another new normal?
“The New Normal” is a popular theme in the insurance industry. What does it actually mean? And how do ERM and the New Normal go together?
The word “new” implies that matters have changed – so far so good. What about the term “normal”? One meaning of the word “normal” is “as expected”. Here it gets difficult when e.g. looking at data that indicates an ever-increasing frequency of hurricane landfall (cf ref below). In other words, the “new normal” is probably closer to the “new abnormal”.
I therefore coined the phrase “the ever-increasing volatility” to describe the challenge and opportunity of the re-/insurance industry.
How can businesses deal with increasing volatility? Portfolio planning and steering is one approach; in layperson’s terms it’s all about “take more different bites and take smaller bites”. A second solution is to harvest from good Enterprise Risk Management practice and a third approach leverages partnership between reinsurers and insurers that go beyond the provision of capacity.
Good Enterprise Risk Management creates a number of tangible benefits. Firstly, companies that practice good ERM are more robust to withstand shocks. Secondly, companies with strong ERM are more profitable than their peers with average or poor ERM-practice. And last but not least, companies with good ERM demand a higher valuation. Most recent data point at a 20% uplift in company valuation through good ERM!
Keen to know more about the benefits of ERM? Read my blog posts here.
AM Best was kind enough to interview me during the 14th Singapore Reinsurance Conference (“SIRC“) early November 2017.
Watch the 3+ minutes interview HERE. Thanks to AM Best for having me.