Trent Thomson Interview Transcript

DR BRUCE MCCABE: Welcome to FutureBites, a podcast where we explore pathways to a better future. You are with Dr. Bruce McCabe, the global futurist, and our guest today is Trent Thomson, the CEO of Swiss Reinsurance for Australia and New Zealand. Welcome, Trent.

TRENT THOMSON: Bruce, great to meet you. Great to be here. [laughter]

BRUCE MCCABE: Thank you so much for coming on the pod.

TRENT THOMSON: Thank you.

BRUCE MCCABE: I've been looking forward to this for a while. It was suggested to me by a friend sometime back. I interview lots of scientists, leading thinkers in the science community around the world, and a lot of them touch on topics like climate change and other things which have real world impacts right now. But you are so uniquely positioned to add a different insight. And so I really think this is going to be very valuable, because you are in the business of quantifying risk and you have to be in that business, that is your business. You actually are where the rubber meets the road on so many of these risk issues. You have to turn them into dollars.

TRENT THOMSON: It's very true. I mean when I think about reinsurance, reinsurance is the shock absorber of insurance risk globally. So the job here is to really look at risk, try to predict where risk is going, understand the risk, treat the risk and transform that risk into something that supports the economy and supports our society moving forward in terms of technology advancement, utilization and efficiency from that.

BRUCE MCCABE: So, if we look at the definition of reinsurance, because everyone's familiar with, I guess, the retail aspect of insurance, the people we buy products from, you are behind all of that. Aren't you insuring the insurers? 

TRENT THOMSON: Yes. Yes. And that's exactly what I say in the taxi. Every time I get asked, "What is that?" It's, "We insure insurance companies. " And people go, "Whoa, okay, well why would they need insurance?" And the answer is, you think about insurance companies, they take on a large risk, a large pool of risks, right? And they bring them together and they use that grouping to diversify the risk. And to reduce ultimately the cost of the premium to the insured - to the customers. But they themselves take on such risks that they can't absorb all those risks themselves. And from an insurance balance sheet perspective, it brings volatility. You've got severity volatility, which comes in the form of say, natural catastrophes. You've also got frequency in terms of the nature of certain lines of business that will have a series of losses. And it's all about how does an insurance company manage its capital by utilizing reinsurance. And the reinsurance business model is a global diversification model. So we write risks, we write insurance companies all around the world. So we get that global, physical, geographical diversification, and that translates into our cost of capital being less than the insurers. So it's ultimately a supply chain of capital, which allows the cheapest premium to come through to the customers. To make sure it's affordable.

BRUCE MCCABE: Yeah. So if you are a small insurer, you are exposed to a very big disaster. But if you are a reinsurer behind the scenes, you're spreading that risk because you're big.

TRENT THOMSON: Yes.

BRUCE MCCABE: You're global.

TRENT THOMSON: Yes.

BRUCE MCCABE: And therefore, the shock absorber. That's a nice analogy, isn't it? Shock absorber is a really nice word to say. You are underneath all of this and absorbing those and distributing those shocks if you like.

TRENT THOMSON: Correct. Yes sure.

BRUCE MCCABE: I like that. That's good. And because it works in the taxi.

TRENT THOMSON: It works in the taxi.

BRUCE MCCABE: It works in taxi. Well, we need things that work in taxis, [laughter] I'm always looking for the soundbite that works on stage or with, I mean, that's what we need. We all need the little story or the anecdote or the sound bite. So you are operating as a company, I think I saw somewhere 80 offices, so it's everywhere, pretty much. And that size is what makes it possible. You need that big capital.

TRENT THOMSON: Very much so. So we've got a large capital base, which is, it's certainly finite, let's be clear. But we've got a large capital base. We're in around 150 countries. Yes, we have about 14,000 people worldwide. And the people that we have at Swiss Re are a combination of scientists, underwriters, and of course, salespeople and obviously IT, how do we then innovate and we can talk about solutions and how these kind of things come about. But it's a beautiful mix of people designed and our motto is, making the world more resilient.

BRUCE MCCABE: Resilient. We've going to get into that subject.

TRENT THOMSON: Yes, exactly.

BRUCE MCCABE: I have this image in my head always when I think of you guys, and it might be completely wrong, but there's rooms full of actuaries, there's absolutely the pinnacle of statistical analysis. Is this true? 

TRENT THOMSON: Absolutely.

BRUCE MCCABE: Are they in Zurich or are they...

TRENT THOMSON: Well, they're here in Sydney as well. But you're right. I mean, especially on certain lines of our business, like life and health. And so, our life insurance business, when you have a product that goes for 40, 50 years, you need very strong actuarial pros. To be able to try to estimate what the future of that world's going to look like and what the right risk premium is. So yes, we have a lot of actuaries as well. And so yes, we have ... So we have that nice mixture of technical skill sets from different fields coming together, trying to solve some puzzles. And that's what we try to do, solve puzzles.

