If you didn’t have a chance to attend our Back From RIMS webinar, you missed a great conversation with Archipelago co-founders, Hemant Shah and Anthony Siggers, about the topics that pervaded the RIMS RISKWORLD conference in April.
Climate Change is Changing Everything
One of the biggest concerns across the board dealt with climate change. With 2021 peppered by a nearly unprecedented number of natural disasters, insurers have been feeling the pain, and that’s not a trend that’s likely to change anytime soon. As a recent NOAA report found, coastal flooding areas are likely to see “as much sea-level rise by the year 2050 as it witnessed in the previous hundred years.”
As Hemant explained, “Climate change and catastrophe risk certainly was a top-of-mind topic at RIMS 2022. I think part of this was motivated by the significant catastrophe losses in 2021. In the U.S., it was everything from hurricanes to freeze, severe convective storms, hail, and fire.”
The Role of ESG in Ongoing Strategy
There was also extensive discussion about burgeoning concerns about surrounding resiliency in a world where natural disasters are becoming more frequent and severe. Part of this will increasingly involve the development of a strong ESG strategy.
“I think, even now, investors and others looking at companies are starting to differentiate those companies that have a solid ESG policy and, frankly, set of actions in place, as opposed to those who aren’t,” said Anthony. “And I think that, over time, it will go beyond differentiation to just saying ‘no’. And we’re even seeing that in insurance now.”
Market Conversations Aren’t Just About Rates
The event itself was largely a market-driven one, with insurers and brokers continuing to market their value proposition. Though rate increases over the past five years are certainly guiding market conversations, it’s a little more complicated than that.
“There’s certainly a fair amount of discussion about [rate] including that some of those rates may be modulating a bit. The conversation seems to be shifting more towards exposure,” Hemant stated.
Part of this, though, ties back to what has been a long-held belief by insurers that properties have chronically been undervalued.
“There’s been an acceleration in certain costs, in particular the replacement costs of buildings. We’re hearing stats like 93 percent of contractors have material shortages. The FM Global Cost Index has gone up by 18 percent, i.e. they’re saying it costs 18 percent more to rebuild a building now than it did a year ago,” pointed out Anthony.
“So there might be a slight tapering off in the increase in rates, there’s another factor coming into play, which is these increases in valuations, which, if they’re 18 percent, you’ve got that on top of the rate increase.”
Technology May Be the Fix
Part of the solution would appear to be a more effective incorporation of AI and other technology solutions - not just on the insurance side but in risk management departments.
“The insurance industry is investing a great deal in data analytics, data science, AI,” explained Hemant. “But a lot of the risk managers who represent the risk management functions for the buyers feel the market is kind of talking to itself. How are these initiatives translating into either better experiences for me as the buyer, more insights about my own business - not your own efficiency gains? More innovative products and services? So there’s kind of a digital divide.”