Planning for the Unthinkable

Swiss Re utilizes its intuition to help prioritize and strategize for emerging risks

CEO Sharon Ludlow oversees life and property/casualty insurance operations in Canada.
CEO Sharon Ludlow oversees life and property/casualty insurance operations in Canada.

Swiss Re Ltd. has been providing insurance for insurance companies for 150 years. This Swiss-based reinsurer was founded in 1863 and established a Canadian operation in 1952. According to president and CEO Sharon Ludlow, who oversees life and property/casualty operations in Canada, the reinsurance premise is basically the backstop of insurance. “In other words, reinsurance companies provide capital and balance sheet protection for insurance companies around the world,” she says.

Her years of experience in the insurance industry have reaffirmed Ludlow’s belief that foresight is a very important and baseline aspect of Swiss Re’s operations. “Foresight is a natural underpinning of what we do in our organization at Swiss Re, because we spend a lot of time researching emerging risks,” Ludlow says. She adds that they are constantly thinking about where and what the firm’s concentration of risks are, as well as what new types of risks will evolve over time. “So this is really applying foresight in its true definition—because we are always concentrating on the possibilities of emerging risks and researching them.”

The fact that Canada is the only G20 country in the world that does not have or provide flood insurance to consumers is one tangible example of how the process of foresight is important. “Swiss Re has experience with flood insurance, and we have been key to the research on flood insurance in virtually every other market in the world,” notes Ludlow. Because of this, the firm has been party to the development of the flood-insurance platform in those other countries.

In 2010, Swiss Re issued a research report that it jointly authored with the Institute for Catastrophic Loss Reductions entitled Making Flood Insurable in Canada. “Our position and emphasis there was to share the expertise and the research that we’ve done in so many other countries—not just from a stray, statistical, and numeric point of view, but also from the insurance market point of view,” Ludlow explains. The report denoted the potential pitfalls and traps of flood insurance together as a comprehensive research report for the Canadian insurance industry to consider.

By the Numbers

 

#1
Swiss Re is named as the 2012 Reinsurer of the Year in the United States

150
Swiss Re is celebrating its 150th anniversary in 2013

54%
Total reductions in C02 emissions per employee since 2003

$22.2 b.
Premiums  earned globally (2011)

60+
Offices in more than 20 countries

This type of foresight definitely separates the firm from its competitors. “It’s an example that puts us at the forefront as a thought leader in this country,” says Ludlow, “because we use and leverage the resources that we have, the foresight of determining emerging risk types, and the mentality to put it to a practical use—in this case, for flood-insurance coverage in Canada.”

According to Ludlow, an even broader example of Swiss Re’s foresight in the industry is the firm’s entire foray into insurance-linked securities. She explains that investors are interested in higher yielding securities—with risks that are largely not correlated to the rest of their portfolio. “What we do is structure catastrophe bonds for many peak risks—and that really helps insurance companies to share their peak risks, not just with reinsurers, but also ultimately with the capital markets,” Ludlow says. “Again, this comes back to foresight because we’ve been a driver in finding ways to share our risks more broadly than just with simple balance sheets of reinsurers around the world.”

In late 1999, Ludlow was integral in helping to launch Kanetix—an online, consumer insurance-quotation service. “Using our foresight into the growing Internet market, we partnered with six auto-insurance companies and designed a technology that allowed consumers to answer a short list of questions on this website and then instantaneously receive multiple insurance quotes,” Ludlow says. Today, this “aggregator model” is used with other types of insurance, and it allows consumers to be more in control of how and when they buy insurance. “It offers some real flexibility, and places the power of information in the hands of the consumer,” Ludlow adds.

Another area where Swiss Re has used its intuition effectively is in insurance for earthquake and weather-related perils. Similar to its flood-coverage work, Swiss Re has delivered research and sought to promote awareness of its findings about these potential natural events throughout the industry. Through its Global Partnerships unit, the company has developed innovative solutions that allow not only private insurers but also governments in the developing and developed world to better protect themselves from the impacts of extreme events.

“So,” Ludlow says, “those are the types of things we continually work on bringing to stakeholders—making sure there’s an awareness, sharing our research, and promoting any business opportunities for us at any step along the way.”