Alongside this, the reinsurer’s market head for property and casualty in the UK and Ireland believes usage based insurance is on the up and that there is a ‘really positive swing in the rates’

The largest impact the Covid-19 pandemic has had on the insurance and reinsurance industry is “operationally as a business”, according to Simon Welton, reinsurer Swiss Re’s market head for property and casualty in the UK and Ireland.

Speaking exclusively to Insurance Times, Welton explained that the pandemic caused a predominantly face-to-face market to have to reinvent itself overnight to embrace digital communications and new modes of working in order to adhere to government instructions to work from home.

“We’ve been a face-to-face industry for perhaps 350 years, certainly for the length of my career and it switched overnight to how can we do this differently?” he said.

Although Swiss Re is geared up globally to support home working – from a technological and processes perspective – Welton added: “What we’ve noticed is across the UK market, that everyone seems to have adapted fairly well. From an operational perspective, it is a massive change.

“We’ve tried to modernise the business a bit, particularly in the back office and processes. That was a very long, slow, cumbersome process, but I think [the pandemic] just forced it to happen almost overnight.

“How can we use technology and digital platforms to really improve back offices, but also distribution and the client facing side of things?

“On that operational side, actually plenty of good outcomes. We’ve proved that we can do it and we’ve proved that actually it’s speeded up where we need to be in the future.”

However, Welton warned that businesses still need to engage in “general raising awareness of the benefits and the downfall of using technology a lot more” because “we’re all far more exposed to cyber attacks now, which wouldn’t have happened if you were commuting into an office”.

Covid-19 effects

Aside from the operational transformation, Welton added that the coronavirus pandemic has “really identified just how reliant we are on global supply chains”.

He continued: “I think the perception was always that they’re there, but while they’re working, let’s not worry about them too much.

”But that’s become very clear that small disruptions on the other side of the world will severely impact what we’re doing on this side of the world and that’s an insurance issue.

”A lot of business interruption type situations are rising because of that.”

Furthermore, the fact that an economic recession is on the horizon will also lead to an increased focus on underwriting.

Welton explained: “There is likely to be a recession and there’s certainly some very big economic impacts from this event, which means we have to focus a lot more on getting the underwriting side of things right.

“We can’t rely on the benefits of interest rates or something like that to improve it for us, so we’re getting much better at doing good underwriting as a result of that.”

Change in approach

An innovation arising from the pandemic, however, is the uptick in usage based insurance, Welton added.

“This was something that was bubbling along and developing a little bit slowly,” he said.

“Feels a bit like a common sense approach - you pay for what you use - which is also a little bit against the principles of insurance, where the premiums of the many pay the losses of the few.

“We have the technology these days to really, really tailor an insurance product to an individual as opposed to a segment of society and that’s what usage based insurance was beginning to do.

”And I think when people realised their car was sitting outside their house for three months, [that] triggered [an] increased interest in how do I have a flexible insurance product that covers me, that I can switch it on and off?

“[It is] probably the same, I think, for self-employed people. You might need certain insurances, but if you’re not working then can you switch them off or put them on hold?

“There’s definitely an uptick in interest. We speak to our clients about usage based insurance and I really think this is one of those situations where it will really push that along.”

Speaking more broadly than the pandemic, Welton noted that the industry is currently enjoying a “rating environment improvement”.

“We’ve gone through a long period of underpricing risk and not being able to rely on interest rates or reserve releases to support that underpricing, and now it’s a really positive swing in the rates,” he said.

“Across the world, across all segments, there’s a general movement upwards in pricing. Much more focus on the heavily capital intensive things, so you’ll see big rate increases for Florida property and aviation as well, possibly different reasons than Covid.”

This is also impacting Lloyd’s and the London Market.

Welton explained: “Lloyd’s and the London Market are heavily exposed to US cat risk, for sure, and that’s one of the areas where the increasing rates has been one of the most positive.

”It’s a very positive and buoyant time for Lloyd’s syndicates and London Market companies.

“The situation in London at the moment is quite attractive.”

From a reinsurer’s perspective, Welton added that “we’re not seeing people coming to us with concerns about their capital situation”.

He continued: “This isn’t a global event where people are really burning through capital and looking for protection there.

“But they are concerned about volatility of earning, so we can develop products that can help them move that because there’s less reliance these days on being able to release reserves or rely on the interest rates.

”So, those kinds of bespoke products, slightly more complex, where we work with clients to build them.”

No overnight transformations

Despite the myriad trends and evolving risks that Welton identified, he added that “the industry doesn’t transform overnight, that’s for sure”.

For him, “it will probably evolve and adapt a little bit”.

He continued: “The World Trade Centre might be a good parallel because it was totally unexpected and affected a lot of different lines that might not have been expecting to be hit by it, and so you would see changes like contract wordings being tightened up, prices changing.

“At that time, you did also see a few failures of insurance companies. I’m not sure that’s the case that we’ll see here, but we will see tightened contract terms and clearer understanding of what risks already exist and what the insurance industry should develop as products to meet those risks.

“I think the bigger transformation is the operational side. It’s us sitting at home. It’s not yet going to lead to a new version of the insurance industry, but it’s maybe speeded us a little bit on that path.”