Adapting to Climate Change’s ‘New Normal’ and Integrating ESG for a Sustainable Future

Philip Hough, Aspen Global Head of Property Reinsurance & Head of EMEA/LATAM, spoke at the 2^nd Annual (Re)Insurance Outlook Europe event in Zurich hosted by Intelligent Insurer. This event drew more than 200 senior level insurance professionals who gathered to address the growing social, economic and geopolitical risks that pose a threat to society.

During the two-day conference, Philip was a featured speaker on a panel called Adapting to Climate Change’s ‘New Normal’ and Integrating ESG for a Sustainable Future. The following Q&A explores Philip’s thoughts on why sustainability is important to him and his reasons for speaking on this panel, what some of the biggest challenges and opportunities are for growth in the reinsurance market, how reinsurers can stay relevant, and more.

1. As you look into the rest of 2024, what do you foresee as being your biggest challenge in the reinsurance market/industry and why? 

The reinsurance industry continues to face challenges from evolving risks such as, climate change, demographic shifts, macroeconomic and geopolitical uncertainty and cyber threats – each risk bringing more complexity to assessing and pricing.

Managing uncertainty and volatility in reinsurance is one of the biggest challenges that we, as a business and as an industry, continue to face. Heightened catastrophe losses linked to climate change and increased geopolitical uncertainty have led to significant price corrections and adjustments in reinsurance terms and conditions throughout 2023, and this trend looks to be continuing through 2024.

At Aspen, understanding the risks associated with this heightened period of uncertainty is a priority. We believe our approach of bringing multiple sources of capital to the market and matching those sources with suitable risks enhances our ability to cover the right risk with the right capital.

2. Why did you pick the topic/session that you did on the agenda? Why is this important to you? (See above for your session choice)

2023 was yet another costly year for natural catastrophe losses. The leading cause has been severe thunderstorms, and flooding has become more frequent and more widespread globally. There is a clear and scientific consensus that climate change is influencing the frequency and severity of extreme weather events, requiring (re)insurers to adapt their catastrophe modelling and pricing to better manage volatility in earnings and capital.

In the face of climate risk, (re)insurance is a critical source of financial resilience. However, as risks continue to develop and evolve and become increasingly intangible in nature, (re)insurance solutions must adapt to protect economies and policyholders.

Having followed these trends closely in my global property role at Aspen over the past few years, I am, therefore, delighted to be joining Reinsurance Outlook Europe’s discussion on the challenges and responsibilities we are faced with as an industry. I look forward to speaking with peers on how to better understand climate risk and the role we, as an industry, can play in mitigating the physical and financial impacts of climate change while identifying opportunities to bring innovative solutions to the market.

3. What is the one (re)insurers should do to stay relevant?

To stay relevant, (re)insurers should establish a multi-level, organizational readiness to change, taking into account the shifts in climate, technology, workforce and customer expectations. This approach needs to be embedded in a customer-centric company culture, recognizing the need for managing risks and delivering effective risk solutions to customers through enhanced collaboration and advanced technology with better access to data.

4. What do you see as the biggest opportunity in re/insurance over the next 12 months? 

Market capitalization has improved in 2024, however, market discipline is expected to remain, given the continuing macroeconomic, geopolitical and climate uncertainty. With more capital at the industry’s disposal, the main opportunity for (re)insurers will be to identify areas for profitable and sustainable growth through investment in better risk models, harnessing data and technology, implementing organizational efficiencies and providing customers with alternative, tailor-made solutions and products.

5. Which technologies do you anticipate as being most transformative for (re)insurance ? 

Technological advancements, including generative AI, offer opportunities for efficiency and innovation in navigating complex risk scenarios. AI tools and solutions for the insurance sector can provide informative guidance to decision making, however, it needs to be managed carefully and alongside the indispensable role of human judgment. The evolution of deep learning (GEN AI) is transforming our industry in many ways, including enhancing customer experience, risk assessment and portfolio optimization capabilities, as well as streamlining processes.