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Speaking at a panel discussion on capital management at the Monte Carlo Rendez-Vous, he said that growth in insurance premium is lagging behind that of gross domestic product. Over the past ten years insurance premiums have grown by an average of 2.5 per cent compared with average annual growth in GDP of 3.8 per cent.
“Insurers make less and less of a difference in the economy. This is the reality and we must put our minds to the task of reversing it”, said Mr McGavick.
“When you are too small you become less relevant”, said Mr McGavick, noting that many energy and technology companies choose to self-insure. Insurers have also been too slow to change in the face of rapidly shifting business trends. New technologies are destroying traditional sectors that once purchased insurance. For example smart phones are replacing watches, cameras and provide GPS and entertainment.
Insurers have developed cyber insurance products, but more than 70 per cent of the potential market for the product does not buy cover, either because it is not sufficiently relevant or because they are not aware of it, said the XL chief.
Supply chains are another area where insurers have been slow to understand changing business need and are now a major risk for business.
In order to ‘reclaim its relevance’, the insurance industry must change its approach to analytics, partnering to solve problems and assign the industry’s best minds to the challenges, he continued. “If we stick to the old model we will be dead”, he said.
Also speaking on the panel, Lloyd’s Chief Executive Richard Ward suggested catastrophe reinsurance might be another outlet for excess industry capital. He told delegates at the Monte Carlo Rendez-Vous that reinsurers could create demand by increasing penetration in some cat-exposed markets. So far reinsurers have not been able to stimulate additional demand and recessionary pressures on clients are making it difficult to justify rate increases, he said.
However, a considerable gap exists between insured and economic losses, as shown by last year’s near record year for catastrophes, said Mr Ward. “This is a gap that we should be able to bridge and get more product penetration”, he said.