The risks keep evolving and 2026 has started with the whole gamut, with events across the world highlighting the need for sustainable and affordable insurance, from the US-Israel war with Iran, the wildfires, the floods and the cyclones.
This is an ultimate test for the (re)insurance industry. Are we prepared as the risk managers? The models (where present) are being tested and the previously assumed frequency of events is rapidly changing. Underwriters, actuaries and data scientists have to continually be on their toes to get these models right as well as to develop models in regions where none exist today.
(Re)insurance remains central in risk management for sustainable businesses, industries, communities and, ultimately, economies. However, to achieve the goal of solid and resilient risk management, we require sustainable insurance structures.
The backbone of any insurance programme which delivers that sound risk management for its clients starts with the price. We are all aware of the initial principle of insurance, pooling together of the risks, with each of the risks paying a proportionate share of price (called premium) to the pool. The pool needs to be sound enough to pay losses from the unfortunate few members of the pool every year/period. Additionally, there need to be enough funds to cover the expenses of running that pool as well as sufficient to provide a return for those who have invested into these pools.
There are a few aspects influencing sustainable development of insurance pools:
- Data infrastructure
- Competition
- Growing natural catastrophes
- AI and technology
- Knowledge
- Utmost good faith (fraud)
In the insurance industry, data is without doubt the backbone. Data, data and more data to be able to adequately model and determine sustainable pricing. However, in most developing markets, data collection is still a big challenge. Sharing data in some regions is seen as sharing competitive information resulting in each player having just half of the story. In turn, it becomes very difficult to have a large sample of data in real time to continuously build and update models for different perils for each of the particular classes of business.
This leads to our second point about competition. The lack of shared industry information means competition is then happening in an effectively blind spot – underwriters take on risks without having historical data of the risk they onboard, in the hope that once on their books they can develop their own data (without suffering major losses in the meantime, which might unbalance the books).
We need to have champions of data in our various markets. For example, for the football enthusiasts, you will realize how Opta (the official data company that keeps the statistics of English Premier League) tracks and keeps data, improving League data and making it possible to predict a winning team easily, with much more precision than without data.
What more motivation can there be for the insurance industry when even sports and entertainment industries are ahead of us? That is particularly important when you consider the critical role we play in safeguarding investments and communities alike.
Something else that seems to be rarely out of the headlines these days is natural catastrophes. Floods, cyclones, wildfires, droughts, many of which we can name individually, are all becoming so much more frequent in recent years (up to about the last 20 years), compared to the 20th century.
This increasing frequency is coupled with growing urbanisation and light industries across many developing countries. The question for risk managers is whether this heightened exposure is being adjusted frequently enough in our models, if the models exist at all. Again, this can only work when we become a data-rich industry.
Other buzzwords, and the so-called emerging risks, have emerged around technology and artificial intelligence. In view of the amount of data and information that industry collects (or should be collecting), technology is our number one ally. We need to have tools that can quickly analyse, review and interpret our data so that we can provide workable solutions to our clients.
Technology will enable faster delivery, alongside accurate and rapid analysis that will ensure our services are delivered to the insurance public correctly and efficiently. In the long run, this will help us create sustainable and affordable insurance products and, at the same time, reduce the negotiation time involved as each party will have access to the same data – as they say, numbers don’t lie.
Hand in hand with technology, lies one of the most talked-about pain points in the sector – exaggerated claims, or fraud. It is said that wherever humans are involved in the processes, the risk of errors and/or the tendencies of exaggeration can occur. Technology therefore can reduce the risk of errors, while at the same time flagging potentially fraudulent activities at an earlier stage.
Last but not least is insurance knowledge. Technology should not replace the thinking and doing by the industry professionals. The technology is as good as what is fed into the system. The famous saying is “garbage in, garbage out”.
We always advocate continuous learning and practice. That starts with what you are taught in schools and colleges, what you learn on the job, what is discussed in conferences such as African Insurance Organisation (AIO), etc and written in magazines.
If we merely listen only to instantly return to practice as usual, including undercutting prices, then our sustainability as an insurance industry is at high risk and will require “insurance” itself, at a very high premium.
— The writer is the chief underwriting officer at ZEP-RE
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