Innovation in times of recession – a hurdle or a way out?
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In these uncertain times, many economists are predicting the worst downturn since the great depression. The global pandemic is hitting the global economy hard at a time when economic resilience was already low to start with. Recovering won't be easy. Recently, I quite literally wake up and go to sleep thinking about how to help our clients and business partners grow even further, and ultimately, how to help make the world more a resilient place. Technology is making our everyday lives so much easier – but can innovation and our position as a leader in digital transformation really help? And why would someone even think about that now, in these "dark" times?
There's a well-known saying that in a crisis, we should be aware of the danger but also recognise the opportunity. Recently I had the opportunity to see how some new products have the potential to change the insurance market. Below, I list some ideas that could bring opportunities to our industry.
Satellite-based soil moisture index insurance
According to scientists from the National Oceanic and Atmospheric Administration, summer 2020 is expected to be one of hottest on record. As a result, drought will be high on our agenda again. Globally this is the number-one threat to farmers – it regularly endangers the crop yield and business of farmers. As it is often not covered by insurance, this blocks access to credit – and makes the dark days even darker. How can reinsurance help, particularly in current times, where global economic activity is expected to contract? At Swiss Re, we have developed the state-of-the-art Drought Index Solution – a satellite-based soil moisture index developed in cooperation with our partner VanderSat, a leading global provider of satellite-observed soil moisture data. From spring 2020 the innovative soil moisture solution will be available in 10 European countries. The greatest impact of this solution can be seen in Kazakhstan, where millions of hectares of land owned by thousands of farmers will now be insured against drought. This project, in collaboration with Swiss Re partners Qoldau and Association of Agriculture Insurance, offers full transparency to farmers on the drought and insurance structure and payouts for the first time.
Parametric solution with immediate payment after the event
Globally, USD 137 billion was lost due to natural catastrophes in 2019. According to the most recent Swiss Re Institute's sigma, only 38% of this was insured. While parametric solutions probably cannot fill this gap in coverage, they can definitely help to make it smaller. Parametric insurance – a type of insurance that uses an index to trigger payment immediately after an event (such as an earthquake or rainfall) – allows for simple, fast purchasing and optimised pay-out processes. Solutions developed by Swiss Re enable fully automatic insurance offerings in a concise, cloud-based, modular ecosystem. Thanks to this ecosystem, customers can access coverage that may previously have been unaffordable or inaccessible, and companies can benefit from cheaper, bundled off-the-shelf solutions. One recent example is after the hurricanes hit the Caribbean in 2017 – this shows how impactful and fast our help can be. In the midst of the crisis, we were there to assist with "loss of income" coverage, which combines property damage, business interruption and supplemental loss cover. In the above example, in the aftermath of a hurricane, a hotel experienced severe losses, forcing them to close for reconstruction and reparation works. In addition, some of the losses were only insured to a small extent such as destroyed or washed-away beaches or golf courses. Here, the new parametric hurricane insurance provided an effective solution for our business partner and helped them to be protected against future financial losses.
Working with partners to speed up innovation
The above examples demonstrate that we can overcome negative situations with innovative product design and by expanding offerings with high consumer value. This, along with working with 15,000 colleagues at Swiss Re, makes me proud.
Our work today is all about knowledge, placing the customer at the centre and partnerships that create mutual benefits – the examples mentioned above are just two of many. In recent years, we've worked with partners on new products and approaches such as Parametric, Telematics, Cyber and nat cat products.
As the economy is slowing down, we need to speed up our innovation, double our efforts and get back on our feet.