If the insurance and reinsurance industry is to truly narrow and ultimately close protection gaps, the upsurge in demand for cover that would result from this means the capital markets have a key role to play, Christian Mumenthaler, the CEO of global reinsurer Swiss Re told us recently.
Mumenthaler joined us for an Artemis Live video interview just in advance of the recent Monte Carlo Rendez-Vous and the reinsurance CEO laid out a vision for narrowing protection gaps, which he believes could result in a wave of demand for insurance.
Discussing protection gaps, he explained that the capital markets and insurance-linked securities (ILS) has already laid some of the industry plumbing for the capital and capacity flows that will be required.
“I think of all the work we’ve put in on the capital market side, developing all kinds of different instruments to attract different types of investors. Some are more into cat bond funds, some are more into sidecars, then you have some sidecars that are less nat cat oriented, but with other things,” Mumenthaler said.
Continuing to explain that, “So we are constantly innovating… what we can offer to specific investors for their particular needs and I think this will attract more professional investors over time to this market, and will help us in some of these peak perils in particular, where it makes a lot of sense.”
We discussed the drivers of insurance protection gaps and Mumenthaler touched on the psychology of buying protection, paying for something that may not pay out and educating people that having insurance in-force can help to prepare for the worst and then recover from it more readily if it should happen.
But he explained that, with the help of technology, some of those psychological hurdles could be overcome, in time, which could drive rising demand for insurance capacity.
“If at some stage, we manage to overcome the psychological element to it, let’s say through robo-advisory or having some help through technology, who tells them you should probably get protection and I can do it for you, the same thing that agents do today.
“But if you imagine a world where this becomes more digital, and more people maybe take the step. If suddenly there was a demand boost, we will need all these instruments and pathways and streets we’ve built to the capital markets to satisfy this demand,” Mumenthaler explained.
Summing up, “So I think a lot of the architecture is in place. But the progress overall on this closing the protection gap has been frustratingly slow.”
Watch the full video for many more insights from the Swiss Re CEO.
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All of our Artemis Live video interviews have a focus on reinsurance, ILS and the efficiency of risk transfer and can be accessed here.
You can also listen in audio to these interviews by subscribing to the Artemis Live podcast here.
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