Developments such as climate change and digitalisation are changing risk pools and can challenge the viability of traditional insurance products. Risk-adequate pricing may affect insurance affordability and raise questions around fairness, Swiss Re Institure states. Transparency, technology and insurance innovation can offer solutions.
Intense weather-related disasters like tropical cyclones, floods, and wildfires can make it hard to insure certain risks in specific areas.
This might result in higher premiums or the cancellation of some coverage. Such changes can upset insured people.
Homeowners might find it unfair to pay higher premiums to cover losses on high-risk properties. Others may struggle to afford insurance each year, seeing it as unjust. These feelings of unfairness are often worsened by the trend of moving to high-risk areas.
According to Swiss Re, similar issues arise in other insurance fields. In Life & Health insurance, digitalization and advancements in machine learning and diagnostic data from wearables and tests enable more precise risk assessment.
Self-monitoring and ongoing data collection can enable us to better track individual health, including abnormal readings which may indicate the onset of ill health. This in turn may help us live longer, healthier lives.
Early detection of cancer, for example, can improve chances of recovery and lower associated rates of mortality.
However, these technologies also pose risks of information imbalance and anti-selection. Consumers might have detailed health information from diagnostic tools that they do not share with insurers, leading to non-transparent subsidization of their higher risk by other policyholders and potentially making certain risks uninsurable.
These changes might lead to claims of unfair practices against the reinsurance industry. Addressing fairness is tough but important because fairness and inequality have always been key issues in insurance.
Reinsurrers should clearly show how they identify risk groups and offer new ways to transfer risk
Reducing protection gaps lowers inequalities, and affordable insurance helps with this. Core values like reliability, security, and transparency are crucial for earning client trust, especially in the digital world, Swiss Re notes.
Among new approaches in Property & Casualty insurance business to help make vulnerable populations more resilient in face of natural perils is parametric insurance. Recent examples include protection against severe weather conditions in high-growth markets.
Another example is a flood insurance scheme in New York that supports low- and mid-income households.
And yet another case is Flood Re, a public private partnership in the UK that incentivises adaptation and mitigation measures. Flood Re helps households and communities transition to risk adequate pricing gradually by keeping flood insurance affordable for a certain period of time.
In L&H insurance, alternative data from wearables can enhance underwriting and enable dynamic underwriting. Digital platforms can improve access, affordability, and service for customers, making insurance more inclusive.
