Future of Insurance - Snippets from the 4th Sharm Rendezvous

How important is insurance to the future of the world? With emerging issues such as cyber risks, climate change risks, global geopolitics, uncertain economic conditions across countries, the great resignation, the Russian-Ukraine war, possible deglobalization, esg considerations in business and rising inflation is the future of insurance exciting or bleak?

Insights from the 4th Sharm Rendezvous

I had the honour of joining a panel discussion moderated by Michael J. McCord with other speakers, Hani Kurdi and Zainab Khatib at the Insurance Federation of Egypt's 4th Sharm Rendezvous last week. In our discussions on the the future of insurance globally and in the MENA region, we touched on cyber risks, climate change risks, ESG and sustainability, and industry talent and their impact on the insurance industry.

The following were some of the key takeaways from our discussion.

On Cyber Insurance

Cyber insurance risks are more prevalent than reported and are fast evolving, yet adoption is low due to knowledge asymmetries and cost constraints of businesses. Companies do not report cyber breaches due to the reputational hazards associated with their disclosure. Consequently, companies must weigh the pros and drawbacks of investing in cybersecurity infrastructure vs insuring the risks.

Cyber attacks have increased in Sub Saharan Africa (SSA) and in West Africa following the Russian-Ukraine war. The increase in attacks include, but have not been limited to, data leakages (61%), insider threats from staff (43%), phishing (37%), cloud related attacks (34%) and ransomware (30%). Cyber exhortation has also been on the rise, with government and government-related entities being frequent targets. In SSA however, only 17 out of 54 countries have a complete national cyber security strategy.

Regulation on obligatory reporting and disclosures could give additional information on the nature and scope of cyber dangers to various industries, thereby enhancing the underwriting procedure.

On Climate Change

The world is now better able to comprehend the science underpinning climate change, analyze its effects, and develop instruments to combat its causes and effects. Consequently, the debate surrounding climate change is shifting to adaptation and resilience. The effects of climate change are seen globally (floods in East Africa, cyclones and hurricanes in the Americas and East Asia), with developing nations being disproportionately impacted due to inadequate infrastructure investment and inadequate insurance coverage.?

The percentage of insurance penetration in many developing nations is less than 2%, hence many assets are uninsured. When tragic natural disasters occur, many people are forced to pay out of pocket with already restricted cash or rely on government or international aid to recover/restore/replace their assets.

As the world moves toward its net-zero emissions goal, insurers play a unique role by investing in low-carbon emission projects, including environmental impact assessments in the underwriting process, rating sustainable projects more favorably, investing in green projects and green financial instruments, and investing in infrastructure projects with the potential to reduce the impact of natural disasters ( for instance investing in the construction of storm drains in developing countries could reduce the impact of perennial flooding thereby saving insurers some money).

It also entails integrating actionable ESG criteria and measures into the company's goals and forecasts. From the board level to the two-week-old intern, ESG principles should trickle down. The ESG principles that a company subscribes to should also be communicated to its stakeholders.

On Talent

?I am particularly interested in talent in the insurance industry so I gravitated towards this angle during our discussion.

The talent discussion is not new to the industry due to the historic structural barriers within the industry. Deals are typically negotiated on the golf course or over a handshake in the insurance sector, which has historically been considered an "old boys' club" with women historically taking on more administrative positions.?Additionally, due to its technical nature and the widespread lack of trust in the industry, insurance has never been a popular career choice among many young people.

As a result of the Covid-19 epidemic, "The Great Resignation" has impacted the entire globe since the beginning of 2022, as an increasing number of employees have resigned from their positions. The insurance industry has not been spared in this regard.

Employees who resigned cited a lack of career advancement, inadequate compensation, a lack of meaningful work, limited opportunities for career advancement, a lack of job satisfaction, a hostile work environment, inflexible work policies including remote work policies, and uninspiring leadership as reasons for leaving.

The industry needs to recognize that working with Gen Z and millennial employees necessitates the use of distinct tools and motivators. These two generations appreciate community and have a strong desire to work hard and achieve success quickly. They are interested in CEOs who are engaging and sympathetic, flexible work schedules, engaging work that utilizes their skillsets, and working for firms whose values line with their own.

Future competition from "Big Tech" companies and other "employers of choice" for the same skills will exacerbate the talent shortage within the insurance business. To make the industry more attractive to younger talent, the industry must reinvent itself. Young talents are looking for open, collaborative environments where they feel heard, are using their skills and talents at maximum capacity and can identify with the values of their companies and bosses. Insurance is and has always been about risk mitigation and providing a protection gap in the day of losses.

How about insurers sell that story better? An estimated $20 billion will be made by insurers in the wake of Hurricane Ian, why not amplify that story? Parametric agric insurance in several countries in SSA is providing farmers with a buffer when drought or floods wipe away their crops and livelihoods. The insurance industry needs to upscale its brand and amplify its voice and tell its story of what insurance does to protect societies and communities in the wake of natural disasters and other unforeseen circumstances. The industry also has relatively low or no barriers to entry for women in many parts of the world. In the United States the insurance industry has 60% employees being women. This should be amplified.

Additionally, the industry employs a diverse group of professionals- marketers, lawyers, actuaries, loss adjusters, claims personnel, accountants, data analysts, IT professionals and many more. There is room for everyone, regardless of background of study to thrive.

The future of insurance is an optimistic one. As the world faces uncertain times ahead, mitigating the risks that might arise from the uncertainty should be top of the mind for all leaders and insurance is a risk transfer mechanism that can be explored.