BRUCE MCCABE: We're going to have to have a different conversation about life and life insurance because I've talked to all these scientists that are about extending life. And there are some pretty amazing things going on at the cellular level of the science. Including some expat Australians at Harvard who are just changing the world.

TRENT THOMSON: I would just love to hear more. I mean, if we look at just the last 60 years, the lifespan, the average lifespan of humans has grown by 23 years. It's just amazing how...

BRUCE MCCABE: Yeah. That's phenomenal.

TRENT THOMSON: The advancement of technology translates to a better life. A longer life. But we've going to watch out for the lifestyle factors, diabetes, obesity. Alzheimer's, dementia. These things are limiting somewhat our life cycle.

BRUCE MCCABE: Tell me something, just before we go onto the big subject here. If I go into that, how many years? 23 years difference in life expectancy? 

TRENT THOMSON: Yes. Yes.

BRUCE MCCABE: So, if you hadn't predicted that, let's say you'd assumed a stable ... Back then, if Swiss Re had assumed that it was going to be the same, decades later, would, would it almost put you out of business? I mean, is that the sort of calculation where you better get it roughly right.

TRENT THOMSON: So, I mean, it depends if you're on, but you're right ...

BRUCE MCCABE: You see what I'm ...

TRENT THOMSON: Yeah. But we talk about the risks. It's prediction. The prediction risk.

BRUCE MCCABE: Yes.

TRENT THOMSON: And the variance between the prediction versus the actuality. And that's exactly how we measure our business. What's the actual versus the expected? And so, for that case, the question really is, is it a longevity cover or a mortality cover? 

BRUCE MCCABE: Yeah. Yeah. Yeah. Yeah.

TRENT THOMSON: And so the natural...

BRUCE MCCABE: Oh! You might be a lot better off.

TRENT THOMSON: So it depends on your weight too. Yeah. You're right. But if you live longer, then actually your mortality is a better result.

BRUCE MCCABE: I just realized we're actually in the same line of business. We're both futurists!

TRENT THOMSON: I think that's right. I think that's right. I mean, we have to... As the shock absorbers behind insurance, we have to see the emerging trends. Try to get the awareness out as quickly as possible. Translate that into coverage or exclusion depending on the type of exposure because it's about the sustainability of the insurance industry.

BRUCE MCCABE: And before you even do any of that, you have to kind of make a prediction. You have to make your own judgment calls …

TRENT THOMSON: Yes.

BRUCE MCCABE: … interestingly, on where it's going. So let's jump into, I know we'll bounce around a bit, but that's good.

TRENT THOMSON: Yeah. Which is fine.

BRUCE MCCABE: No, no. Everyone's interested. Because they don't, people don't hear from people like you. And to me, this is just gold. Because you have to do this on a practical level, you have to make those predictions. If we dig into climate, you're looking after Australia, New Zealand, they're considered highly vulnerable in many respects to where we're going. A lot of my episodes deal with some of the stuff that's now baked into our planetary future no matter what. It's some hard roads we're going to be traveling, no matter what now, the future isn't...

TRENT THOMSON: I agree.

BRUCE MCCABE: … completely set. But we're probably going to, this is my call, but we're almost certainly going to blow through two degrees. All these climate scientists telling me, we've got another 0.60 degrees minimum built in already that we cannot now avoid. So it's a rough road. So here you are in the reinsurance game for this geography. What are the ... How are things changing for you? And I'd love to get a sense of proportionality, where the things are that worry you a bit more about the scale of the risk or the changing nature of the risk.

TRENT THOMSON: Yeah, sure. No, no, no. I think that's... I think you're exactly right. Australia and New Zealand, we have the same view in that we will, be likely more exposed to climate, change or climate impacts relative to the rest of the world. We're already seen it. I mean, you've just look at, have to look at the last five years and ask any Australian or any New Zealander, the world feels more... There's more fragility, there's the feel of fragility. Because we've seen the bush fires in 2020. We've seen the biggest loss in Australian history, which is the east coast floods in 2022.

BRUCE MCCABE: Is that right? The biggest loss in Australia.

TRENT THOMSON: In Australian history. Six and a half billion dollars.

BRUCE MCCABE: I had no idea.

TRENT THOMSON: Yeah, Absolutely. 90% of it's paid. But people have had to wait a long time and, and show a lot of resilience because it has put severe strain on the industry here.

BRUCE MCCABE: That rainfall was ...

TRENT THOMSON: It was massive. It absolutely was.

BRUCE MCCABE: … I'll never forget it.

