When the opportunity arose to return to the UK and lead Swiss Re’s UK&I business as CEO in January 2022, it represented a natural next step for Jason Richards. With 25 years of experience at the global reinsurance giant – including time in underwriting, finance, risk management, operations, and claims – the role complemented what he has enjoyed so much about his time at Swiss Re, the chance to dig into the core challenges that I am impacting the market and to discover the right solutions.
Looking across the current landscape, Richards identified the interplay of threats and opportunities facing the insurance market. On the former, he said the most immediate threat is that of inflation, which is impacting everybody in insurance but is especially visible in personal lines at the moment, with motor and home insurance providers battling claims inflation amid rising repair costs. And while there are some indications that this leveling out, it’s still running at a very high level.
“Those repair costs are not only about the cost of parts but also about the time it takes to repair a car as well as rising labor costs,” he said. “Because of labor shortages, insurers might need to put a temporary car in place longer than before. And all that leads to claims inflation which just adds to the challenge of pricing insurance effectively.”
Impact of climate change on insurance
As well as inflation, climate change remains high on the agenda of the insurance market. Recent reports from Swiss Re have revealed increased exposure to weather events around the world, including storms, floods, and hailstorms. Part of that is due to increased insured values, but climate change can also play a role as well. As a result, the market needs to become better than ever at understanding and assessing the resulting risks and exposures.
“We have seen a particular rise in what we call secondary perils,” he said. “Primary perils include examples like cyclones or earthquakes that cause widespread losses, while secondary perils don’t usually lead to massive payouts for the insurance industry. But collectively, perils such as floods or wildfires in places where you wouldn’t usually see them are accounting for a growing number of losses.
“The wildfires we’re seeing are not just in California, they’re in Canada, in the South of France, in Spain – they were even in the UK on a small scale last summer. And we’ve had hailstorms and surge rainfall as well, which are examples of other types of events which are going on around the world. And we need to understand those risks and be able to evaluate and price them.”#
Insurance’s talent gap
The third key challenge that he’s seeing impact the market is around attracting diverse, young, bright talent into the sector. Insurance is a fantastic industry, he said, and one which offers an incredible variety of opportunities – as evidenced by his career. Richards noted that from conversations around the market, he knows this is a widely shared opinion all too often voiced by people who “fell” into the industry.
“People come in by chance, then they stay and they love it,” he said. “But we don’t do a great job of getting in front of young talent and telling the story of re/insurance and all the aspects that go with that. I think we’ve got to do a better job, not just around attracting young people, but also more people from different backgrounds because that diversity is really important.
“And that starts at high schools, at universities, and with people early in their careers. But we also need to focus on reaching those in the later part of their careers, who have rich experience and different perspectives to offer. The number coming in on the other end is just not at the level that it needs to be either.”
Fundamentally, insurance is the intersection of risk and opportunity and Richards emphasized that despite the challenges currently facing the wider sector, opportunities do abound. What roots these, he said, is that the insurance industry is pretty resilient to economic downturns. While the broader economic environment is facing some slowdown, insurance tends to fare quite well in those conditions because it is still needed.
“The insurance industry can benefit from higher interest rates, so firms can increase premiums-in, normally before they pay the claims, which is a key part of the value chain,” he said. “And then if firms can invest money at 5%, it’s better than investing it at 0.5%.
“There’s also a lot of investment going into the economy to make it greener. That’s one of the big things we want to achieve with the Solvency UK changes to the risk margin etc – to encourage more investment into the economy from the life insurance and P&C sector.”
A lot of this investment coming into the economy is around taking green infrastructure to the next level, he said, citing the examples of investment into new energy sources and EV charging systems. This represents a good growth opportunity for the insurance industry because none of this wholesale change can happen without the input of insurance. The industry is uniquely well-placed to leverage this investment and the opportunities it presents for the sector.
In addition, he said, the current pricing environment is in “pretty good shape”. Richards noted that it’s in good shape because it has faced d tough period where reinsurers, in particular, hadn’t earned their cost of capital. It has been a difficult few years, where results haven’t been up to scratch but now the environment is changing for the better, with companies paying better for their products, and seeing increased understanding that reinsurers need to earn their cost of capital.
“Those are some of the opportunities and threats that I see at the moment,” he said. “Another one, which can be both, is the whole data/tech piece. Data and tech can make our business more efficient and allow us to make decisions better, more quickly, and more simply. We can use it to provide better service and simpler products to clients.
“But it will also bring certain challenges – in terms of how personal data and confidential data is handled and the potential longer-term impact on job security and people’s roles. However, on the whole, I think it probably brings more opportunities than challenges for us.”