At RISKWORLD 2024 in San Diego, Risk & Insurance® editor-in-chief Dan Reynolds sat down with Katie McGrath, CEO, North America, Swiss Re Corporate Solutions, to discuss ongoing and emerging trends in the insurance industry, the potential of an AI insurance market and the challenges of modeling the costs of cyberattacks.

What follows is a transcript of that conversation, edited for length and clarity.

Risk & Insurance: What are the most significant trends currently impacting the insurance industry?

Katie McGrath: I would categorize the trends into two groups: ongoing and emerging. The ongoing trends, which are more accelerated and interconnected, include climate change, geopolitical events, economic factors, and legal and regulatory developments.

Climate change and geopolitical events are constantly in the news. While inflation has come down, we’re still dealing with the carryover effects on people, property values and the cost of goods and resources.

In the legal realm, we’re seeing an increase in litigation funding at a much faster pace. On the regulatory side, each U.S. state is taking different approaches to ESG and rate caps, which impacts carriers’ ability to generate returns and may lead to market exits.

The emerging risks and opportunities revolve around data and technology, which are hot topics in the industry. Artificial intelligence is a subset of this category that is gaining significant attention.

R&I: How does the emergence of AI introduce new risks, and how do these differ from traditional cyber risks?

KM: The risks associated with AI are somewhat different from traditional cyber risks. With AI, the main concern is identifying where the risk lies. For example, if an employee uses AI and something is misrepresented or incorrect in an email, there could be potential liability issues.

While this risk is related to technology, it is distinct from typical cyber risks. As we look to use AI at Swiss Re Corporate Solutions and the broader Swiss Re, we are being very diligent about the use cases and implementing a governance framework to manage these risks.

We know that our corporate clients are also looking at AI in a similar way, recognizing the need for a robust governance framework to address the associated risks.

R&I: Would you be willing to share your thoughts on the adoption of AI in the insurance industry, and in which areas is it gaining traction?

KM: At Swiss Re, we see AI being applied across the entire insurance value chain, from underwriting to claims processing and contract issuance.

In underwriting, AI can assist in risk assessment and pricing. For claims, it can streamline the process and detect potential fraud. When it comes to contract issuance, AI can search through vast amounts of data to find similar contract terms and conditions, fully automating this step.

Looking ahead, one of the most promising applications of AI is in trend spotting. By analyzing large data sets, AI can identify emerging risks and opportunities, enabling insurers to stay ahead of the curve.

R&I: Do you foresee a potential future where an AI insurance market develops, similar to what we have seen with cyber insurance?

KM: While we haven’t necessarily contextualized it in that exact manner, there are a few perspectives to consider. On one hand, there is an argument to be made that AI and cyber risks have some overlapping characteristics.

However, there is also a case to be made that AI and cyber could evolve into very separate industries from an insurance standpoint. Ultimately, it remains to be seen exactly how the AI insurance landscape will develop, but it is an area that warrants close attention as the technology continues to advance.

R&I: Speaking of cyber, what are the key challenges in modeling the costs associated with cyberattacks and ransomware on businesses?

KM: Modeling the costs of cyberattacks and ransomware on businesses involves a significant level of uncertainty. However, we are now able to put a box around what we mean by these costs.

The primary focus is on the expenses required to get the business back up and running after an attack. While there is still a lot of uncertainty surrounding these costs, we are making progress in quantifying and understanding them better.

R&I: How can data analytics help insurers identify emerging trends and risks in claims?

KM: By analyzing all incoming claims and searching for specific patterns — such as hail-related incidents, particular medical diagnoses or claims originating from certain states or industries — insurers can gain valuable insights into emerging trends. This proactive approach allows insurers to see “where the puck is going” rather than solely relying on historical data.

Data analytics also enables a forward-looking perspective, helping insurers identify potential risk concentrations and adapt their strategies accordingly. By leveraging these insights, insurers can make informed decisions to mitigate risks and better serve their policyholders.

R&I: How does Swiss Re leverage technology to improve risk assessment and advance the company’s capabilities?