TRENT THOMSON: Coming down very strong and then you overlay things like, New Zealand this year, you see Cyclone Gabrielle come down and sideswipe New Zealand. You see the floodings in Auckland. You see the hailstorms that convective storms that have happened in Australia, all around Australia. Yeah. And the reality is that we, have to take action sooner here in Australia. Yeah. Because I agree with you, the road ahead is absolutely harder, we have to recognize the fact that the risk premiums here, the cost of risk is going to go up...

BRUCE MCCABE: It's unavoidable.

TRENT THOMSON: And so the challenge is. Is how do we, how do we solve for it? I mean, this is the great challenge of our generation, but I think it's also the opportunity of our generation. Because the sooner we grab it and, and run with it and, and have the right parts in place, it's setting ourselves up for those following generations.

BRUCE MCCABE: I like that there is so much opportunity in climate remediation. I mean, just as an aside, I like to sort of shock people when I'm presenting on climate and energy by saying there's more new wealth to be generated out of the transition to net zero than any other endeavor in human history. And if you flip it like that – especially most of my work is in the US – it connects with a lot of people really quickly, and then you start just talking about where the money is to be made in fixing this, because there's a lot of money. It has to be done. There's a lot of jobs! And, so yeah. It's actually quite a useful …

TRENT THOMSON: And there's less monopoly on it, right? Ultimately. And so, I love that message. Thank you for being out there doing that.

BRUCE MCCABE: … and so I like it when you use that word, opportunity.

TRENT THOMSON: Yes. So what am I worried about? 

BRUCE MCCABE: Out of those things you mentioned. There's a list there. And, fire and floods are very familiar to Australia.

TRENT THOMSON: Yes. Of course. So let's say the... So the things that I'm worried about is if we're going to truly try to solve this issue. As a reinsurer we can do a number of things. We can simply pull capital out of Australia. And put it somewhere else in the world. Alright. That could be what you can do from a global capital perspective. Or you can charge more premiums. But then you are, what you're coming up against right now is, is that convergence of factors such as the high interest rates and the high inflation that currently we all feel globally off the back of COVID. And the fact that the affordability of insurance has gone up, we're one of the most... I'll come back to this point on protection gap, but I'll just say that, that's my concerns right now.

And the question here is how do we solve for this? We don't solve it, necessarily just by increased premiums. What we need to do is risk reduction to your point. Risk mitigation. And for us to do that on the scale we need to, especially when we think about Queensland as an example. We need the government's long-term partnership and long-term commitment to be willing, to partner with the industry to make the right choices and the changes. So, things like the insurance industry have got so much data, so much expertise around risk. So we can sit with the government and talk about what building codes are going to be sustainable. For the future of climate change. So what are the building codes fit for the future, right? What are the land-use rules around how we use land moving forward? Where do we build, because we all know there's a strong congestion for needing to build more homes. But let's make sure we build them in the right way, in the right place and, and make sure short-term reactions don't interfere with long-term, sustainability and community resilience.

BRUCE MCCABE: This is a tough area. So I'm really interested in this because you're educating, and trying to work with, and share data with governments, to help, for example, with zoning would be part of that. What's appropriate zoning of land? Where should and shouldn't you be building if you're thinking about floods? And governments, of course are often quite short term in that thinking. And that's often the issue. You've got a political term, and so forth. So yeah. I mean, how do you go about selling this message to governments that they should use your data? Because I know you have very fine granular data, right? You can get down to individual addresses and things and go, here we go. We can map all the risk across a state.

TRENT THOMSON: Yes. Yes. That's right. Yeah.

BRUCE MCCABE: So how's the reception on that? 

TRENT THOMSON: So this is where what I'm really grateful for is the insurance industry. We all see things eye to eye, right? So we have the Insurance Council of Australia. They represent the insurers and reinsurers of Australia and they have become a very strong voice with government in terms of offering that leadership. So it's not just Swiss Re that can do that. A lot of the primary insurers can also give a very granular risk view, and show what makes a good risk versus poor risk. Where are the areas of most concern? And from there we're talking with government right now around how do we then come in and help them? So in New Zealand post the cyclone, post the Auckland floods, we actually helped the Insurance Council of New Zealand come together and do a model, which then helped the loss engineers work out whether they should rebuild or reduce.

BRUCE MCCABE: How brilliant.

TRENT THOMSON: And how to just manage that risk in a sustainable way. So some people relocate as a result of that. Because the topography just doesn't work, moving forward for that kind of flood risk. And so that's where you feel post-event you can make a difference. But our ambition as an industry, it's got to be pre-event. How do we get in front of this? 

BRUCE MCCABE: Absolutely.

