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Time for fundamental change
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Walter B. Kielholz, CEOSwiss Re
Monte Carlo, 10 September 2002
Attitudes toward risk
The insurance industry today
Actions the insurance industry must take
Swiss Re’s comprehensive response
Page 2
Risk and opportunity
Perceptionof threat
Safety-orientedattitude
Survival-driven
Focus onhazard
Opportunityrealisation
Innovation-oriented attitude
Incentive-driven
Focus onchance Risk acceptance
Risk in opportunityOpportunity in risk
Attitudes toward risk
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Today’s attitude: oriented towards safety
Page 3
Outline
Attitudes toward risk
The insurance industry today
Actions the insurance industry must take
Swiss Re’s comprehensive response
Summary
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Page 4
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Insurance and risk: a classical view
Conditions for insurance: what we have learned ...
Losses should be fortuitous / accidental Large number of risks (spreading the risk) Loss estimates should be possible Premium obtained should be adequate to risk
… and traditional view toward risk
Risk in opportunityOpportunity in risk
Pharma Cyberrisks
Page 5
Pharma: extensive loss history
1960 1970 1980 1990 2000 Time [years]
DES
L-Tr
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phan
e
Fact
or V
III (AID
S)Bre
ast im
plan
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Thal
idom
ide
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ON
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alco
n Sh
ield
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Phen
Hip
impl
ants
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ipob
ay
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Extensive loss history, back to 1960 Increase in frequency and severity Scenarios: have to be shared with industry Premium is still not adequate to risk
Page 6
Cyberrisks: “cyberquakes” as new exposure
Within 1 single day:world economyinfected
Economic loss:USD 8.75 bn
Uncontrollableaccumulationof losses
Walter B. KielholzMonte Carlo 2002Time for fundamental change
“I love you” virus
Page 7
Walter B. KielholzMonte Carlo 2002Time for fundamental change
To sum up: status quo
New risk: cyberrisks, biotechnology Old risk, fundamentally changed landscape: terrorism,
D&O Not transferable risks: contingent business
interruptionLawsuits
Risk: new or old ? Not very helpful: risk changes
Hostile environment, increased aggressiveness
Insurance industry Higher frequency and severity in very large claims Insufficient premium, destruction of capital Risk appetite: low at present time Capacity: will not increase due to uncertain environment
Fundamental change inevitable
Page 8
Outline
Attitudes toward risk
The insurance industry today
Actions the insurance industry must take
Swiss Re’s comprehensive response
Summary
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Page 9
Change area 1: underwriting“back to the basics”
Sound, professional underwriting
Combined ratio must be below 100% for each single line of business
Time for unlimited cover is past, especially in Motor
No cover without agreed wording
Primary insurance (property & casualty)
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Reinsurance Improve wordings (named perils)
Shift to facultative / non-proportional
Active claims handling (claims cooperation clause)
Page 10
Change area 2: risk management “strategic view, improved dialogue”
Research, pooling of activities within insurance industry
Follow technological development, changes in risk perception
Strengthen scenario-based thinking
Understand correlation: interline (non-life, life) andacross the balance sheet (assets and liabilities)
Strategic risk management: increased resources necessary
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Improve dialogue Address “hot issues”
Intensify and improve dialogue with industry, insurers, governments and NGOs
Page 11
Comprehensive defense strategies and procedures
Globalize handling procedures
Leverage skills
Develop claims handling concepts
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Rigid defenses
Defend the capital base
Fight the predator
Change area 3: claims management“strategic process, pro-active handling”
Page 12
Outline
Attitudes toward risk
The insurance industry today
Actions the insurance industry must take
Swiss Re’s comprehensive response
Summary
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Page 13
Swiss Re’s attitude toward risk
More professionalism in wording, contract definition No unlimited covers; named perils treaties Shift to facultative / non-proportional Revival of claims cooperation clause where appropriate
Risk underwriting
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Risk management
Improve scenario-based thinking
Risk dialogue: Executive Board has “Top Topics” and “Centre for Global Dialogue” in Rüschlikon
Strategic risk management is part of Executive Board process
Page 14
Swiss Re’s attitude toward claims
Separation of powers
Strong influence on loss regulation
Operational
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Tactical / strategic
Strengthen scenario-based thinking in claims management
Build up tactical and strategic claims management units
Put the experience loop into underwriting
Strategic claims management is part of Executive Board process
Page 15
Outline
Attitudes toward risk
The insurance industry today
Actions the insurance industry must take
Swiss Re’s comprehensive response
Summary
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Page 16
Summary
Underwriting: back to basics, combined ratio below 100%
Risk management: more research, better dialogue
Risk and claims management: scenario-based thinking
Walter B. KielholzMonte Carlo 2002Time for fundamental change
Insurance industry must change
Swiss Re has changed processes and will increase dialogue
Underwriting: shift to facultative / non-proportional
Risk management and external dialogue: reinforce
Claims: tactical and strategic units, rigid defense
Page 17
Walter B. KielholzMonte Carlo 2002Time for fundamental change
