There is an old adage that “adversity builds character.” However, before adversity builds character, it reveals character, and the numerous catastrophes that have occurred over the last several years combined with the ongoing pandemic have clearly revealed the character of the insurance industry.
And there is a lot to be proud of in how well the industry has responded time and again to numerous crises. The (re)insurance sector is well-versed at navigating market-changing events, and while the impact of previous shock events such as Hurricane Andrew, the terrorist attacks of September 11, 2001 and Hurricane Katrina may have resulted in a loss of capital and reduced capacity in the short-term, the market responded to each occasion by innovating, working with governments and attracting more capital in the long term. Since 2017, catastrophe claims in the United States alone have totaled USD 214 billion. Despite that, the capital supporting the reinsurance sector has risen to a near all-time high of USD 471 billion, according to John Trace, CEO, North America, Guy Carpenter, and Jay Dhru, Global Head of Business Intelligence, Guy Carpenter.
Spotting the Black Swans on the Horizon
While it is important to think about black swan events, putting too much time and effort into planning for a specific event at a specific time may be a fool’s errand. Despite being a known risk, a pandemic was not on the risk radar for many people prior to COVID-19. Even in those instances where a black swan event is identified, preparing for such a crisis during good times will always look more expensive. Therefore, instead of focusing on a specific event, (re)insurers are best served by maintaining capital resilience, access to liquidity, strong risk management, nimble operations and innovative thinking.