General insurers need to reinvent their products in order to increase the sector’s economic relevance amid a new risk landscape. For instance, while fire traditionally has been the biggest risk to property, the COVID-19 pandemic has shown that non-physical risks present an immediate threat to properties as well.
“Traditionally motor, fire and workmen’s injury have been mainstay products in the P&C sector, but the way we think about mobility today has changed. Also, the incidence of fire is going down around the world while the proportion of physical worker injury is decreasing.
“And with economic assets shifting from physical to intellectual assets, the industry needs to play more of a role in things like cyber cover, supply chain and also pandemic insurance,” said McKinsey’s senior partner Brad Mendelson in a recent media briefing to discuss the firm’s latest research titled ‘State of property & casualty insurance 2020’.
McKinsey believes that while the general insurance sector is financially sound, it is beginning to lose economic relevance in key developed markets. Global general insurance premiums as a percentage of GDP remained stagnant at 2.1% from 2008-2018, with significant penetration growth in emerging markets helping to offset declining penetration in developed markets.
“The global economy has experienced transformative growth and innovation over the past decade, led by the increased significance of intangible assets on companies’ valuation and emerging man-made risks – for instance, those related to data management and cyber security. Yet the insurance market for such risks is still very limited, and this lack of response has produced significant gaps in coverage of property and liability,” said the report.
Bridging supply and demand
To be fair, the general insurance industry has been offering a suite of specialty products such as cyber although the take-up rate has been low in many markets. In trying to bridge the supply and demand gap, insurance products need to offer more benefits beyond merely paying claims, said Mr Mendelson.
“Products need to provide benefits such as risk prevention and recovery rather than just paying claims. And on the supply side, while insurers have always been good at collecting and analysing data, they would need to adopt more innovative approach to new forms of risk and this would include public-private partnerships (PPPs) until a time when the risk is better understood,” he said.
In fact, the COVID-19 crisis highlights the potential for PPPs, given that the scale of pandemics means that they are uninsurable if the risks are solely borne by insurers.
“This opens the possibility for insurers and governments to collaborate further on improved pandemic risk assessment, risk communication, and financial protection,” said McKinsey. M