Swiss Re’s Head of Casualty Jayne Plunkett Explains Why It’s a ‘Social Science’

Jayne Plunkett, possibly the second most well-known person from Iowa after Bill Bryson, heads Swiss Re’s International casualty reinsurance operations. In the interview she explains that, as you’re dealing with people, rather than nature, casualty coverage is a really a “social science,” rather than a “natural science.”

She has a great deal of experience in reinsurance, most recently heading Swiss Re’s casualty operation in Asia. While property cat reinsurance may be quite similar the world over, that’s not the case with the casualty sector. “I’ve worked in a few markets around the world, and I think it’s interesting to look at the different dynamics you have in those markets, and how they relate to the casualty business,” she said.

Plunkett said Swiss Re defines casualty as basically “motor plus all of the liability lines.” Swiss Re’s global reinsurance business requires it “analyze and work with varying systems when it comes to contracts and claims payments,” she said. “It gives us a different dynamic into the cultures of those countries, and how maybe claims are settled differently, and how peopled think about liability coverage in those different markets.”

In both the U.S. and elsewhere casualty lines are receiving increased interest. “There’s macro-economic factors at work,” Plunkett explained, citing the low interest rates that have reduced companies’ investment returns. “It’s only so long that you can think about the investment income you’re going to make; you also have to make an underwriting profit.”

That situation “has driven up rates over the last few quarters with regard to casualty business. I think on top of that you have – looking at the older years – you have reserve releases, which are now flattening out a bit from what they’ve been over the past few years. I think these two factors alone drive the prices up – a little bit – for casualty primary rates.”

As far as the demand for casualty coverage goes, Plunkett said “it’s different in every marketplace, that’s always the hard thing about all of these coverages, but I think the world is constantly a more litigious place; you have economic growth in many countries.” This “drives demand for insurance in general and also for the liability lines.”

Plunkett agreed that one of the harder aspects of casualty coverage is the difficulty of creating the types of models that property cat insurers have become increasingly dependent on, mainly due to the “long tail” nature of casualty coverage.

“I always say that casualty is ‘social science’ and not a natural science,” Plunkett said. “What I mean by that is we have to understand the social fabric of each of those countries in order to understand the line of business.”

While macroeconomic factors, such as interest rates and inflation, are always present as well as GDP growth, “underlying that you also have the more social factors, such as what’s happening in the legal framework, and what’s the public sentiment around certain things?” she said. “This makes it more of a human science in a way; you really have to understand the behavior of people in order to understand how those liability lines might play out over time.”

While the main area for liability insurance remains the U.S., Plunkett pointed that motor, or auto, insurance “is the most important line in many of the markets for most of the primary companies, particularly if we look at emerging markets, because having a car is one of the first things you have in those countries, so the motor market is always an important line of business for our clients, and then certainly for us [Swiss Re] as well, because it’s one of the biggest pieces of the portfolio.”

The rising levels of wealth in the emerging markets has therefore created increased demand for motor coverage; however, Plunkett said that as far as liability is concerned, “it takes a bit more time,” as it’s not the “first thing you worry about in developing economies.”

As far as America’s litigious culture spreading beyond its shores, Plunkett said “we might see pieces of it to spread, but I hope no one patterns their compensation system after the U.S. market. I think a lot of people have learned a lot from the U.S. market, and I think it’s more than understanding just that piece. I think we have to understand the culture of the people that live in the country, and to what extent do they want to settle claims with each other, rather than creating a more third party system.”

She also sees growth potential for casualty in practically all of the emerging markets, “because liability is certainly low in most of the countries today.” Looking at the largest countries she mentioned China, Mexico, Brazil, Indonesia and India as being “five of the countries that we focus on in particular, along with many of the others as well.”

Plunkett joined Swiss Re in 2006. She moved to Zurich last year. She is an actuary by training, inspired by a woman who was one that she knew while growing up. “There’s always something different happening in our industry,” she said. Casualty is particularly interesting, “due to the social science nature.” She described it as having “an extra challenge,” as “the past is not always a good indicator of the future.

“What we want to do going forward, particularly at Swiss Re,” but within the industry as well, “is spend more time looking at the future impact into the liability claims; spend more time on the forward looking models, and calibrating our models for future events, instead of spending so much time looking at the past.”

Asked the inevitable question as to whether alternative capital coming into the reinsurance industry is a threat or a boon, Plunkett duly noted that most of the discussion has centered around property cat coverage. For casualty there have been some “discussions,” but “there is certainly a different element to the longer tail liability business. “It’s very complicated; it’s complex, and you need to know how to underwrite those risks, and a very long tail.”

As a result companies have to accept the fact that claims may “stay around many, many decades,” she said, “and you have to be willing to pay that claim 30, 40, 50 years in the future.” In fact, “we just paid a claim from 1950.”

There is an upside for companies like Swiss Re, however. It’s currently celebrating its 150th anniversary. If you’re buying reinsurance coverage that will be active for 50 or more years, you most likely want to buy it from a company that’s going to be there in the distant future.

For the future, Plunkett said Swiss Re “is always thinking what could be around the corner.” While the current hot topic is cyber insurance, “there will always be more,” she said. “It’s one of the fun things about our industry.”