TRENT THOMSON: And how do we make sure that we are building that sustainability through proactive investment? And this is where the NEMA, the National Emergency Management Agency. And also the HIP, which is a government and insurance industry partnership. They're starting to make progress in this respect, but the challenge is exactly what you say. You need a strong investment commitment over a long time to make that difference and that's...

BRUCE MCCABE: So couple of really quick questions on that. So that data set's very valuable. Is that commercially? I mean, it's commercially valuable, right? 

TRENT THOMSON: Yes.

BRUCE MCCABE: So you couldn't really just make it public, I imagine. Like an individual couldn't look up their own risk for their own residence for property insurance. Is that fair? 

TRENT THOMSON: I think that has to be the end goal. That has to be the end goal.

BRUCE MCCABE: Okay. That is the end goal. Okay. Full transparency, basically, the whole thing.

TRENT THOMSON: And as a consumer, I would love to have that, right? 

BRUCE MCCABE: Absolutely.

TRENT THOMSON: Let me see what, I'm going to buy a house. Well, okay. Now the insurance premium is going to be a very important part of that. And so I think that certainly should be the end ambition. First we would say perhaps we get the government to put some confidentiality walls around it to respect the competitors different views. But allowing the government to have that database. And then using that database powerfully to make change.

BRUCE MCCABE: I love that.

TRENT THOMSON: I think our industry is absolutely on board with that, under the right conditions. And that's the leadership opportunity the insurance industry has to play moving forward.

BRUCE MCCABE: I think there's a lot of power in just transparency. So I think for example, about when households get a real understanding, they put solar in, they get an app on their phone with the controller, they suddenly realize what appliances are actually using what electricity, what time during the day, because it's now transparent for the first time ever. The behaviors change quite quickly. And so, if you have all the risk out there transparently, that's really powerful.

TRENT THOMSON: Well, it's very powerful because at the end of the day, our industry is very geared to post-loss event and helping people. People call insurance companies on their worst day of their life. And we try to help them. And reinsurance obviously plays their part by preventing the loss. Preventing. Managing the risk.

BRUCE MCCABE: Yeah. No, I think this is the future of the industry. Has to be.

TRENT THOMSON: That is the future. That's the future. So, I say let's lean into it and let's run. But we can't do it alone on some of these big issues.

BRUCE MCCABE: I can see a thousand online analytic services that you pay a few bucks, they're new revenue streams for you too. In a sense, you should be able to say for example, one of my favorites for years is like, why don't we use satellites with AI? Which give us whole earth coverage now to actually show where vegetation is encroaching on rooftops. And there's an insurance service, for a credit card or not even a credit card, maybe just, “your insured with us, one of the things we do is let you know you get a lower premium if you trim those branches.” Because we now have daily updates and it's almost, it's not free, but it's almost free, that satellite coverage. So to me, it's a set of revenue streams as well. That's just me talking about it.

TRENT THOMSON: But I love it. I love that vision, rather. It may take a while to realize that, but maybe it doesn't take that long.

BRUCE MCCABE: Maybe not. There's a lot in place.

TRENT THOMSON: I mean, things like, you look at cafes that expand the number of seats or they change the way, or they get a liquor license or whatever it is. But having that dynamic information flow through and say, well here's your risk premium for that. Oh, you're going to put solar panels on? Well, here's your risk premium for that. Because solar panels on the roof actually when a hail storms hit, they get damaged, and the cost of replacement's quite high. So you need to make sure that you understand the risk premium associated with anything that you do. And so for me, that would be a fantastic world to live in. You're making choices.

BRUCE MCCABE: Well, it's got to be a dream, doesn't it? I mean, that's where we're headed. So, in terms of proportionality, are any of these in Australia, I mean, fire, flood, there's quite a few, there's storm severity. Hail, all that sort of stuff. There's also sea level rise and coastal issues. Where I live, we're seeing beaches disappear. That's Collaroy, near Collaroy on the Northern Beaches. And we're watching the money getting put into sea walls, which is actually, can be a very poor remediation thing depending on how it's done. But these all have large scale impacts and if we look at Florida, they're dealing with all the same things, do any of these jump out as being more of a concern for you going forward? 

TRENT THOMSON: Yeah, so it's a good question. So I would say that... We did a study in the US, that over the last 30 years we looked at the severity of events, what's happening with the large events that are happening around the world. And when I talk about that, I'm talking about what we call secondary perils. Which is now for me in antiquated form, because primary perils are earthquake, essentially. Hurricane. But secondary perils are storm, flood wildfire. The challenge is...

BRUCE MCCABE: Oh, they're secondary!

TRENT THOMSON: Yes. They're now called secondary.

BRUCE MCCABE: They sound really primary to me!

TRENT THOMSON: Because from a modeling perspective, they're a little harder to quantify, therefore, and the primary ones are the really big ones. But the challenge we've had over the last 30 years is these secondary perils. These...

