The theme for the upcoming 15th Singapore International Reinsurance Conference, "Reinsurance Reloaded", is rather timely, as the world is undergoing massive changes brought about by the Fourth Industrial Revolution. It's not just about making the world a better commercial place – it's about making the world a better place. As the insurance industry evolves, how do we integrate talent, technology and work together to build societal resilience in our changing world?
The Fourth Industrial Revolution has brought about immense technological advancements. Imagine millions of autonomous vehicles plying the roads in every major city. Skyscrapers over 600 metres tall decorate the skylines in megacities of more than 10 million people. Smart cities, developed to be environmentally sustainable, are powered by renewable energy and protected against natural catastrophes through advanced predictive disaster prevention systems. New engineering techniques including advanced 3D printing enables building critical infrastructure of our homes in a matter of days, providing solutions for a swift recovery from damage. Cross-border infrastructure connectivity facilitates open, seamless trade, bringing new products and services to consumers, customised to their individual needs according to data stored and secured through technology.
By 2030, all these can be reality. The world is changing – and changing at an accelerating rate that outpace previous revolutions. In particular, the pace of change in Asia will leapfrog developed economies. While technological change is bringing exciting solutions to existing problems, we are also seeing a vast amount of uncertainties as it disrupts jobs and social structures. For instance, the ASEAN labour force is forecast to expand by 11,000 workers every day for the next 15 years – a growing challenge as industrial robots and artificial intelligence compete with the human labour force. In insurance, manual underwriting in some segments will become obsolete and will be replaced by artificial intelligence, according to McKinsey & Co.
Differing development stages of the over 20 countries in Asia have further complicated the challenges as some markets grapple with development gaps to catch up with the wave of change. These developments signal a need for change in our industry, and that change is inevitable in order for reinsurers like Swiss Re to fulfil our purpose: building resilience. This is especially important for Asian economies and for those of us who live in these communities to prosper and grow.
Meanwhile, natural catastrophes are expected to happen more frequently and more forcefully due to climate change. The catastrophe losses in 2017 and 2018, soft underwriting conditions, weak investment performance and the high level of capital funds have resulted in margins being squeezed in the primary markets, triggering a change in market dynamics that challenges the long-term sustainability of insurance business. Swiss Re's latest sigma report says insurers need to improve underwriting margins by 5-9 percent to ensure sustainable returns. While improved economic momentum will benefit future profitability through higher interest rates and investment returns, it won't be enough to close the gaps.
As an industry, we need to move together with creativity, energy, collaboration and partnership. We have a responsibility to protect our changing world and it needs strength in partnerships. Closing the gap requires an integrated effort among insurers, reinsurers, and partners, including the regulators, governments and consumers.
The industry needs to move together, adopt a multi-stakeholder approach to establish a framework that enables us to innovate into the future. For re/insurance to make a difference, the industry must seek to address the key drivers that help create the gap. By embracing innovation, upskilling our talent, encouraging behavioural change in our communities, and tackling our monumental problems together through public-private partnerships, we can close the gap in Asia.
The industry is evolving with advancements in technology, bringing benefits across the whole value chain including distribution and sales, underwriting, claims, solutions and services, and operational processes. At the same time, technology is changing the nature of risk – both mitigating and creating new categories of risks.
While we invest in technology, it is even more important to invest in human capital. According to CISCO, three of the four top factors behind successful Internet of Things (IoT) projects are related to people. People create systems – it is imperative to invest in human talent, creativity, and skills upgrade so we can be ready to meet the challenges of the new era. It goes beyond academic achievements – a concerted effort to nurture learning, agility and diversity of thought, so that talents across ages are better able to provide creative and practical solutions based on more strategic judgement and better decisions in the value chain.
In agriculture for instance, farmers can save time and money through solutions that use satellite remote sensing and data analytics, which together package raw agricultural data into real time actionable insights. The availability of solutions that enable farmers to monitor their crop growth and soil moisture are helpful, but with automated claims based on index triggers that minimize hassle for the consumer, it can better support farmers and help them meet growing demand for food.
Similarly, smart solutions and Big Data have fundamentally reshaped how we build our models and price our products, as it enabled more bespoke solutions that take into account human concerns. A growing variety of digital channels has also changed how we connect with customers. Parametric insurance, with a quick claims process, has been instrumental in filling spaces previously uncovered by traditional products, providing relief for the consumer. An example of this is our ability to offer a machine learning-based pricing engine to accurately price flight delay risks. This enables automated claims payments and real-time steering. It is a flexible turn-key solution that can be leveraged for other parametric insurance offerings such as earthquake or typhoon coverage to enable quick disaster recovery and help people get back on their feet.
At Swiss Re, we believe that great things happen together. We need to work hand-in-hand, stay close and stay relevant to be successful in our changing Asia.