Top five market issues at RVS2022

As the insurance market begins to pack and prepare for the Rendezvous conference, here are my top five picks for agenda discussions, as a lawyer looking in:

5. Covid claims

As Covid becomes endemic, the economic impact continues alongside the tragic human cost. Business interruption claims continue to be litigated worldwide. However, while the direct claims positions become clearer as domestic court processes (often egged on by regulators) sort out the legal issues, the knock-on reinsurance issues – aggregation in particular – are still to be fully played out. Will the preponderance of arbitration clauses, prohibiting class issues but potentially carrying court appeals especially in the UK, consign the reinsurance market to a tortuous few years of getting the same clarity that the direct carriers now see?

And, on a non-claims basis, does the ‘new normal’ of home/hybrid working that Covid and lockdowns have brought on offer the market an unexpected beneficial disruptor to save or mitigate business cost going forward, in the current economic headwinds?

4. Ethical AI

The use of new technologies to save cost and drive efficiencies is here to stay, and the market loves it (think ‘drones’ assessing loss and damage or real time risk mapping of flood risks). It has long been said that the underwriter’s job can be done robotically and by algorithm, and that is being tested (think of Ki, the first algorithmically-driven Lloyd’s syndicate). But there is no free scrutiny pass when it comes to AI. If used, AI must be assured to be ethically compliant; if computer programmes are going to deny applicants coverage, can applicants be assured there are no inherent biases in play with any algorithmic review in terms of geography, gender, or race? Get it wrong and lawsuits are around the corner. Can the market be sure and verify that data is complete, accurate, and free from biases, with so much reliance on third-party data suppliers? How can their data be verified as ‘ethically pure’ if challenged?

3. Ukraine

The human cost remains tragic and dwarfs the economic cost. But how can, if at all, that economic cost be mitigated? Inflationary pressures are here to stay for a while, feeding into higher costs and squeezing profitability. Is this an earnings event that can be managed, or is there a capital or ratings risk that may make this more existential? Will the risk portfolios affected have swung away from pure Russia risk exposure but to wider business failure and insolvency risk as insured and reinsured businesses falter under the same economic headwinds?

2. Climate risk

Can market businesses show compliance with received corporate good governance by operating with clearly established internal risk management processes, and both collective and individual leader accountability?

Can businesses assess, rate, insure, and handle a potential developing book of climate-related litigation, globally? Insureds will expect those risks to be covered by insurers directly and in turn direct carriers will expect their reinsurers to partner with them in handling the exposures.

Those that get this exposure analysis and corresponding pricing correct will have a major mover advantage. But how good, again, is the relevant data on climate risk impact and cost, and is there absolute confidence in the integrity and depth of third-party modelling?

1. Shareholder returns

This is always the number one priority for businesses. But how is return on equity to be maintained?

Covid and Ukraine, with their associated claims and cost impacts, are major tank traps to delivering shareholder value. Some clubs in the economic golf bag are no longer available – reserve redundancy for example was long utilised before the pandemic.

The key is to control what can be controlled: clear business focus, best people, acquisitions for organic growth/economies of scale, and divesting non-core and cost-heavy business. Can, again, the new normal of hybrid working help mitigate costs? Can being ‘niche’ remain a viable option to being big? Can hard market and upward rate pressures help to mitigate the economic downsides? Will pension/alternative capital sources still see the attraction of the market as a sector for investment in potentially the first rising interest rate environment for over 20 years?

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