BRUCE MCCABE: They're getting big.

TRENT THOMSON: Wild fire, floods. Exactly. And in convective storm, they now are dominating the landscape. And so the frequency of those perils have gone up by 450% over that time.

BRUCE MCCABE: The frequency of the secondary category …

TRENT THOMSON: Yeah. Wildfire, floods, storm have gone up by about 450%.

BRUCE MCCABE: Over? 

TRENT THOMSON: Over 30 years.

BRUCE MCCABE: Over 30 years. There's a metric.

TRENT THOMSON: For very large losses. And the severity of those events have gone up by 1500%. And so, what's driving that? It's economic growth, it's the value of the assets. It's the urbanization, people wanting to live more in cities, around the world, and that concentration of risk.

BRUCE MCCABE: Right. These are all factors in that cost?

TRENT THOMSON: Absolutely. And the last is population migration. Which is about people wanting...

BRUCE MCCABE: Whoa, tell me about that.

TRENT THOMSON: Well, people want to live generally in the areas that are most exposed to some of these events. So we all love to go to Queensland, right now in the retirement.

BRUCE MCCABE: Yeah. Beautiful.

TRENT THOMSON: It's great. It's great. It's not the best for flood. It's not the best for storm.

BRUCE MCCABE: It's great.

TRENT THOMSON: Exactly. And I can't blame you. It's beautiful. So Florida, let's talk about the US. Over the last 60 years, the US population's grown by 60%, but in Florida it's grown by 220%. And then you overlay where Hurricane Ian went last year, right. Near Tampa. That population's grown by 600% over 30 years. So there's more concentration in the areas that are more exposed … 

BRUCE MCCABE: Oh my God.

TRENT THOMSON: … so the severity of assets being affected are increasing. And that urbanization effect. And so the world is becoming riskier because of where we like to live, how we like to live.

BRUCE MCCABE: That's really interesting.

TRENT THOMSON: Yeah. And the building codes in those areas.

BRUCE MCCABE: That is very interesting. And I'm just thinking of the poor people in Vermont who have kind of tried to all move away from everything, and they just got smashed as well.

TRENT THOMSON: Oh, no, I love Vermont. It's beautiful. It's beautiful.

BRUCE MCCABE: I know. And they just got hammered. I mean, there's no escape. Florida's an interesting one because it seems, well, I had a look and it's the state with the most... the steepest increase in premiums. They already are quite an outlier. I think the average premium, this is property, I'm just going to talk property. So if we just stick with property for a minute, because keeps it simple in my head. I think the average premium for a house for homeowners, something like $1700 across the US and over $5000 in Florida. And the other thing that's happening more there is these gaps in coverage where people are just, there are retail insurers saying, “I'm not interested in renewing with you.” So people are suddenly, well, “I've got no insurance.” So now they're going shopping and hoping somebody will say, we'll insure you. So it's an extreme, but it's kind of where we're all headed in patches, isn't it? 

TRENT THOMSON: It's probably a strong example of where ... It's the intersection of risk-based pricing, which is what the industry does – you price the best risks and you give the best premium for the best risks – against the societal need of making sure that everyone largely has some form of cover in an area that's highly affected. And that's where you see the reinsurance, you see pools come into place. You see governments try to spread that premium and try to find mechanisms to it. I'm not too close to the Florida pool itself, but I do know that it has been, every year, it is always in the spotlight around this time of year, because of the expected hurricanes to come through that area. But the challenge of insurance sometimes is, if you expect it all the time to happen, you can't come up with commercially sensible pricing because your price is close to the asset value. And so that's some of the challenges when you're in high exposed areas. What do you do? So risk reduction, can you do something around the buildings? And so that's why with the Queensland cyclone pool that's just come in. That is very much about that premium redistribution, because there's a small number of people that are affected by it, and how do you spread that across? 

BRUCE MCCABE: Yeah, is it inevitable that in real hotspots literally and figuratively. So areas which are definitely bush-fire prone, they're terrible geography for building houses or whatever, or there's certain parts of Australia which get flooded now with quite … the frequency's very high. Is it inevitable that you get hotspots that you just can't possibly insure? I mean, you can keep saying, we'll spread the risk, we'll spread the risk, but at a certain point that risk is really, really, I mean, it's almost a certainty. You know that the house is going to be hit at some stage. So does it become, do we just have to face that reality? 

TRENT THOMSON: Yes. I personally believe that's the case. Only because if you allow people to build wherever they want to, yeah then it's a cost for the rest of the consumers.

BRUCE MCCABE: Yeah. It's a big one too. Yeah. Potentially.

