, for instance.

Germany experienced severe flooding recently, is Munich Re paying any additional attention to flood coverage moving forward? Could there be room for a flood pool, similar to Flood Re that has been established in the UK?

The severe weather in Europe in May and early June was primarily triggered by a persistent low pressure system over central Europe. The overall loss from the storms in Europe totalled €5.4bn, of which €2.7bn was insured. Losses in Germany accounted for €2.6bn of overall losses and €1.2bn of insured losses.

In Germany, the very slow-moving thunderstorms caused powerful flash floods in many areas, while in France, the storms brought floods on the Seine and its tributaries. In most countries, flood is an underestimated peril and insurance penetration is low. Therefore this topic is high on our agenda but no one solution can be applied throughout the world. In Germany, insurance protection against flood losses can be acquired in a dedicated natural hazard insurance that amends the standard homeowners insurance. Though more widespread than a few years ago, average penetration across the country is still only around 40%. Almost all of the buildings affected by the recent flash floods were in risk zones in which affordable natural hazard insurance would undoubtedly have been available. A pool is not necessary to cover those risks.

With an excess of capacity in the reinsurance space, is it fair to say the days of the cycle are over? What new dynamic should the market be mindful of: will it remain flat, or is the market leaving itself open to a sudden spike?

Pricing cycles have become less volatile and, in addition, pricing developments differ across the various regions and lines of business. But, of course, the overall available capacity and the capitalisation of the market players have an influence on the rates. Prudent cycle management is therefore key to maintaining the profitability of a portfolio. I think it is unlikely to be one single large event that will turn the market, but rather a series of losses and other incidents such as further consolidation or even insolvencies, a worsening of results, etc. From a regional perspective, however, huge amounts are not always necessary to temporarily affect pricing.

With the capital markets now being accepted at part of the industry’s norm, what are the three key disrupters challenging the status quo of the reinsurance industry today? 

I think the biggest potential for disruption in the (re)insurance industry is the digital transformation. Firstly, it will change the risk

landscape and, secondly, it will change the insurance business itself: from the way customers buy insurance and the insurance products themselves to risk assessment, claims handling, loss prevention and internal processes. We want to be at the forefront of this development in our industry. We cooperate with relevant partners in order to understand and assess new technologies and develop innovative insurance solutions. And we support our clients to compete with new players and grow their business. Thus we stay relevant in the changing environment.  

Will automation and digitisation always mean a burning platform and loss of jobs, or could it lead to a new value-offering approach within the reinsurance workforce? Could it in fact lead to an increase in specialism? 

I am convinced that big data and data analytics will have positive effects on risk assessment, loss prevention and claim handling. Allow me to give you some examples. Improved risk assessment: The increased availability of risk-related data, especially types of data that are currently not considered in risk assessment, can improve the accuracy of risk modelling and pricing.

Innovative analytical techniques can considerably outperform traditional models used in the insurance industry. For instance, GPS sensors monitoring the movement of vehicles provide significantly more information about driving habits, and require advanced analytical techniques to extract additional value for risk assessment. Better loss prevention: Modern sensor technology in combination with data communication and storage capabilities make it possible to monitor the environment much better than ever before. If insurance companies manage to tap into this opportunity, significant progress in the area of monitoring insured assets and actively preventing losses can be achieved. Typical examples of this development include predictive maintenance of industrial machines. Improved claims handling: The ultimate cost of claims incurred by insurance companies often depends on how fast losses can be detected and evaluated. Here, again, access to the right data and the ability to effectively analyse it is key. It accelerates decision-making processes, improves the accuracy of loss estimation, and detects fraud. For instance, advanced geospatial imaging combined with object detection is being rapidly adopted by insurers. Munich Re already offers a data analytics-enabled early loss detection service for its clients.

“I think the biggest potential for disruption in the (re)insurance industry is the digital transformation” 

Is the reinsurance industry innovating enough?

It is true that the insurance and reinsurance industry has to increase its relevance. In a more and more digitalised world, the risk landscape is changing and our industry has to find solutions to respond to this. Munich Re fosters innovation throughout its global organisation. We have built up a structure including innovation scouts and labs and we cooperate with important players. We further enhance our data analytics abilities and tools, and we have an agile IT set-up. Based on that, we are developing new (re) insurance products, new business models and new risk-related services. And we work to identify new clients and new demands. 

Attracting talent is vital for the preservation of the industry; what advice would you give a graduate entering into the reinsurance industry? 

I can only stress from my own experience that reinsurance is fascinating: it is related to so many different topics that it never gets boring. This is all the more true now that we are experiencing a shift towards a digitalised world, because this will also change the risk landscape and the (re)insurance industry dramatically. Digitalisation and innovation are the key to future success in our industry. Harnessing talent has always been extremely important for reinsurers. The future talent profile will change. We need more people that speak the language of IT and understand technologies developing at an ever-increasing pace. 

What do you feel should be the leading topic of conversation for Monte Carlo 2016 and why? 

Rates, terms and conditions will of course be discussed in Monte Carlo, although I do not think this is the most important topic. In my opinion, the most important subject is where our industry is heading and how it will cope with future risks and demands in a digitalised world. To cope with future challenges, innovation is crucial for our industry. Digitalisation and new technologies will have an impact on the risk landscape. Large amounts of previously unavailable data and sophisticated methods of analysis will improve risk assessment, loss prevention and claims handling. Customer expectations and behaviour will change regarding product design, services and sales. These innovation trends offer opportunities for growth, but also throw up challenges for the insurance industry.