Reinsurance is much more than a shock absorber

When disaster strikes somewhere in the world and the news reaches our dinner table, my family will invariably ask me “are you helping with this one?” I love how this question cuts to the heart of the re/insurance business and the essential role our industry plays in the world.

I have often used the analogy of a “shock absorber” to illustrate the role of reinsurance. It is a simple way to explain a complicated business. While this is clearly important to our clients, reinsurers bring a lot more to the table. At Swiss Re, we are a partner across the entire spectrum of risk awareness, risk management and risk transfer with our broad product suite, our global reach and our expertise and tools.

Reinsurers as shock absorbers to enhance societal resilience

In 2023, the reinsurance industry paid more than $150bn in claims across property, casualty and specialty lines globally. These payments covered a staggering breadth of incidents including large industrial fires, rioting, defective products, damage to wind farms and bridges, ransomware and supply chain disruption, as well as earthquakes and extreme weather events.

If we take a closer look at the destruction caused by natural catastrophes, annual global insured losses of more than $100bn have become the new normal. The exact figure reinsurers contribute to natural catastrophes varies by event; for large-severity events it can amount to more than two-thirds of the total insured loss. For example, Swiss Re estimates reinsurers will fund approximately 80% of the Caribbean losses from this year’s Hurricane Beryl, the earliest category five hurricane on record.

The reason reinsurers can play the role of a shock absorber is largely down to two factors. The first is pure financial strength – enough to absorb large losses and maintain solvency even in the face of major catastrophes. The second factor is global diversification, which helps spread exposure across different geographies and lines of business and creates deeper insights into the overall risk landscape.

At Swiss Re, we have 50 experts who manage 200 proprietary natural catastrophe models in support of colleagues in 80 offices around the world who understand local dynamics and can respond swiftly to challenges of our clients. This type of close partnership between insurers and reinsurers is critical to building resilient societies and economies; however, more is needed to reduce the protection gap.

Reinsurers as springboards to addressing the protection gaps

Despite re/insurers’ ability to boost economic and societal resilience, the global protection gap (the difference between economic and insured losses) for natural catastrophes alone reached $172bn in 2023 (and $1.83trn across all perils including life and health). If we aim to shrink this gap, we need a multifaceted approach that addresses disparities in insurance coverage across different populations and countries.

Fostering partnerships between reinsurers, insurers, governments and non-profits is a key part of creating affordable and more accessible insurance products. Since 2011, our Public Sector Solutions business has completed more than 1,400 transactions in more than 80 countries. This public-private approach facilitates investment and economic growth in areas like international trade, agriculture and infrastructure development. It also helps protect natural resources and supports new industries needed to achieve decarbonisation targets.

These partnerships also provide essential disaster recovery financing to communities across the world. One of several powerful examples follows the 2023 earthquake in Turkey. For more than two decades, Swiss Re helped grow the Turkish Catastrophe Insurance Pool, which provides cover for people who would otherwise likely be without insurance support. Thanks to this foresight and successful public-private partnership, more than 500,000 Turkish households received a payout following the devastating earthquake.

Reinsurers as a compass to data-driven decision-making

To drive further progress as a re/insurance industry, we need to leverage data to better predict future risk without being too anchored to biases of the past. As a reinsurer invested in the power of data and technology, we are here to support clients with the tools and solutions essential to understand and mitigate risk, unlock innovation and improve performance.

For example, Swiss Re recently acquired Fathom to improve the understanding of flood risks. Now paired with our CatNet® platform, this has the potential to unlock new underwriting opportunities and improve insurers’ performance. Proprietary natural catastrophe models also help our clients gain valuable insights into more than 90% of the world’s insured exposures from extreme weather events.

To further push the boundaries of insurability, it is vital data flows effectively through the value chain. As perils arise or intensify – such as extreme weather, rising jury awards in the US or cyber threats – we need accurate and timely data to recalibrate models and provide forward-looking scenarios that help us price risk accordingly. These insights also facilitate deeper conversations and better collaboration to create optimal re/insurance structures and find innovative risk sharing solutions.

Partnering for progress beyond risk transfer

As a reinsurer, Swiss Re helps clients navigate other headwinds including macroeconomic volatility, geopolitical instability, climate change and energy crises. Beyond traditional risk transfer, we provide insights, knowledge and tools that improve risk awareness and inform effective risk management strategies.

We are a partner for our clients’ progress – a predictable shock absorber, a springboard for new ideas and a compass to guide decisions on the best path forward. I look forward to discussing all this and more during conference season as we work together to bring these various roles to life in practical and purposeful ways.

Coming back to my family dinner discussion, I will probably spare them all these details. For now, I will stick to the “shock absorber” analogy and when they ask if Swiss Re is helping, I am happy to answer, “yes, and we want to do more”.

Urs Baertschi is chief executive, property/casualty reinsurance at Swiss Re