Thursday, 8 September 2011
Insurance industry can innovate if risks spotted early: Galvagni
Agostino Galvagni, CEO of Corporate Solutions at Swiss Re, defended the insurance industry’s performance on innovation in his speech at the DVS symposium yesterday and said there are concrete solutions to the key emerging risk trends.
Agostino Galvagni, CEO of Corporate Solutions at Swiss Re
He also told Commercial Risk Europe after his speech that the commercial insurance market is showing signs of having bottomed out and that market conditions are such that slow increases in prices witnessed over the last quarter make sense.
In his speech Mr Galvagni, who is also a Member of Swiss Re’s Group Executive Committee, said that there are four main emerging risk trends. These are climate change, ever increasing global supply chains, increasing corporate governance requirements and an ageing population.
“For each trend there are concrete examples of solutions that the insurance industry has recently produced in terms of innovative products,” said Mr Galvagni.
He gave parametric risk products as an example. These solutions are based on parametric triggers and can be used in instances where it is difficult for insurers to provide traditional indemnity based solutions, he continued.
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Such a product could have been used to combat the effects of the eruption at the Icelandic Volcano Eyjafjallajökull in 2010 and resulting business interruption losses, said Mr Galvagni, via a weather-related parametric transaction.
He told the insurance industry that in order for it to be in a position to help transfer emerging risks it must recognise the risk trends early enough to develop solutions.
On the outlook for the insurance market Mr Galvagni said the factors are in place to see prices rise.
He said that on the underwriting side excess capital had been partly depleted by the recent spate of catastrophes and there would be no, or very limited, room for additional positive reserve developments.
“But the main factor now will come from the investment side and there we are seeing a constant decrease on returns, which can only lead to the need to compensate for that on the underwriting side, so basically increase the underwriting prices,” said Mr Galvagni.
He drew attention to the fact that since this year’s second quarter results several key insurance players have said, on the record, that they are witnessing ‘very little upward adjustments on rates’. These are typically around 2%, he added.
“So it seems maybe the real world is confirming the conclusions you would draw if you look at the objective factors I mentioned,” the Swiss Re man told CRE. “Prices appear to have bottomed out,” he added.
He also told CRE that Swiss Re’s increased foray into the primary insurance market is a strategic development. He expects much of the company’s future growth to come from its commercial insurance operations.
“Swiss Re is already very big in reinsurance and so it is very difficult to further grow there. Whilst Swiss Re is obviously not as big in commercial insurance the underlying risks are the same as reinsurance. Therefore the success factors are very similar to those you need to be successful in reinsurance,” he explained.
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