Is the 21st century impossible to insure?

Time has taught us that to pool risks in a viable way, several elements are necessary. The risk must be known, foreseeable, damaging, involuntary, but also random. So what do we do when our world is turned upside down?

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Is the 21st century still insurable?

Today, the challenge is not so much to identify risks. We know what they are, and that's what enables us to anticipate them. However, the insurance industry must face up to the new great unknown: intensity.

Just a few years ago, $100 billion in natural catastrophe claims seemed exceptional. Yet the threshold has been crossed for the fourth year running¹. Records for disastrous wildfires have been broken in Australia, California and even Greece, while France struggles to cope with hail, floods and other storms. Natural disasters have forged a structural place for themselves in our economy, ranking second among the risks most feared by risk managers.

In pole position, of course, are cyber risks². In 2023, over a billion dollars will have been paid out to cybercriminals³. If this figure seems dizzying, we can only imagine that it will multiply by more than 200 to reach 265 billion within five years⁴. Recently, our country prepared to absorb no less than 4 billion cyber attacks over the course of this summer's Olympic Games in Paris alone⁵.

All these risks are now systematically aggravated by the growing interdependence of our production methods. As recent crises have shown, our ultra-specialized economy interweaves an ever-increasing number of value chains. Volkswagen, for example, had to interrupt its production line, affecting its entire European market, following a flood in Slovenia⁶. Against this backdrop, it's not surprising to note that 60% of companies consider it a priority to develop alternative sources of supply to avoid production chain interruptions, according to a report by Allianz.

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A new approach to risk

There are several possible ways of ensuring the long-term future of the insurance industry. The first, and most obvious, is risk prevention. We need to step up our efforts to combat climate change, promote public-private partnerships such as Flood Re in the UK to improve the resilience of housing in the face of natural disasters, and equip infrastructures with intelligent sensors. The recent acceleration in our advances in data processing and analysis is a tremendous opportunity to transform our approach to risk.

The second area is pricing strategy. The sector as a whole has lost touch with the value of its services. Faced with falling purchasing power and fierce competition, the insurance industry has rushed to the bottom in terms of pricing. This industry dynamic is unsustainable. It is now our collective responsibility to improve the quality of the services we offer, in order to justify premium levels that are in line with our cost structures.

The final theme is ecosystem risk management. In this day and age, each type of player needs to focus on the link in the insurance chain that corresponds to it. In concrete terms, a reinsurer managing funds capable of insuring countries against tsunamis cannot be as relevant to the management of an affinity contract for a concert ticket as a broker. For reinsurers, this means concentrating on making their balance sheets and macro-economic expertise available, with a view to long-term pooling and financial solidity. For insurers, it means managing and steering the technical balance of programs, and for brokers, it means contributing their expertise and creativity to the creation of new offers in line with end-customers' needs.

Smoother collaboration between these players will require greater integration not only of operations, but also of data.  While data is the very essence of insurance, there is still a long way to go. We need to invest more heavily. Insurance accounts for 6% of global GDP, with $6,000 billion in premiums collected. Yet it accounts for barely 2% of data scientists.

The real transformation of the sector will take place when we take the step of integrating our operations on a long-term basis. Only then will we be able to capitalize on each other's strengths and better protect the industry's billions of customers.

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¹Allianz 2023 risk barometer: t.ly/3soTg (p.8)

²Allianz 2023 risk barometer: t.ly/3soTg (p.4)

³Wired : t.ly/EjmED 

⁴Allianz 2023 risk barometer: t.ly/3soTg (p.16)

⁵Forbes : t.ly/Xbb52

⁶Reuters (August 2023) : t.ly/7xJTt