Reinsurers should put just as much focus on adaptation to deal with the effects of climate change as mitigating its impacts, but the debate on the latter has become “totally dominant”, Hannover Re CEO Jean-Jacques Henchoz told Insurance Insider at this week’s (Re)Connect conference.
“Whether we reach the goal of the Paris Agreement or not, adaptation will be the name of the game for our generation and the next couple of generations,” he said.
He argued that constructing and insuring more resilient buildings and applying pressure to prevent building on flood plains were key ways the reinsurance and ILS markets could help society adapt to climate change.
Another problem he cited on this front was the global protection gap and he drew attention to the 7.2 magnitude earthquake which hit Haiti in the middle of August.
Karen Clark & Company (KCC) estimated it to have caused just $250mn of insured losses despite generating $1.7bn of total losses, a gap which Henchoz said showed the severity of a problem the industry needed to do more to solve.
“This is where as an industry we can and should do more to promote ways of accessing these populations and have creative schemes to insure communities. Parametric solutions in particular are a good way to penetrate these markets,” he said.
When questioned on what the main debates in the industry would be going forward, Henchoz said there would be a great deal of discussion about systemic risks, which had come to the forefront of conversations because of the pandemic.
He said: “We reached the boundaries of insurability and we need to find creative ways to contribute to the insurability of some of these risks particularly through public-private partnerships.”
“This is something we need tackle – how to play an active role in managing systemic risks.”
Reinsurance renewals in 2022 will see pricing increases for European cat risks, following relatively high losses for the region this season caused by flooding which hit Germany and the Benelux countries in July and wildfires which raged in the Mediterranean over the summer, the Hannover Re CEO forecast.
He said there was a “need for correction” in pricing after a benign decade, after being asked how much further European cat business had to go until rates would be set at a sustainable level after minimal increases last year.
When questioned on business interruption negotiations he said one of the main issues had been how to cope with a consumer perspective and media that had been very negative about the insurance industry.
“There was a lot of public relations work to be done from our client’s side and this was the main difficulty in the early days,” he said.
Although the reinsurance industry didn’t bear the brunt of claims in the same way insurers did, Henchoz said his firm had taken a “good look” at wordings to help primary insurers get through the pandemic.
He said: “It was not always crystal clear when it comes to wordings but I think we managed in most cases to contribute partly to [solving] the difficulties but clearly this was not a smooth process; it took quite some time.
“I think we’re getting there this year with the caveat that long tail lines could still play a role in the covid equation. I believe we’re in a far clearer territory when it comes to the relationship between reinsurance companies and primary insurers.”