TRENT THOMSON: And I think we can and this is part of the work that the industry can help the government with, is like, what are those really high peak zones and how do we, over time, relocate people? And make sure that we preserve those areas for what they are and we see them clearly. And that is how we ultimately reduce the protection gap. Because if we can move our population to areas which are more, I guess, resilient to climate impact, because to your point, we're locked in for the next 20 years according to the IPCC report. Then we need to be mindful of where we put our future generations.

BRUCE MCCABE: We sure do.

TRENT THOMSON: Yeah we can't just pretend that that doesn't exist. That at the moment it's too dislocated. It has to come together. And so we have to make some hard choices and for some people they have to unfortunately make some hard choices as well about the government paying for them to move, essentially.

BRUCE MCCABE: Yeah. And I guess I really want to draw people's attention to the fact that those hard realities are unavoidable. I mean, and some people can't move. You can't ask the population of Bangladesh to go somewhere else, right? 

TRENT THOMSON: I know. No.

BRUCE MCCABE: It's just this terrible set of circumstances we're now in, this trajectory. But in other areas, yeah. It's really important, isn't it? That people understand that at some point they won't, if they're in a severe area, I mean, sea level rise ...

TRENT THOMSON: Right.

BRUCE MCCABE: … there's some, there's lots of points on this planet where you cannot wall off the consequences of that. And a lot of the time the consequences are in groundwater rise. So you even build a sea wall, it won't make a difference because the groundwater is rising …

TRENT THOMSON: Good point. That's a good point.

BRUCE MCCABE: … huge parts of the east coast of the US are like that all the way up. The Boston, all that area, they've already got groundwater problems. You cannot wall them off. So I guess the... Yeah I might, correct me if I'm wrong, but I'm going pretty hard out there and saying there will be a lots and lots of spots where you just cannot depend on the ability to have insurance. It's just not logical. It won't be possible.

TRENT THOMSON: And it's in the government's best interests to have a healthy insurance industry.

BRUCE MCCABE: Absolutely.

TRENT THOMSON: You don't want the government to feel like they have to cover the risk of climate change themselves. So, the insurance industry and the government, they have the same goal. They have the same purpose. I would just say that, it's how do we align that with the right timeframe? So something we talk about when we talk to, governments around the world is, I guess from an organization perspective, every organization has a chief risk officer. And so one of the things we talked about...

BRUCE MCCABE: You're all chief risk officers in this organization! [laughter] Go on. Sorry.

TRENT THOMSON: No, that's good. I like that. So the question is, who is the chief risk officer for the nation? And so that's the kind of question that we ask and say, well, is the government set up with that long-term perspective with a chief risk officer? Essentially, that goes past the electoral cycle ... 

BRUCE MCCABE: Please!

TRENT THOMSON: … that's able to make and hold the nation's interests, in its best interests for a generation. And, so that's where we don't see that kind of, necessarily, that kind of transparency. And I would love to see that because that's where the conversation can truly be had by futurists, by reinsurers, by insurers.

BRUCE MCCABE: Yeah I like that very much. I'm going to come back to this transparency. Now just a couple of things on the resilience side. So what would you like more people to know on what they should be doing, o thinking more about as consumers, as householders? Are there any things that just jump out that you wish people had more on the top of their mind? I mean, for example, in conversations all the time, people say, look, no one's talking enough about insulation. Now this is just about energy consumption, for example, that we do all sorts of other things. We all talk about the grid and upgrading the grid and renewables and hydro and stored energy. But in this country, the conversations on energy, there's often a big blind spot around insulation and all of the savings that can be made there, and therefore the lower footprint. Is it similar? Do you see things that are blind spots in insurance? 

TRENT THOMSON: Oh, so, I'd say the first thing I'd want to say to, in this moment, because affordability is a strong issue here in general. So I want to be mindful...

BRUCE MCCABE: It's everywhere, affordability.

TRENT THOMSON: You're right. It's global at the moment, because of all the things we've talked about. I just want to say that, Australia is one of the lowest, countries in the world in respect to protection gap for insurance. So what does that mean? So that means basically when an event happens, the economic loss and insured loss is quite close together, which means a lot of Australians are insured. So this is a fantastic feature of Australia. So you look at the US and the US is about a 46% protection gap, which is high. So our Australia's 35%, US 46%, I think. I think EMEA is about 60%. And then you get into Latin America at 83%, and you get into Asia about 85%.

BRUCE MCCABE: So, can I try and rephrase, so 83%, in Latin America, of the value of all property is uninsured? Is that the best way to think of that? 

TRENT THOMSON: Correct, correct. That's the gap. So therefore, this is the degree of people that aren't insured for their assets and wealth. And so when an event happens, if you lose all your house, all your valuables, all your... It takes so many years to come back to where you were before. And so there are, to your point, the emerging countries in particular having a particular challenge with, having that protection in place as we face into a riskier world Australia, less so. But there's a lot of concern down here that could change quickly because of the affordability issue.

