Finding industry-wide ways to deal with systemic risks is ‘not an urgent task’ the (re)insurance sector has so far undertaken – but this needs to change, says PWC partner
Although “the (re)insurance industry has got a great role to play” when it comes to finding solutions to systemic risks, this is “not an urgent task” the sector has previously had high on its agenda, according to Jim Bichard, partner and global insurance leader at professional services firm PricewaterhouseCoopers (PWC).
Speaking exclusively to Global Reinsurance at this month’s Rendez-Vous de Septembre conference in Monte Carlo, Bichard explained that although systemic risks are “such a big exposure”, public-private partnership projects such as Pandemic Re have been “paused because the industry had other things on its mind, governments had other things on their minds”.
According to Investopedia, systemic risks refer to events that could trigger severe instability or the collapse an entire industry or economy. Recent examples include the Covid-19 pandemic, climate and change and – increasingly – global cyber attacks.
Bichard said: “I don’t think we should say ‘well we got through the last one and we managed to not have the whole industry become insolvent, so we’re fine’. I think quite the opposite in fact.
“It feels like it’s not an urgent task to fix it, but for me, we shouldn’t waste time thinking about what the more long-term solution is because [this] will take a long time to put together.
“Everyone gets distracted with the here and now – everyone’s talking about 1/1 renewals and this year’s pricing. [The] pandemic is a little bit on the back burner.
“We’ve got to make sure we keep pushing for [systemic risks] to be brought back to being on the front burner again.
“[A systemic risk event] could happen tomorrow. It’s still there as a risk. We know even more now how problematic it is.”
Playing a part
If the (re)insurance sector does opt to bump systemic risk solutions up its agenda, Bichard believes the industry “could potentially play a really important role” - however, any sector-wide proposition must be in collaboration with local governments, which makes the entire process “more complicated”.
In part, this is because propositions would undoubtedly need to be arranged “government by government”, rather than be an international solution working across all jurisdictions.
Bichard acknowledged that the (re)insurance sector “could never take all of the risk” associated with systemic risk events, but the industry still has “a great role to play in taking some of the risk” because of its “expertise” in pricing, claims and modelling.
He continued: “The interaction between the industry and government is the bit I find interesting and the way we might be able to bring more capital in to fix that problem. We could facilitate quite a big solution.”