All hands-on deck as we navigate a riskier world

It wasn’t so long ago that I was asked why our industry is such an essential buffer against risks, and what role reinsurance plays in the ecosystem protecting our businesses, economies and communities.

As some of you may relate, that isn’t the case any longer. A series of high-profile events have heightened awareness that we face a new and more complex risk environment, capable of inflicting losses that require all hands-on deck approach to manage.

Recent events like Hurricanes Helene and Milton come to mind, and here in APAC we have had Noto, Kyushu and Hualien (earthquakes) and Bebinca, Krathon and Super Typhoon Yagi (storms) – the latter, one of the strongest to hit the region in decades. The chains of flooding, landslides and infrastructure damage these events unleashed uncover weaknesses in traditional risk models and the need for a comprehensive reassessment of our industry's readiness to absorb and respond to a new scale of losses.

Given our research estimating the region’s natural catastrophe protection gap over the last decade at USD 540 billion,¹ there is much to be done. 

In this environment, the traditional role of reinsurers is to serve as the ‘shock absorbers.’ Swiss Re is well-positioned to support our clients to take on risks and maintain financial stability in the wake of major events. Additionally, our global presence and reach allows for exposure to be spread across different geographies and business lines and equips us with resources and capabilities that provide insight into the overall risk landscape.

However, I would argue that it is no longer enough just being shock absorbers. We need to be more proactive in the way we approach emerging risks if we are to deliver on our core mission of improving the region’s resilience for the long term. In my view this includes:

Enhancing modelling expertise: Historical models do not always account for how risk factors can interact with relatively recent developments to exacerbate losses. For example, urbanisation has put a strain on infrastructure and concentrated populations (and resources) in vulnerable coastal areas, amplifying the economic impact of more intense storms. We need to continuously update our natural catastrophe models to incorporate population and economic growth in disaster-prone regions and the effect of climate change on weather patterns.

Leveraging data along the insurance value chain: As an industry we have access to a wide range of data, but we need to redouble efforts to source, pool and analyse the most up-to-date data to develop an informed understanding of future risk that is less anchored in the patterns and biases of the past.

Helping insurers manage volatility: Amidst economic and geopolitical uncertainty, insurers may be called on to reassess their assumptions around their assets and liabilities, and to manage their capital more effectively. Our structured solutions can support our clients as they navigate a more challenging market environment, while staying on the growth track.

AI and machine learning are proving pivotal in the drive to transform and upgrade risk assessment models because of the amount of data processed and the new layers of analysis they enable. Technologies such as these are supporting more predictive analytics, which allow insurers to anticipate emerging threats before they become realities, gauge the likely impact, and tailor policies accordingly.

We can also build our technology and data capabilities around specific critical risks. We took a step in this direction recently with our acquisition of Fathom,² a UK-based firm specialising in the development of intelligence and models for water-related risks under current and future climate scenarios. The data Fathom provides adds to our efforts to understand and model the impacts of natural catastrophes like floods – and demonstrates where we can help our clients understand and manage what lies ahead, with an even greater degree of precision.

Partnerships are key to both identifying emerging threats and developing the solutions that allow them to be managed.

These partnerships should include a range of actors in the public and private sectors. For instance, as an industry, we can share our knowledge with governments across APAC to help steer development away from high-risk areas, and channel investment into high-impact, economical protective measures to keep assets insurable.

We can also actively participate in industry associations to deepen our knowledge of natural catastrophe risk development, leading to the establishment of best practices. We have witnessed the power of these partnerships when it comes to developing more inclusive insurance products, designed to protect the most vulnerable segments of society against a wider range of risk scenarios.

Finally, we work closely with our clients to better understand the risk characteristics, and the financial and operational challenges they face. Enhanced knowledge of the issues insurers grapple daily can inform solutions that help make them stronger.

The risks we face as an industry and a region demand a collective response – which make platforms like the Singapore International Reinsurance Conference (SIRC) even more important.