BRUCE MCCABE: Gotcha.

TRENT THOMSON: So I'm mindful of saying, guys, there's so much you can do, yes, to your own property to help the risk. The challenge we're having in this moment, a little bit, is the severe events that are happening. So the cat loading that's happening because these events are big, they're intense.

BRUCE MCCABE: What do you call it? Cat loading? 

TRENT THOMSON: Catastrophe loading.

BRUCE MCCABE: Okay.

TRENT THOMSON: Catastrophe loading. It means that basically, basically means that it, there is some things you can do for sure, but your base cost for insurance is higher because generally the area is risky. So yes, you can do insulation that can save some money. Fantastic. And you can buy an electric vehicle, right? You can save some money that way. You can look at the type of roof you have, to make sure it's sustainable to more of the storms. You can think about solar panels and making sure that the hail storm resistant That's an example. There are lots of little things you can do. But I would say that the cost of insurance is still going up, so that's a way to mitigate some of that increases. The biggest challenge we have down here at the moment is if you live in an exposed area it's becomes very expensive at this moment.

BRUCE MCCABE: And earlier you mentioned input into building codes. Are there messages there or are they hearing your messages? Like, can we be satisfied with all the developments going on, that they're doing everything they can? Or are they sort of areas where you'd love to see a bit more focus? 

TRENT THOMSON: Promising signs. Okay. I would say. I would say that you'd love to see more action quicker but the fact that the industry is now around the table talking about these things with the government I think it's fantastic. So I don't want to undo the progress that the ICA have made and also made the many of the major insurers in this market as we sit and try to partner it through. I think the challenge is always political over time, and space, and oh look at that blank area over there we could build a whole bunch of apartments. Oh, it's a floodplain!

BRUCE MCCABE: There's always... Exactly. There's always a tension between just the commercial system of development ...

TRENT THOMSON: Yes.

BRUCE MCCABE: … and the wisdom in development. I mean of course there's so much money to be made.

TRENT THOMSON: And as you know I mean climate change is not linear right? 

BRUCE MCCABE: No...

TRENT THOMSON: I mean, so we say we're locked into a worsening position.

BRUCE MCCABE: Yeah.

TRENT THOMSON: Which we do agree with as well, but maybe the next five years is stable and then you see another... We don't know how it's going to manifest.

BRUCE MCCABE: The thing that really scares me is, I don't know how much you know about chaos theory, but when you get to the science there are lots of systems in nature where if they're tipped out of equilibrium they never return to equilibrium, and so this is the Venus type thing right, but just on a smaller scale. If you look at what's happening in ocean currents in the world right now, big changes. And it's in fact the least predictable system on earth so from a science point of view. We know they have the biggest impact on climate, currents, ocean currents. They are changing but we don't know where they'll end up, and so that's one of the hardest things. I'd love to talk to your actuaries about what they're doing, how they're making their calculations, because none of the oceanographers out there are able to. I mean, those 100 degree waters of Florida you know recently have been interesting.

TRENT THOMSON: Yeah.

BRUCE MCCABE: But those things we know from El Niño and La Niña and all that we know currents affect climate so where do we end up? And everything in the last 10 years, whenever we've had a relook at a reinforcing effect, it's been slightly worse than predicted, not slightly better.

TRENT THOMSON: And you know that resonates, because I think it's... The reinsurance industry will be the first to say the last seven years performance has been has been very poor because of that exact issue.

BRUCE MCCABE: Performance of the industry as a whole? 

TRENT THOMSON: Performance of the industry.

BRUCE MCCABE: Has it really? I didn't know that?

TRENT THOMSON: Yeah, the losses have been more severe than we expected.

BRUCE MCCABE: I see of course.

TRENT THOMSON: They've been frequent, and the reinsurers have carried a lot of the burden of that globally, as we're designed to, as shock absorbers, but you get that prediction risk wrong. Or you get the diversification benefit, we talked about all around the world... But as we saw from summer, all of the northern hemisphere is having challenges. You've got Maui you've got Canada you've got Europe. We’ve got a lot going on in this world right now and a lot of people in the northern hemisphere I think are feeling what Australians have felt for the last five years. You know, the fragility of the weather system and the impact.

BRUCE MCCABE: Absolutely... Well, those two data points you came out with earlier... I'm going to go and relook at those in the transcript but you talked about the, what was it? 1400%?  

TRENT THOMSON: 450% on the frequency 1500% on severity.

BRUCE MCCABE: Over 30 years.

TRENT THOMSON: Yeah over 30 years.

BRUCE MCCABE: Yeah and that says it all, doesn't it? I mean that's your industry having to cope with that delta.

