Data ‘separates good from less good’ says Swiss Re CEO

The root cause for why (re)insurers have underestimated the cost of extreme weather events — and why they face increasing loss creep after secondary perils – is due to a lack of data about up-to-date exposure and current risk values, said Swiss Re chief Andreas Berger during a Singapore International Reinsurance Conference keynote on Monday (Nov 4).

(Re)insurers need to have the “right tools at hand” to understand rising instances of loss creep during natural catastrophe (nat cat) events, Berger said, during his first appearance at an Asian (re)insurance forum since he was named as chief in April.

The reinsurer warned in June about a recent trend of European nat cat losses that climed dramatically from their initial loss estimates, a phenomenon coined as “loss creep”. Losses from hailstorms in Northern Italy in October 2023 ended up tripling from a previous estimate of US$2.2bn to US$6bn, while Typhoon Jebi, which hit Osaka in 2018, had an initial loss estimate of US$5.5bn but ended up costing insurers $13 billion.

Partnerships in data would be crucial in tackling this issue, Berger said. “I’ve been criticised after speeches that I gave where I was highlighting the data urgency,” he said. “Now is the moment really where (data) differentiates the good from the less good. It’s new territory. It’s untapped territory.”

Creating digital twins, virtual models that replicate physical objects, and using that data to predict and manage risk would be a challenge for insurance’s traditional job families like underwriters and claims managers, he added. But for that to happen, data organisation and data management will need to take place, and companies can no longer work in silos, Berger said.

“It starts with understanding the exposure,” he added. “It’s about using the tools that exist in the market, that put you in the in a position to work with data, to work with scenarios.”

(Re)insurers need to leave their native underwriting environment and work with solutions providers, Berger said. “It’s an investment, and you will definitely see the return.”

2024 is set to be the fifth straight year where insured nat cat losses exceed US$100bn, Berger added. “Year to date, we’re already exceeding the $90 billion bar,” he added. “I don’t think in the coming years we will have numbers that go below $100 billion US dollars again.”

The need for better data and better modelling comes as the number of secondary perils – nat cats that generate small to mid-sized losses – increase. “If you look at it, secondary perils haven’t been known for too long,” Berger said. “50% of our exposure to secondary perils have only been covered by models in the last five years, and that was just the beginning.”

The prolonged soft market for reinsurers is not a sustainable situation amidst the rising number of secondary perils, said Berger. “I think the shock absorber and the one who provides the balance sheet needs to be robust, resilient, and able to survive,” he added. “We need to make sure that we are the shock absorbers.”

Public-private partnerships key

Public-private partnerships are key in tackling and dealing with protection gaps and cyber risks, Berger said.

The protection gap is widening not just in emerging markets but in the US, he added. “(People) get encouraged to move to certain places that are exposed,” he said. “Can we rely on public entities, governments, to also to their part?”

“No one can tackle this on their own,” he added. “The insurers, reinsurers alone is not the only solution. We can do a lot already, there’s a lot of capacity in the market, but there’s much more needed.”

Similarly, major cyber risks are too large for any single insurer to handle alone – they require government and industry collaboration, with mandatory cyber insurance being one potential solution.

“It’s about understanding what the underlying exposure is,” Berger said. “The reinsurance industry is really providing significant capacity in relative terms, but I think it’s not addressing the real issue.”