Howden Re releases "Beyond the horizon: shaping the future of risk" on shifting exposure and industry innovation

London, 5 September 2024 – Howden Re, the reinsurance and risk advisory arm of Howden, the global insurance intermediary group, today released a report titled Beyond the horizon: shaping the future of risk, which underscores the imperative for industry collaboration in developing innovative solutions in response to rapidly changing natural catastrophe, political violence and casualty (re)insurance landscapes. As the global (re)insurance sector faces unprecedented challenges, the report outlines strategic approaches that will be critical in navigating the next phase of the industry's cycle.

Industry context and the need for innovation

From unprecedented natural catastrophes fuelled, in part, by climate change, to geopolitical tensions and economic volatility, the report discusses evolving perils which are not only more complex, but increasingly interconnected and severe. Traditional risk management models are being tested and the industry must adapt to meet these new demands and challenges.

Massimo Reina, CEO, Howden Re, International, emphasised the importance of innovation in the current market: “The landscape of risk is changing at an unprecedented pace, and so too must our industry evolve alongside it. At Howden Re, we are committed to championing the development of innovative solutions and believe that collaboration across the industry is essential. We are dedicated to bringing together the best minds from brokers, reinsurers and capital providers to ensure that we are all prepared for the future and delivering the risk resilience so needed in today’s world.”

Key findings 

The report highlights three core areas reshaping the (re)insurance industry and requiring immediate attention:

When it rains, it pours – rising natural catastrophe losses in Europe: Recent European flood events and severe hailstorms in Italy have significantly impacted insured losses, driven by shifting climate patterns and increasing exposure in vulnerable regions. For example, the 2024 floods in Bavaria and the unprecedented hailstorms in the Po Valley in 2023 underscore the need for the (re)insurance sector to develop tailored products and solutions that address both ‘peak’ and ‘non-peak’ perils. The report proposes specific strategies to mitigate these risks, including enhanced flood protection infrastructure and exposure management tools to prevent hail damage.

A world of trouble – emerging geopolitical risks: Beyond natural disasters, the report identifies a broader array of risks, including the rise in strike, riot and civil commotion (SRCC) events, as well as political violence (PV). These threats are becoming more frequent and severe, and though a global issue, the risks are particularly heightened in regions with increased political instability. The report examines recent incidents in markets such as South Africa and New Caledonia, proposing advanced modelling techniques and innovative risk transfer solutions to manage these complex exposures.

Casualty concerns: The report also addresses challenges in casualty lines, particularly in relation to growing liabilities associated with persistent pollutants like PFAS (per- and polyfluoroalkyl substances), and the evolving risks in the motor market driven by the adoption of autonomous vehicles. These emerging issues require the industry to rethink traditional reserving strategies, and to adopt more granular approaches to manage long-tail liabilities.

David Flandro, Head of Industry Analysis and Strategic Advisory at Howden Re, underscored the urgency of addressing these challenges: “The risks we are encountering today are more interconnected and severe than ever before, requiring new ways of approaching risk management. Bespoke solutions are needed, tailored to the unique challenges faced by different regions and lines of business worldwide.”

Outlook

The report offers a forward-looking perspective on the industry's trajectory, suggesting that the future of the (re)insurance market will be characterised by a greater emphasis on resilience, adaptability, and innovation. The ability to anticipate and respond to evolving threats will be critical in sustaining market stability and growth.

The report also provides detailed proposals for new solutions tailored to specific risks, such as enhanced reinsurance structures for European flood and hail events, innovative parametric products for SRCC and PV exposures, and advanced liability management strategies in the casualty sector. These recommendations are designed to help the industry navigate the complexities of today’s risk environment while positioning it for future success as the next phase of the reinsurance cycle begins.

Massimo Reina concluded: “At Howden Re, we believe that the future of risk management lies in our ability to innovate and collaborate. We are dedicated to working with our partners to ensure that the (re)insurance industry not only survives but thrives in this new era.”

The report, Beyond the horizon: shaping the future of risk, is available now and serves as a roadmap for industry stakeholders to remain resilient and prepared for the future.