TRENT THOMSON: Yes, with that delta, and making sure we're in front of it, and the fact that now each year we get a 100 billion dollars of losses as an industry. And it's growing at 5-7% each year, so in 10 years time it'll be 200 billion, right? And so there's a lot of ... the risk is only growing, and that's why we have to be mindful that capital markets can take some, reinsurers can take some, government needs to take a central role as well, but that the severity of these events, we have to do more work in understanding those, and make sure we're pricing appropriately, which of course compounds the affordability challenge that we have at the ground level, understandably.

BRUCE MCCABE: Yeah. But we can't hide from that. It is just where we're going to go, so we just have to deal with that, you're a business, you have to run business. Are there any other messages you'd love people to know more about? Just broadly on this topic, before we wind up?

TRENT THOMSON: Well, I would say this... I'd say that I've been in insurance and reinsurance now for what, 25 years and I would say to anyone that's out there listening that I love this industry. Every day we have to face puzzles and new challenges. How do we make risk equal something that supports society, how do you treat the risk in terms of wordings, exclusions or through price, or through the distribution of that risk, and how do we encourage more of that protection. For the younger generation I'll just say this, I'd say, this industry is a fantastic industry, it rewards curiosity and rewards hard work and it gives people a fantastic view on how to underwrite the world's risks. And so I encourage those that are out there that are looking for something, for some purpose – I'm clearly biased! 

BRUCE MCCABE: You're hiring! Clearly you're hiring it sounds like you're hiring. I love it...

TRENT THOMSON: Insurance and reinsurance are fantastic.

BRUCE MCCABE: You probably need people at every level up to PhDs, on the mathematics side ...

TRENT THOMSON: Yes, yes, you need actuaries, scientists it's not just business, right it's society...

BRUCE MCCABE: I think there's so many people I'd like your world to connect to I know all these people at Stanford for example who are doing whole earth models for the transition to net-zero. They're literally modeling down to the city and suburban level, everything required to get to net-zero on the planet what that transition must look like.

TRENT THOMSON: Wow.

BRUCE MCCABE: And it connects into your... I mean you're really doing a whole earth model of the risk and risk predictions, and the calculus of the costs of that the financials of that, yeah.

TRENT THOMSON: Oh, for sure... I mean we're in... No I love this, I'd love to learn more about this so, we'll have to chat about this.

BRUCE MCCABE: I'll give you a few names after this.

TRENT THOMSON: Please, please. Because we're doing our bit, a little bit in developing countries, with energy transfer mechanisms basically, where we try to... Where industry is going in. How do we shorten the life cycle of fossil fuels in emerging countries and try to help them transition sooner to renewables? And then, what's the reinsurance role in that? In that we kind of give that insurance protection.

BRUCE MCCABE: Is there a reinsurance role in that? 

TRENT THOMSON: Absolutely.

BRUCE MCCABE: Okay tell me, tell me.

TRENT THOMSON: Yeah because there's so many new and emerging technologies. In the renewables that you even spoke about at the start of this, and nothing gets done without insurance or reinsurance supporting it, right? Because it can't then become commercially scalable. You can't protect your investment downside. So you need insurance right there next to you, with these new and emerging technologies. And so companies like Swiss Re and others are saying we're going to make a formal commitment to follow those technologies earlier than the ‘life cycle of proof’ to help basically get scale and accelerate the net zero transition, and just try to help, especially in emerging countries who will typically go through a life cycle that will be longer than perhaps more developed countries.

BRUCE MCCABE: Well after this, I'm going to give you a list of emerging technologies, all my favorites, and I'll put them in order for you but...

TRENT THOMSON: Please, please... [laughter] I would love it.

BRUCE MCCABE: … I see your point and I like that, I mean you have to sort of be behind it and you had to have a role to play in supporting them, that's really interesting and the more or faster they deploy, the lower their risk potentially. Well, it's certainly resilience based technologies as well... Yeah, I get it, you have a vast role to play. Yeah. Look thank you so much. I really feel that the fact that you have to do the financial calculus makes you the early warning system for the planet in many ways. You have to build into your current cost matrices your future expectations. You have to do the work of the futurism and the prediction around that to make that work, otherwise you won't be in business, so in so many ways you're a predictor. There's enormous amount of work going into that. You're an engine of predicting. You have to be. So thank you so much, I think that's invaluable. Trent I'd like to stay in touch as well and keep connecting because I'm sure there's more conversations to come, and the key thing for me transparency. I think that's the vision, that's the dream. I think if there's one message, that's the one.

TRENT THOMSON: I mean and then today we only talked about property and there's about another twelve classes of business that we could have talked about. So, listen thank you so much for your time. I really enjoyed the conversation.

BRUCE MCCABE: Thank you Trent.

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