Reinsurers Take the Technology Lead

When it comes to innovation and utilization of emerging technologies in the insurance industry, reinsurance companies once led the way as early adopters of technology. But recently, the primary insurance sector has embraced all things insurtech, digital transformation and even blockchain. Reinsurers, meanwhile, have endured a prolonged soft market and increasing catastrophe losses. Nevertheless, to cope with a market-wide surplus of capacity and to boost profitability while adding value to clients and investors alike, reinsurers are once again focusing investments on technology and innovation.

Unlike prior eras, when best-of-breed solutions dueled with single-system architectures for market dominance and process followed form, the insurance industry today is moving toward more data-centric technology and tools enablement. Reminiscent of the early 1990s — when reinsurers were the early adopters of catastrophe models, and thus change agents in the industry — brokers and insurance companies alike are feeling the pressure from reinsurer partners to furnish better data or suffer the consequences of adverse pricing in a hard market.

Reinsurers are no longer waiting for insurers or partners to embrace emerging technologies before taking notice. From a historical risk mitigation perspective, waiting for others to vet emerging tech protected reinsurers from unwanted exposures. That also acted as a level set to the reinsurance space by ensuring no single company or competitor would dominate via a particular technology.

Typically featuring a more agile business model, reinsurers may be able to leapfrog prevailing automation trends by proactively exploring even newer insurtech.

In the burgeoning tech renaissance among reinsurers, some observers see a reaction to the simplification of front-end processes. In a new report, “Business and Technology Trends: Reinsurance,” Novarica notes that reinsurers are shoring-up core systems and investing in analytics, which will help set the stage for internal innovation initiatives or partnering with insurtech startups.

The report emphasizes insurers’ need to simplify products and develop new sales and distribution channels to attract potential Millennial policyholders. Simplification of insurance products, however, forces complexity down the line for the insurer-reinsurer relationship and “requires the reinsurance stage to handle more risk calculation.”

So, in addition to modernization of core systems — which has been and remains critical for insurers across all lines of business — investment in analytics, business process management (BPM), and regulatory compliance solutions (auditing, compliance and control) are taking the next highest level of priority in the typical insurer’s short-term budget. With those “staples” handled by insurer stakeholders and other partners, reinsurers are free to proactively explore technologies that may have a longer shelf life and return on investment (ROI) over time, including artificial intelligence (AI), robotic process automation (RPA) and blockchain.

Suddenly, reinsurers are pre-emptively participating in industry research initiatives and partnering with insurtech startups to move the needle from legacy technologies toward a higher level of efficiency, customer experience and data mastery, to name just a few payoffs. Munich Re, for example, has helped launch tech labs in Silicon Valley, Calif., and Israel. Swiss Re, VIG Re and Hannover Re are just a few of the reinsurers behind the Blockchain Insurance Industry Initiative (B3i). ChainThat, a provider of blockchain solutions for the insurance and reinsurance industry, has partnered with the Bermuda Monetary Authority’s (BMA) Innovation Hub to launch the Bermuda Insurance Exchange, the industry’s first Distributed Ledger Technology (DLT)-driven risk and capital exchange. Nassau Re just launched an insurtech accelerator, Imagine, for life- and reinsurance-focused startups in Hartford, Conn.

Perhaps the modern equivalent of the Holy Grail, for insurers and reinsurers alike, is reliable and

consistent data.

While it is clear and reasonable that reinsurers not need to mirror primary insurer processes, such as monitoring each and every policy or following individual claims, there is a natural vested interest in better risk assessment and mitigation, protection of personally-identifiable information (PII) and internal data assets, and reduction of claims or loss adjustment expenses (LAE). Rather, reinsurers interested in getting closer to the original insurance premium dollar via managing general agencies (MGAs) are now looking to emerging technologies to create additional synergies with primary insurance partners.

It’s an open question if investments by reinsurers can push the industry in directions perceived as beneficial — like Google’s recent Compare experiment, which lasted little more than a year but managed to spark renewed interest in comparison shopping for insurance and other financial services products. Perhaps the modern equivalent of the Holy Grail, for insurers and reinsurers alike, is reliable and consistent data. Increasingly, reinsurance organizations are asking not so much for technology platforms, but for a repository of immutable data that can be retrieved and deployed as required — across models and internal applications, for reporting priorities, and always set (i.e. cleansed/enhanced) to the organization’s standard.

Data Drives Productivity

While the reinsurance market has generally proven to be resilient in the face of growing catastrophe losses in a year-over-year scenario, the role reinsurers will play in helping promote innovation has yet to be fully realized. At present, there seems to be adequate capital, but reinsurers are still susceptible to softening pricing and the threat of mergers and acquisitions (M&A). In this environment, profitability and differentiation are difficult to achieve.

Technology, while often viewed as a silver bullet that can solve all the world’s problems, cannot be looked at as a panacea by insurers and reinsurers. Rather, as a productive next step, the focus must shift to data accessibility and quality. By sponsoring or promoting partnerships that deliver advances in data handling, especially as it relates to better identification and utilization of granular data, reinsurers gain the ability to call upon and leverage a “single-source-of-truth” data repository. Such beneficial insurtech can drive productivity for primary insurers, brokers, MGAs and reinsurers managing diverse catastrophe models, actuarial tools and underwriting standards.

Freimarck is managing director, Europe at Xceedance. Email: contact@xceedance.com.