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Navigating Systemic Risks: Global Insurance Industry Amid Uncertainty and Rapid Changes

Daily Equity - Navigating Systemic Risks: Global Insurance Industry Amid Uncertainty and Rapid Changes

FT Panelists respond to critical questions on the impact of climate change, cybercrime and geopolitical instability for the insurers and policyholders as risk factors alter.

In the latest panel discussion on The Global Boardroom, Financial Times’ Senior Markets Correspondent, Ian Smith, moderated the discussion of growing systemic risks in global insurance with Vibha Padalkar, CEO of HDFC Life, Andreas Berger, Group CEO of Swiss Re, and Milena Mondini de Focatiis, CEO of Admiral Group as panelists.
Global insured losses are targeted to reach approximately $135 billion in 2024, growing at an alarming rate of 5-7% annually, crossing the $100 bn mark consistently over the past three years. However, the global uninsured losses paint a much larger picture, standing close to $320 billion. While frequency of natural catastrophes drove the insured losses, the disparity reflects the industry’s scuffle to tackle the increasing intensity and frequency of these events.

Impact of climate change

Extreme weather events across the globe due to global warming have led to uncertainty, straining insurance models. In India, cancer ranks second as the cause of death, even for people with no related medical history, mainly due to environmental factors. However, concrete data is required to tie these to climate changes, says Vibha Padalkar.

Geopolitical scenario driving up insurance losses

Geopolitical tensions between nations lead to rise in tariffs and trade wars, exacerbating inflation rates and resulting in higher insurance claim costs. The Ukraine war driving up inflation in the UK is a prime example. Milena pointed towards the significant impact of deglobalization on global supply chains, especially in emerging and rapidly growing industries like Electric Vehicles (EVs). As consumer preferences in the automotive industry shift, and demand for EVs grow, insurers must adapt to new types of vehicles and increasingly complex repair cost claims.

Cybersecurity as a systemic risk

Cybersecurity has come to be one of the most uncertain risks for the global insurance industry. Due to its unpredictable nature and ever changing technology in the space, cyber insurance is particularly difficult to model, mentions Berger, with cyber insurance amounting to over $15 bn in the US alone. “Interconnectedness of systems is more likely to happen”, says Padalkar. She emphasized on the need for extensive standards for cyber insurers, specific cover amounts for various cases for example, especially in ‘business as usual’ cases, if not political or high profile cases.
Also highlighted was the role of government in better data sharing and more diligent reporting in a centralized way through collaboration and cooperation among businesses, insurers, and regulators.

Role of technology and generative AI

Rapid growth of generative AI in almost every industry has changed the way people view technology and automation. While it can increase accuracy of predictive modeling for detection and forecast of cybercrimes and climate changes, there is also the risk of reliability and rising costs.

If we were to have a pandemic in the next 10 years – are we in a worse position in terms of insurance cover?

“One act alone cannot solve the problem”, says Berger, laying importance on the fact that the government and the insurance industry need to work together to solve these problems. Increasing awareness about increasing premiums among consumers is an absolute priority given the risks.
Risks need to be modeled properly in order to project for the future with greater precision and efficiency.

Navigating Systemic Risks: Global Insurance Industry Amid Uncertainty and Rapid Changes

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