Why insurance matters (more and more)

February 18, 2025

Nobody dreams of working in insurance. When I was looking for jobs in my final year of university, I targeted generalist consulting and oil & gas (I studied Russian at a time when Russia was still on the up). I fell into reinsurance though a series of coincidences (including, I think, being the only English person at the assessment centre of a German company, which injected some ‘diversity’!) and have now done over 20 years in the insurance industry. I could not be happier that I’ve ended up here.

When you think about insurance, you probably think about insuring cars or houses, perhaps the tick-box on a website when you’re buying a phone or train ticket. This is just the start.

Insurance, you may be surprised to hear, makes the world go round. Literally everything needs insurance to operate. Here are some examples:

• You can’t launch a satellite without insuring against the risk that the rocket misfires and lands on Orlando
• You might not be able to finance a wind farm if you can’t insure the economic risk of the wind blowing less than expected and generating less electricity than expected
• You wouldn’t find directors for a company if you couldn’t insure their exposure to shareholder lawsuits

These are specific examples, but the importance of insurance systemic to the global economy and society. If you couldn’t buy insurance against hurricanes in Florida or against earthquakes in Tokyo, then whole cities would quickly turn into ghost towns, especially after a hurricane or earthquake when millions of people could have their entire wealth wiped out meaning that they could not reconstruct their properties.

Climate change is, of course, making society’s exposure to natural hazards like storms and floods greater.

For this reason, insurance is quickly moving into the centre of political debate. What is the public policy solution that keeps insurance affordable whilst also incentivising investors to risk their capital in increasingly risky areas? The California wildfires are a good example: America, despite being the centre of capitalism, has some of the most restrictive insurance regulations (each set at the state level just to complicate things further). The consequence of this is that insurers are pulling out of the state, further restricting the market.

No industry quantifies the impact of climate change like insurance, and no amount of political posturing can make its real-life consequences go away.

But what happens when there is a wildfire in California or hurricane in Florida? No insurer can hold enough capital to cover all the “tail risks” (i.e. possible but unlikely scenarios) in its portfolio – just like the average homeowner can’t hold a few million dollars in cash just in case their house burns down.

Insurers therefore buy their own insurance from reinsurers. Reinsurers pool global insurance premiums and facilitate Japanese premiums paying for US hurricanes, or US premiums paying for Japanese earthquakes, depending on what happens in what year. (Reinsurers themselves buy insurance against everything happening at once.)

As the global risk profile changes, both in terms of natural catastrophes and so-called “nuclear” judgements in courts, reinsurers are recalibrating their risk models.

When a plaintiff was awarded $8bn by a jury – of which all but $680k were “punitive” rather than “compensatory” damages in a lawsuit against Johnson & Johnson, what the jury probably didn’t realise is that those damages are generally paid for by insurers and therefore financed by the global premium pool – you, me and the jurors themselves.

Insurance is therefore not only at the centre of the global economy and intertwined with some of the most important social and political issues of the age. The industry employs a correspondingly broad range of professionals: economists, lawyers, actuaries, risk surveyors to name just a few.

To describe the industry by what you see day-to-day is like describing the Amazon based on one of its springs.

What Oxbow Partners does

Oxbow Partners is a specialist management consultancy for the insurance industry. We advise companies and investors across the insurance industry, including some of the most prominent reinsurers and specialist insurance companies (i.e. those insuring those satellites). We generally engage with the senior leaders at these companies, meaning that we get involved in the big, industry-defining and company-shaping topics.

To find out more about what we do, please see the careers pages on our website.

About the author

Chris Sandilands is a Partner at Oxbow Partners. He leads engagements across strategy and transformation, focusing most of his time on global reinsurance and UK & Ireland retail insurance.