Executive insight

How Insurance can be a stabilising factor in challenging times

We shouldn’t underplay the power of predictability. The world thrives on it. But we are living in exceptionally challenging and unpredictable times with negative developments converging at one time on a global scale to create instability on unprecedented levels. While it is true to say that the world is mostly in recovery mode following the pandemic, for some the impact is still a very harsh reality. At the same time, we saw stalling economies in major markets, political instability, volatile financial markets, rising inflation and interest rates, and an energy crisis fuelled by war that together has brought devastation to the front door of so many households and businesses. And let’s not forget a climate crisis that stops for no-one.

At such times, the world is crying out for signals of stability, those small chinks of light that represent hope. And it is at just such times that the role of insurers and re-insurers becomes particularly important. In the simplest terms, insurers mutualise risk and provide an important safety net to people and businesses. They provide stability. But there’s more…

  • Lesson 1: Insurers provide a level of predictability and security

Insurers exist to allow people to follow their ambitions and dreams confident that the consequences of an adverse event can be mitigated. They provide a degree of certainty by safeguarding assets and providing protection, ergo a level of predictability in an uncertain world. They do so as expert risk managers but also as long-term thinkers, reflecting the nature of the obligations they agree with their clients.

The goal moving forward must remain the protection of customers as a constant. But at the same time, as insurers, we cannot take the traditional business model for granted. In an increasingly individualistic world where in some cases the willingness of all parties to agree to be part of mutualisation is decreasing, as insurers we need to promote mutualisation of comparable risks but ensure there is still sufficient incentive for the individual or enterprise to take actions to reduce that risk.

  • Lesson 2: The current challenges will drive discussions around shared responsibility

Looking back over the past decade, new and devastating events have emerged on the radar introduced a whole new dynamic. One that forces the industry to pause and think. We have seen cataclysmic events with massive impact:  pandemics, significant widespread weather events, cyber risk, terrorism to name a few, many of which impact millions of people all at the same time, where the law of big numbers is not playing any more. And therein lies the dilemma. While technically, under the normal rules of the road, these risks should be part of mutualisation, the reality is that the insurance industry cannot fly solo to cover these risks. Pooling systems will need to be created between insurers, re-insurers and governments, and collaboration needs to happen NOW on a scale we have never seen before.

  • Lesson 3: The influence of insurers as long-term investors is potentially seismic (in a positive way!)  

Among the other stabilising characteristics insurers have, distinguishing them from other sectors in challenging times, is their role as investors. As long-term large-scale investors they can play the role of ‘referee’ in the move towards more sustainable investments. By investing well in the right assets at such a critical time in the ongoing climate crisis, and by moving away from ‘harmful’ asset classes, insurers can make a massive difference. The choices insurers make matter. There is a lot at stake. And their role in influencing the choices made by customers and suppliers as they make their own transition towards a more sustainable world is important too.

  • Lesson 4: Insurers can use their expertise in partnership to achieve more

Insurers are experienced in working in partnership – the 1+1=3 calculation was invented for insurers and their partners! They make things happen through collaboration around topics that are critical particularly at this time: infrastructure investments, preventative measures around ESG topics and the big societal challenges that play to an insurers’ strengths – ageing society, health, and pension provisions - where governments are coming under pressure. Collaborating more closely with government bodies in the future where they struggle to maintain social security provisions and search for other solutions provides an opportunity for public and private sector cooperation. Insurers are well placed to share their expertise in managing risk and investing for the long-term.

  • Lesson 5: While there is no such thing as complete certainty, it won’t stop us trying...

In challenging times anticipating and predicting trends that could have an impact on our own business but also on our customers is a constant. But there is de facto no ‘catch all’ programme that can predict with 100% certainty everything that will come our way. How many people predicted the global pandemic? Who could have imagined the outbreak of war in the Ukraine and the devastating impact this has had around the world? But while it may not be perfect, insurers do have a duty of responsibility to their customers to keep thinking long term, constantly monitoring beyond the horizon to predict what’s next. This could equally apply to many other industries too. Perhaps there are lessons to be learned from the insurance sector?

So, while insurers are clearly not immune from the impact of events, they do have a role to play in providing stability to markets, people, and societies, to a greater extent than many other industries. The challenges are immense, but they have also prompted a period of thinking and reflection within the industry, and in time one hopes further action. Think of insurance as a safety net, core protection, predictable outcomes, smart sustainable investments, insurers as expert collaborators and long-term thinkers: a chink of light that represents hope.

Author: Bart De Smet, Chairman, Ageas