Reinsurance CEOs confident they can fend off insurtech threat

Compiled by Insurance24

HARARE, CEOs of major reinsurance firms believe that while the digitalisation of insurance and the current technology wave is something they have to embrace, they can successfully fend off the threat from digital-only InsurTech start-ups.

Time for changeInsurance and reinsurance is an industry that has been besieged by tech start-ups in recent years, once Silicon Valley and the global venture capital community became all too aware of the need
for modernisation, efficiency and the opportunity for technology to become an enabler for the risk transfer process.

Everyone is aware that re/insurance is a sector stuck in its ways. Dominated by long-standing legacy players, with paper-heavy processes and relationship-driven (between market participants) business models
that often neglected the ultimate buyer of risk transfer.

The interest of the tech community has driven a new focus on improving the customer experience in insurance and reinsurance, something that has historically been poor and now start-ups have identified the delivery, servicing and all-important relationship in re/insurance as the areas that can be most influenced by them and where they can make the quickest headway.

So venture capital money is now breathing down the necks of major insurance and reinsurance firms.
While it is also partnering with them in many ways, the VC model is to disrupt and remove layers of complexity in industries, in order to deliver more direct, efficient and customer friendly experiences.

So digital-only insurers and reinsurers are part of the playbook for start-ups and VC’s, that see opportunities to disrupt the sector, but here the CEOs of global reinsurers believe they have an advantage
still.

Global player Swiss Re recently said that it feels well-positioned to fend off insurtech start-ups, as it has a market-position that will insulate it from the threat of disruption.

“Our scale, access to clients, risk data and advanced platforms position us well to play a major role in the technological revolution in the insurance space,” the company explained in its annual results.

But this is restrained compared to the positions of other reinsurers, who feel not just insulated but almost immune to disruptive threats.

Swiss Re acknowledges that technology will cause, “Long-term fundamental changes to the insurance value chain,” also saying that it expects to see, “Blurred industry boundaries and shifting insured risks (from personal to commercial lines).”

In fact, Swiss Re and other majors like Munich Re are focused on how they can partner with insurtech’s, while also rolling out their own transformative technical change programs from within.

But some reinsurance CEOs just feel their expertise makes them immune to the disruptive impacts of technology.

Kevin O’Donnell, CEO at RenaissanceRe, said in the firms recent annual report, “While I believe that technology will continue to make us better at what we do, just as it did 25 years ago, I do not believe it
will replace what we do nor diminish the importance of our value proposition.”

Another CEO, Mark Watson of Argo Limited, is a little more bullish on his firms prospects in the fact of technology.

He explains that reinsurance has faced pressure from capital and technology in recent years, with legacy carriers now being forced to become tech-savvy and customer focused.

“But will all-digital companies backed by fresh investor capital shake up our industry even further? We don’t think so,” he boldly said in his recent letter to Argo shareholders.

This isn’t CEOs being flippant. This is CEOs explaining that the technical expertise they have when it
comes to reinsurance and specialty line risks will be difficult to replace in the value-chain for insurtech start-ups.

Which gives them the confidence that while they do need to change their business models, ensuring they get paid for the expertise they command, the immediate future is likely more about partnerships than outright disruption and they need to position themselves to take advantage of that.

Watson explained, “Specialty insurance lives at the crossroads of new ideas and new threats. We are confident specialty underwriters will continue growing in importance as a critical support for new enterprises, enabling entrepreneurs to mitigate the considerable risks associated with early adoption of new technologies.”

“There is an advantage to understanding the rules, owning the data and building on a history of underwriting and risk management expertise,” he continued. “In our opinion, the judicious use of cutting-edge technology combined with insurance expertise represents the clear and, for established insurers, successful path to continued growth.”

Watson acknowledges that partnerships with technology players will be a significant part of Argo’s future, as it looks to get its risk capital and underwriting expertise as close to the customer as possible.

Of course, this is all well and good in the current market scenario, where insurtech start-ups are often young and inexperienced, although
well-funded.

But a few years down the line, as some insurtech’s grow, hire staff from experienced industry players and develop software that allows for underwriting processes to be streamlined, while maintaining the levels
of expertise and detail necessary in reinsurance and specialty lines, will this still hold true?

Of course CEOs have got to send out a positive message to their shareholders, clients and partners in these difficult times.

Reinsurance and specialty lines have been under consistent pressure in recent years, so remaining chipper and talking up the robustness of the “innovation” that is driving your “evolving business model” is a key trait of senior leaders in insurance and reinsurance right now.

In reality, it is still too early to understand just how the current insurtech wave will impact major specialty lines and reinsurance carriers.

How these companies respond to the emergence of tech trends such as artificial intelligence driven  underwriting, portfolio management,risk placement tools, marketplaces and consumer friendly distribution
channels will define their opportunities to participate in the future of insurance.

But the fact that these company CEOs are putting technology right at the heart of their messages to shareholders now reflects how vital it is that they get to grips with the way the market is moving and do so
fast.

                            

AM Best views cyber as key ERM priority for insurers

Insurance Insider

HARARE, Insurers must focus their enterprise risk management (ERM) efforts on assessing and mitigating against cyber risk in the face of both operational and underwriting challenges from the exposure, according to ratings agency AM Best.

In an ERM update today, the firm noted that the threat of cyber attacks brings operational risk to the fore for insurers, just as it does at any other business with exposure.

“Insurers are vulnerable to cyber attacks as much as the nearest department store and face the problems of their intellectual property or personal information being compromised,” said AM Best in the report.

It added that cyber attacks can also bring about business disruption.

But the cyber threat poses an additional challenge for insurers that underwrite the peril, and focusing on coverage limits and aggregation risks in their portfolios is critical to managing the exposure, said AM Best.

“Insurers that underwrite cyber insurance must deal with cyber policies by carefully establishing risk appetites, controls, and reinsurance,” the report noted.

The firm acknowledged the difficulty insurers face in identifying cyber risks and putting in place the right mechanisms to quantify and mitigate exposures.

The involvement of InsurTech and Fintech in the space, as well as the increased use of third-party vendors for data analytics makes insurers vulnerable to further cyber and infrastructure risk.

AM Best recommends implementing preventative measures such as phishing exercises and penetration testing, as well as establishing action plans in the event of a cyber breach.

The insurance industry has shown “meaningful improvement” in operational risk, model validation, cyber risk management and stress testing, the report found.

It has done particularly well “modernizing the customer experience through the digitization and automation of sales, underwriting, and customer service,” according to the report.

“The industry must adapt to new technologies, although these efforts do introduce new risks,” it added.

AM Best said robust ERM programmes help insurers manage volatility in controlling risks they are facing, and leave them better-placed to identify and react to emerging risks too.

ERM is a key component of the ratings process for AM Best and other agencies such as Standard & Poor’s.

AM Best looks at quantitative aspects of an insurer’s ERM programme, such as stress testing, capital adequacy measurements, and key risk metrics, as well as qualitative factors including extensive discussions with company management teams.

The ratings agency evaluates an insurer’s risk management processes and capabilities relative to its risk profile as part of a “building blocks” approach to develop and assign ratings that also looks at operating performance, balance sheet strength and business profile.

Insurance Insider