KM: At Swiss Re, we see technology as a powerful tool to enhance our risk assessment processes and drive our company forward. By harnessing the latest advancements, we can automate and streamline various pain points, making it easier to do business with us.

Moreover, technology enables us to clean up and refine our data, leading to more accurate and insightful risk evaluations. Beyond just automating existing processes, we believe that technology can truly advance us by unlocking new ways to understand and quantify risk.

Ultimately, by leveraging cutting-edge tools and techniques, we can assess risk better than ever before. This not only benefits our own operations but also allows us to provide superior service and value to our clients.

R&I: What additional insights have you gained regarding talent retention and recruitment since our last conversation?

KM: While there hasn’t been a significant shift in my views, I’ve noticed more progress in developing frameworks for apprenticeships, internships and graduate programs. Companies are making efforts to address generational diversity through these industry-specific programs.

However, the crucial aspect that remains unresolved is the storytelling component. We need to find ways to get people excited about the industry. This is an area where we want to focus our efforts and develop effective solutions.

Nonetheless, there is a strong consensus across the board regarding the importance of talent retention and recruitment.

Attracting the best and brightest is crucial for our success. We focus on creating a compelling employee value proposition that sets us apart. This includes offering competitive compensation and benefits packages, as well as opportunities for professional growth and development.

Moreover, we foster a diverse and inclusive workplace culture that values collaboration, innovation and excellence. By providing an environment where talented individuals can thrive and make a meaningful impact, we position ourselves as an employer of choice in the industry.

R&I: How would you describe the role of reinsurance in addressing major global challenges?

KM: Reinsurance is often described as a little-known sector that solves big world problems. Despite its low profile, the industry plays a crucial role in helping society manage and mitigate global risks.

Reinsurance companies like Swiss Re provide essential support to primary insurers by absorbing a portion of their risks. This enables insurers to take on more risk and offer coverage for large-scale, complex challenges that they might not be able to handle alone.

By spreading risk globally, the reinsurance industry helps to create a more resilient world. It provides the financial backing necessary for communities and businesses to recover from catastrophic events such as natural disasters or pandemics, and to invest in projects that drive sustainable development.

At its core, reinsurance is meant to normalize or smooth out volatility for everyone involved. While there is a place for a complete transfer of risk, even if you can hold the risk yourself, and people should take advantage of arbitrage opportunities and play the cycle, our primary purpose is to offer a value proposition that manages volatility.

This goes beyond simply debating frequency and severity. Reinsurance provides a mechanism for risk transfer that allows insurers to manage their exposure effectively. By doing so, it enables insurers to continue providing coverage and serving their clients, even in the face of potentially significant losses.

In today’s market, this value proposition remains as relevant as ever. The ability to smooth out volatility and manage risk is crucial for the stability and resilience of the insurance industry as a whole. As such, reinsurance continues to play a vital role in supporting the industry and the clients it serves.

R&I: Could the insurance industry be doing more to maintain relevance, especially in markets that experience significant dislocations or cycles, such as the property market in recent years?

KM: It’s a valid question, and I believe we need to carefully examine what we offer. We provide different solutions depending on the segment, the sophistication and the balance sheet of our customers, as they have varying needs. Being acutely aware of this is crucial.

However, broadly speaking, our role should be to absorb shocks and volatility from the economy. We serve as the buffer, helping to stabilize markets and protect our clients from extreme fluctuations.

Furthermore, the industry should work closely with governments and other stakeholders to support climate adaptation and mitigation efforts. By leveraging our risk management expertise and financial resources, insurers can play a vital role in building sustainability.

R&I: What steps can the insurance industry take to proactively address the emerging risks and challenges that have been discussed in recent years?

KM: The insurance industry needs to prioritize greater connectivity to effectively tackle the emerging risks and challenges we’ve been discussing for the past few years. Increased collaboration and data sharing among industry stakeholders will be crucial in developing proactive solutions.

We must break down silos and foster a more interconnected ecosystem. By leveraging collective insights and resources, we can identify potential threats earlier, develop innovative risk mitigation strategies, and ultimately provide better protection for our clients in the face of evolving risks. &