Reinsurers have been vital in covering the majority of Australian natural catastrophe claims in recent years as insurers have passed on much of the risks, the World Insurance Congress Australia heard. 

Swiss Re Asia Pacific Head of Property and Casualty Trent Thomson said globally catastrophe losses are continuing to climb and Australia is one of the riskiest parts of the world. 

“A very important point that isn’t talked about enough is insurers don’t take enough of their own risk,” he told the event. “Reinsurance has paid for the vast majority of the events of the last seven years here in Australia, so when you hear that reinsurers are increasing prices, yes, because we’re the one that paid the claims.” 

Mr Thomson said that while companies such as Swiss Re and Munich Re are largely self-funded, small and medium insurers have become more affected by swings in alternative capital, as was seen after Hurricane Ian in the US last year. 

“What this means is that the reinsurance market is becoming more susceptible to short term capital inflows and outflows,” he said. 

“What we need to do is not only recognise the massive losses that the reinsurers have had to fund globally and in Australia over the last five years, but we have to recognise that there is a bit more fragility in the actual reinsurance capital as a font of all answers to everything.” 

Mr Thomson says reinsurers have answered the call for the payment of claims over the past five to seven years and “it’s very important to remember that the model still works”. 

Mr Thomson was participating in a panel discussion that was part of the WICA conference examination of climate issues. Topics included the Australian experience, affordability and availability of cover and how to mitigate and minimise the long-term risks. 

Panellists also highlighted that pools, if used as a near-term solution, had to also drive mitigation to reduce the long-term risks that could then be handed back to the private market. 

Munich Re Head of New Markets Scott Reeves said insurers’ ability to price at address-level, meant that they would be at a competitive disadvantage if they moved away from that approach today. 

“A pool presents an opportunity to effectively say, ‘back to the old principles, we’re going to use community-based rating and everybody pays for the losses of the few’,” he said. 

But he pointed to potential longer-term risks if commitments to mitigation works are not completed in conjunction with pools, with the UK Flood Re scheme, which has a 2039 end date and had associated government plans around resilience action, an example of potential problems.  

“Let’s just be kind to them and say covid is a classic example of where priorities had to shift,” he said.  

Doubts also surround the level of household action that the scheme has aimed to incentivise as climate change continues to affect the longer-term risks. 

“Climate change in 25 years will look vastly different to what it does today, so you’re about to get off a bus and run straight into another bus,” Mr Reeves said.  

The Australian Insurance Law Association hosted the International Association for Insurance Law (AIDA) world congress event at the Melbourne Convention and Exhibition Centre.