Now is the opportunity to reshape our industry
Working from home and spending less time travelling during the pandemic has given me the opportunity to spend more time with my family. And that, in turn, has reinforced the critically important role I believe we must fill to help rebuild financial stability and resilience for future generations.
My generation has enjoyed great progress and improvements in our quality of life, including less violence than in previous decades, increased productivity and GDP per capita, and the huge strides made towards eradicating diseases such as polio. But there has also been much unexpected financial and political turmoil, terror attacks and geopolitical imbalances which may be shaping a new world order. In fact, the scale of global risk is unprecedented, and we must equip future generations to be ready for how this risk may materialise.
As we prepare for the conference season, starting with the Rendez-Vous de Septembre, its purpose has never been more relevant. For more than 60 years, leaders have gathered to debate our industry’s future, form new alliances, and find innovative solutions to better address global challenges.
This year will be no different, except we'll use virtual channels. Swiss Re's digital programme aims for a high level of quality personal interaction. We'll assess how COVID-19 has changed the risk landscape and, more importantly, discuss how our industry can help rebuild global resilience.
While long-term challenges such as climate change require our continued focus and innovation, the pandemic sheds light on two particular areas of opportunity: the vulnerability of supply chains and the acceleration of digitalisation.
Supply chains: New routes to market will require protection
Concerns around food shortages and insufficient hospital supplies during the pandemic exposed global supply chain vulnerabilities. But even before lockdowns, border closures, and cancelled flights, the US-China trade war had caused some to question the wisdom of over-reliance on any single country or region.
As multinationals and governments move to address these weaknesses, we're likely to see an imminent, widespread restructuring of global supply chains, according to analysis from the Swiss Re Institute’s sigma. This will be driven by the relocation and diversification of production bases.
Supply chains may become shorter, with parallel routes. Some firms may choose to on-shore or near-shore manufacturing, while others may look at new, emerging locations such as Vietnam and Cambodia. Markets in Southeast Asia are set to benefit most from the relocation away from China, but Eastern Europe, Africa and Latin America will also gain ground.
As new hubs for manufacturing or logistics emerge, we expect a significant rise in demand for product lines such as property, engineering, credit and surety, and business interruption. Overall, we estimate the diversification of supply chains will generate additional global premium volumes of around USD 63 billion over five years. We must be ready to use our risk knowledge and expertise to help create and protect this new wave of more resilient supply chains.
Digitalisation: Data will drive the transformation
Let's be honest, our industry has been slow to embrace digitalisation and incorporate artificial intelligence and machine learning into our risk modelling. In fact, emerging economies have been more agile in this area and now lead the way.
However, the sudden shift to working from home during the pandemic proves that necessity drives change and can be a powerful force to overcome scepticism. Let’s use that force as we tackle the next frontier: data-driven insurance.
Universal connectivity has changed consumer behaviour and expectations, especially among younger generations. They expect fast access to information, full transparency, and personalised, personally relevant service. These detailed insights into customer behaviours mean that the role of insurance is evolving from indemnification of losses to something much broader – including services that help prevent risk or mitigate as risk changes. For example, data can flag changes such as a new home or job or baby and direct updated advice to the client.
International Data Corp estimates there will be more than 40 billion IoT devices around the world by 2025, each generating data. That in turn will create a compound annual growth rate of 39% for real-time data between 2019 and 2025. By partnering with key data suppliers and building new data-driven business models, insurers can expand beyond their existing value chain.
A turning point
In all these examples, the required transformation is significant, but so is the potential for growth.
The latest figures suggest that the global economy faces a long, slow road to recovery. Low interest rates and the prospect of corporate defaults are likely to subdue investment returns and must be factored into the long-term financial planning of insurers and reinsurers around the world.
In spite of this, we expect the global insurance industry to return to pre-crisis levels by the end of 2021. This not only demonstrates the resilience of our sector, but also its potential to grow by leading transformation. At the same time, the current crisis will push many households and companies into financial stress, reinforcing the relevance of insurance and adding urgency to the problem of the protection gap.
COVID-19 has changed the risk landscape forever. Now is our time to rethink old ways, adopt forward-looking approaches, and work together to reshape our industry and transform tomorrow together.