Rewriting the message about insurance

Discussions have been held that could see funds redirected and visions of the industry reinvented

Rewriting the message about insurance


By Christopher Croft

By the time you read this, summer will be, in the eyes of the Met Office at least, technically over.  And a few days later the insurance summer will officially come to a close with the gathering of the reinsurance clans in Monte Carlo. This, and the beginning of the 2019 hurricane season, should herald the part of the year where our industry really comes to the fore. We thrive on putting people’s lives back together in the wake of catastrophe. And our ability to provide that sort of vital insurance to the end customer is founded on efficient and effective reinsurance markets that allow primary risks to be dissipated into global markets. Headlines should abound of the social good that insurance delivers. It should be imprinted on the minds of the politicians whose agendas we seek to influence.

Except that that tends not to happen. It is rare after any natural catastrophe that it is reported that it is the international insurance industry coming to the rescue, not government and aid agencies. Our positive influence and message get lost and the net result is that our political impact is lessened - ministers still think banks when they think financial services and still think motor and home if they think insurance at all. And customers undervalue us. Only 42% of Floridians buy flood insurance.

So why is this? And, more importantly, what can we do about it?

Both iterations of the London Matters report show how reinsurance business has moved away from London since 2010. In no small part this has been due to reinsurance companies elsewhere being in a better position to write the large lines which clients want. So, the Capital Platform proposals that are part of the Future at Lloyd’s prospectus are encouraging. If Lloyd’s can access alternative forms of capital such that the syndicates can write chunkier lines, then we are directly addressing the issue and London will become a more competitive option in the global reinsurance marketplace. Competitive reinsurance markets can only be good for the overall efficiency of our industry and could well have a positive knock-on effect on the choices facing the original insureds. 

But we will still need to sell the benefits of that insurance to those insureds. And here there is a clear role for better macro level data on the impact of insurance. We are currently in discussions about a third edition in the London Matters (a brilliant title in my humble opinion) saga. One of the things I am keen we explore in that work is an indicator of the rate of economic recovery in the wake of a catastrophic event. Clearly we will need to think carefully about the variables but you could then use it to model the rate of recovery had no insurance been bought; the rate experienced at the level of insured losses in place; and the rate that could have been achieved had losses been fully insured. My hypothesis is that the increase in the rate across these three scenarios will be exponential.

That would be a powerful message to clients, certainly. It should make the case that premium spend now is worth it for claims receipt later. A message that we can ally with discussions about how a holistic approach to claims combines both containment services in the wake of an event and cutting a cheque quickly. But the message should also resonate with governments both here and in the typically affected areas. They tend to end up as the insurer of last resort. They therefore have an insurable interest and they should insure it. 

We have had discussions with UK government previously about using some of the overseas aid budget to pay the premium on an ILS product that would trigger when an event hits regions that the UK would normally seek to support. It would be a more efficient use of public funds. It could see aid and expertise delivered to the most affected more swiftly and more effectively. And it would demonstrate the power of insurance to the authorities in the affected areas such that they might see the case for them to take on the funding of the premiums in future.

All of which should raise the profile of our industry to where it should be, not where it is. Insurance - the foundation of economic activity; the support for those in most need; the backbone of capitalist society. That is how we should be viewed. Let’s do the work to make sure we are.

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