Insurers await ‘light bulb moment’ to scale pre-arranged disaster insurance market

By Rebecca Delaney

June 30 - (The Insurer) - Insurance continues to play an important role in supporting anticipatory action and disaster risk reduction in emerging markets but is not a complete solution for managing large-scale societal risks, says MS Amlin’s Martin Burke.

Burke, chief underwriting officer at MS Amlin, spoke on a panel hosted by the (re)insurer on Thursday last week as part of London Climate Action Week.

“Insurance absolutely has a role to play, and it has to be alongside governmental organisations who really have a role to play in terms of the capital investment they can offer to try to help prevent or mitigate some of the risk, as well as other non-governmental or humanitarian organisations,” he said.

“In the end, the role of insurance has to be to help manage that residual risk that remains. In my opinion, I don't think insurance can shoulder all of that volatility for those societal resources.”

Burke added that the insurance sector must also help to “push the envelope” for immediate risks that require timely deployment of risk transfer solutions.

However, the panel also emphasised the importance of maintaining a realistic focus on the extent to which the protection gap globally can feasibly be closed.

“I understand the principle behind it, but if the goal is to close the protection gap, it's not going to happen,” said Kavit Khagram, parametric and public sector reinsurance broker at Gallagher Re.

“What we should try and do is to reduce it step by step. If we just continue at the same pace we are, that protection gap will continue to widen. The challenge for the industry is to start to mobilise private sector resources, to really start just doing more, and quicker.”

Kipkorir Koskei, director of strategic partnerships and policy at the Insurance Development Forum, added that while this sense of urgency also applies to the Global North, anticipatory action and disaster risk reduction measures cannot be replicated across all geographies.

“We're in the same boat. We see this North-South divide that is, I think, imaginary,” he said.

“It's fundamentally flawed to try and use the same metrics that we have in the developed countries to take it down to developing countries, essentially because it's a completely different market.”

Different market dynamics include varied demographics of customer bases (for example, regional insurers may be more focused on gig workers and micro SMEs), which will influence the type of insurance products that are in demand.

“I think it'll be a different way of doing it. It wouldn't be selling 14 insurance products to an individual. I think it will be a more equitable, more broad-based way of doing things,” Koskei continued.

“I'm not quite sure what the insurance lightbulb moment will be. But fundamentally, it's going to be a challenge, and replication is not going to be the key.”

Koskei added that access to data and the ability to translate data in actionable metrics remains a key challenge to scaling anticipatory action in emerging markets.

“(Data) is the currency to enter this conversation. You can shout all you want, but you need a currency; you need to come with something that can elevate your conversation,” he said.

“We need to export that data. That's the biggest monetary value from an insurance perspective. It's hard to translate that data into something that's tangible from an insurance sector person to a government official to a minister of finance to be able to say what is the risk they’re carrying.”

MS Amlin’s Burke warned of two pitfalls for (re)insurers to be wary of when using quantitative data to communicate risk and volatility.

“When you see data in a spreadsheet, it feels tangible. But there's an awful lot of qualitative work that we do on the risk when we assess it in the first place, and there's a lot more of the story that you need to understand about the risk you're looking at,” he said.

“It's very easy to look at a number and say, it looks like the volatility is this, the margin is that, and then come to a landing. But you have not even gone halfway through the story.”

Burke added that (re)insurers should avoid using averages to convey disaster risk and emerging market risk.

“When you're dealing with societal level volatility, minimising it down to the average again just misses so many different aspects to how that risk might manifest itself. You have to be careful about averages and how you apply them,” he warned.