A new era of innovation for a new era of risk

A decade ago, an infectious disease disrupting the global economy was the stuff of fiction, cyber security meant little more than antivirus software, and climate change seemed to sit at the horizon of a distant future. Today these are generation-defining challenges: palpable, pervasive risks that require immediate action.

When I started out in my career, it was a lot easier to understand global risks in terms of familiar, distinct categories. However, over time, risks have become increasingly various, complex, and interconnected—in other words, systemic. For example, the first few years of the 2020s have seen the risk of disease, war, cyberattacks, inflation, and international economic conflict play out in ways which few would have predicted in the 2010s.

As risk management becomes ever more challenging, it is clear to me that companies will increasingly need the security and certainty that insurance provides. Yet systemic risk also requires AXA to approach our business differently, leveraging prevention, local and global collaboration, and innovation to effectively protect what matters to our customers and to society as a whole.

Prevention’s role in risk mitigation

First, we have been evolving over the past years to help our clients to focus on prevention. Two of the best examples of this shift are visible in cyber security and climate change.

Compared to the dot com era, businesses need comprehensive, robust preventative cyber security measures in place to be insurable. Just as we require industrial customers to install sprinkler systems in their commercial buildings to mitigate fire risk, our underwriting strategy promotes prevention and protection against risks of cyberattacks with an increased level of IT security. In this way, our customers avoid or reduce the impact of these attacks in terms of business disruptions, data breaches, ransom payments, and so on.

One important method of prevention is extensive workforce training. As the first line of defence in every organization, employees must practice safe habits and spot phishing emails and malicious links. Given the rapid shift to digital work environments since the beginning of the COVID-19 pandemic, baseline security measures like these have become critical. The past two years have seen a proliferation of the number of points of vulnerability, an increase in the number of attacks, and a growing number of employees using personal devices that are not equipped with industry-standard cyber defences. We advise all of our customers to invest in these simple best practices for preventing cyberattacks.

Additionally, we are developing and providing prevention tools to make cyber risk more insurable. Along with Belgian telecommunications provider Proximus, we have launched Cyber Care, a cyber insurance package which helps identify and mitigate digital vulnerabilities as well as covering beneficiaries after an attack[1]. We have also partnered with other major companies, start-ups and cyber experts at the Campus Cyber, a Paris-based cybersecurity hub, to build a resilient global security ecosystem to make cyberspace safe for all.

On climate change, we are both leading by example and offering services to support companies in preventing further damage and mitigating greenhouse gas emissions to tackle global warming. To this aim, AXA Climate, in collaboration with global and local experts, scientists, and our internal sustainability and learning teams, has created a training program for our employees. Our objective with the AXA Climate Academy program is to train 90% of our employees by mid-year 2022.  Online teaching modules like these empower employees to understand how climate change impacts their industry, and ultimately, how they can mitigate its impacts. In the future, we intend to broaden our range of services in this area, including consulting for customers.

Additionally, we were among the first to divest from the coal industry, the most polluting energy source, and are now moving to a more comprehensive approach to push the energy sector toward a green transition. We are committed to accompany our clients on the road towards net-zero, and that includes supporting their decarbonization efforts while avoiding a disorderly transition

The key learning is that prevention is about both mitigating risk and contributing to solving a societal challenge. 

Systemic risk necessitates collaboration  

Second, we need to recognise that many risks can only be resolved at a global level, requiring public-private partnerships and multinational cooperation. The COVID-19 pandemic demonstrates this perfectly: no single nation has the power to defeat the virus. Cyber security and climate change are similarly borderless challenges that require public-private collaboration at the regional and global levels to mitigate.

Take, for example, the deadly and disastrous flooding that swept through Belgium, Germany, and other European countries in July 2021. While a highly “localized” event, flash flooding occurred across a dozen countries, with impacts ranging from minor damage in Romania and the Czech Republic to nearly 200 fatalities and widespread destruction in Germany. The financial impact and recovery also varied, being widely dependent on the public protection mechanisms in place in each country.

The French government’s CATNAT, a system of disaster compensation established in 1982 to complement private insurance by protecting against ‘uninsurable’ disasters, has proved crucial in recent years to help the French economy withstand a changing climate, including in the case of the 2021 floods. Germany, by comparison, has no such public infrastructure in place. According to a Munich Re report, only a quarter of the $40 billion in losses caused by the floods in Germany will be covered by insurance[2].

When it comes to managing natural disasters, insurers can be much more effective when governments have already provided a protection baseline. It is worth reflecting on what other risks may warrant public insurance programmes similar to CATNAT. And similarly, how multinational public and private programs might enable risk mitigation for similar disasters in the future.

Innovation enables forward momentum

Third, innovation has played a key part in enabling prevention and creating collaboration, as well as driving our own transition from payer to partner for our clients. One of our most significant new initiatives has been the launch of the Digital Health Platform, a comprehensive, digital-enabled health ecosystem connecting AXA customers with relevant internal and external services for simpler, personalized, seamless healthcare. Creating integrated solution ecosystems with simple interfaces for our customers enables them to manage their entire journey, while allowing us to support them day to day as a true partner.

Tools like this complement in-person care by helping patients maintain good health or catch symptoms before a disease becomes severe. The use of mobile health apps, for example, which prompt people to exercise more or eat more healthily, can reduce the frequency of hospital visits[3]. Platforms like these also hold the potential to leverage data across patients, providers, and geographies to deliver better health outcomes to patients and reduce costs and risks for insurers and providers. We plan to introduce similar digital platforms for additional business lines on the P&C side in the future, capitalizing on innovative products and services to provide better protection to our customers.

In response to this new era of risk, we are also experimenting with new approaches and technologies. This complex challenge will require the incubation of new ‘sandbox’ ideas, which can go on to become winning innovations, but may be financially risky in their early stages. By insuring firms pioneering new approaches and technologies, our industry can help these ideas move out of the sandbox and into new markets.

Systemic risk requires an industry shift

Clearly, the risk landscape is changing. New challenges such as climate change, cyber security, and health risks from ageing populations and potential future pandemics are high on the agenda. In addition, we’ve seen an increased aversion to all forms of risk among our stakeholders. These factors require insurers to be more proactive in enabling organisations to act on prevention as well as mitigation. They also require us to collaborate more closely with governments to collectively respond to these challenges.

As recent events show, there remains a need for protection and security, and insurance clearly has a central role to play in providing it. But that must go beyond traditional services. A new era of risks calls for a new era in our approach to them: more prevention, more collaboration and more innovation.

Sources:

[1] https://www.proximus.com/fr/news/2021/20121213-proximus-first-to-launch-cybercare-insurance.html

[2] https://www.bloomberg.com/news/articles/2022-01-10/german-floods-cost-a-record-40-billion-munich-re-estimates

[3] https://hbr.org/2021/05/do-health-apps-really-make-us-healthier