Swiss Re: Risk pricing at a turning point; ‘unstable equilibrium’ could worsen

Resilience, long-term thinking and collaboration are critical for insurers navigating today’s fragmented global landscape, according to Swiss Re’s group chief economist, Jerome Haegeli.

Speaking to AIRMIC Today, Haegeli outlined the growing geopolitical risks reshaping the global economy – and the pivotal role insurers must play in safeguarding financial stability. “We have a regime shift,” he said. “This isn’t about returning to the globalisation of the past. We're moving into a multipolar world, and it’s a turning point.”

He warned that this shift is still not fully understood or appreciated: “If you look at markets, you’ll see ripple effects that aren’t going away. There is no vaccine like for Covid. Political risks are long term and will persist across industries.”

While financial markets may suggest some stability, Haegeli cautioned that “the current equilibrium is unstable and could worsen”.

He challenged the notion that the market is heading back to pre-crisis normality, noting that while equity markets might suggest stability, the reality beneath was far more precarious.

The disruption extends to trade, as he pointed out: “Adjusting supply chains to higher tariffs – even if tariffs remain low – will be painful.” 

So how should insurers respond to this fragmentation? Haegeli is clear: underwriting excellence, long-term investment and adequate risk pricing.

Precision in risk assessment

The current geopolitical climate, marked by trade disputes and supply chain shifts, requires vigilance and adaptability. The foremost challenge for insurers, Haegeli noted, lay in pricing risk accurately. “Geopolitical tensions and inflationary trends demand a nuanced understanding of uncertainty and its costs, so make sure you get that uncertainty’s costing right,” he advised.

“The industry needs continuously to evaluate exposures and align costing with emerging risks,” he continued, outlining an approach that would ensure resilience and safeguarding portfolios against potential disruptions.

AI and machine learning are also revolutionising underwriting by enabling sophisticated risk analysis and precise pricing, particularly for emerging threats such as cyber risks and climate change.

“Adjusting supply chains to higher tariffs will be painful.”

A longer-term strategy

The investment side of insurance is equally crucial, and Haegeli emphasised the need for a resilient, long-term perspective in the face of fluctuating interest rates and volatile markets. “The industry’s group strategy must be anchored in resilience,” he said, adding that insurers must navigate short-term market turbulence while seizing structural opportunities presented by digitalisation and also the expected investment surge in many parts in the economy, especially in Europe. 

Despite geopolitical instability, these megatrends continue to drive innovation and growth, and Haegeli is optimistic about the transformative potential of technological advancements.

Tools such as AI enhance investment strategies by refining risk analytics and optimising asset allocation. By integrating technology into investment decisions, insurers can anticipate market shifts and allocate resources effectively.

Sustainability is another focal point. “The green transitions are not just a trend; they are a necessity,” Haegeli explained. Aligning investment portfolios with environmental, social, and governance (ESG) principles not only mitigates long-term risks but also positions insurers as key players in combating climate change.

“The current equilibrium is unstable and could worsen.”

Building economic resilience

Risk pricing is fundamental to ensuring financial stability and economic resilience. “Accurate risk pricing empowers insurers to act decisively,” Haegeli stated, “enabling them to adapt to new challenges and invest strategically.” 

This capability is central to the industry’s role in closing protection gaps and mitigating the impact of unforeseen events.

Swiss Re’s Resilience Index exemplifies the potential of innovative tools, measuring economic robustness and highlighting areas of underinsurance, serving as benchmarks for policymakers and clients.

Technological integration further enhances risk pricing, and AI-driven analytics enable insurers to evaluate intricate risks, from geopolitical tensions to systemic economic shocks. 

Despite the challenges posed by geopolitical uncertainty, Haegeli remains optimistic about the insurance industry’s capacity to adapt and innovate. 

“It’s not because the world is riskier that opportunities disappear,” he explained. Instead, these challenges often accelerate advancements in technology and standards, fostering progress in digitalisation and AI.

He also underscored the importance of maintaining a long-term outlook. “The ability to plan and invest with a future-oriented perspective is vital,” he said.

Collaboration is another critical element to bridge gaps between public and private sectors and Haegeli explained how partnerships would be essential for addressing systemic risks and fostering global economic stability.

He believes resilience is the answer and concluded: “The underwriting function is key to the wellbeing of our economies with the level of investment and jobs being created depending on the existence of well-functioning insurance markets.”

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