Edi Schmid, who heads Property & Specialty Reinsurance at Swiss Re, recently hosted a forum near Zurich in which about 120 experts debated ways to help close protection gaps around the world. The perception of the insurance industry by the end consumer is one of the biggest hurdles.
Q: Edi, not many people know that you are a physicist by training. How did you view insurance when you first joined?
A: I liked to look at risks through a scientific lens, which is what I did as a risk analyst when I first joined 25 years ago. I was a bit embarrassed at the time at having to explain this to friends, to clarify that I didn't sell insurance. Insurance salesmen had pretty negative connotations at the time. And I think our industry today still has a bit of an image problem.
Q: We keep talking about the need to sell cover against catastrophic events, but we should also talk about why customers don't buy it. One session at the Swiss Re sigma 2016 event which you hosted on 4 April discussed this question. What was your key take away?
A: We need to think more about the end-consumer, why does the customer not want to buy insurance? I think a large part is related to perception and emotion, where we as an industry have work to do. And we need to figure out why people are for instance happy to spend quite a bit of money on insuring their iPhone, but don't buy earthquake cover to protect their house. The "it won't happen to me" mentality is more prevalent for some risks than for others.
Q: In a recent interview with Bloomberg, you talked about the pricing pressure in the industry on catastrophe protection (due to the absence of large catastrophes and an oversupply of capital). But what about the loss potential: catastrophe out of sight, so insurance out of mind?
A. It is just a matter of time. And as we can see from sigma statistics, there is a huge protection gap: only a moderate percentage of the natural disaster losses that happen every year are actually covered by a private insurance policy. In 2015 it was only 40%, some years it is as low as 30%. In many markets the vast majority of home owners, even owners of small and medium sized enterprises, don't have insurance for these type of risks. This is really something we need to change.
Q: So, perception, emotion… what else?
A: A key element is awareness. If governments are more aware of the risks it will be easier to set up frameworks in the country. The same counts for the consumer. People tend to be pretty unaware of the cover they have. One of the panelist, Jakub Samochowiec called it the general "sacrifice to the god of protection", which doesn't always cut it. And of course we need to work on bringing solutions to the customer that are a bit easier to understand and easier to access. Insurance is still seen as a complicated product, insurance companies aren't always perceived as very friendly. I think better use of technology could be key in making insurance more user-friendly.
Q: Looking back at the event, how would you summarise it?
A: I'm happy that clients and Swiss Re shared some success stories, in which at least small parts of the protection gap were closed by focusing on consumer needs and using new technology.
Category: Climate/natural disasters: Disaster risk, Earthquakes, Floods/storms, Resilience
Location: Zürich, Switzerland