The life reinsurance sector has been shrinking for a number of years, but reinsurers can remain relevant if they take a more strategic approach to adapting to the changing needs of cedents, according to David Rains, Managing Director at Guy Carpenter.
Rains claimed that the traditional life reinsurance proposition, which involves bundling together a combination of risk capital, differentiated underwriting knowledge and a variety of value-added services, no longer aligns with what customers want and is vulnerable to disruption.
“The widespread availability of capital and insurers’ success in closing their knowledge gap in underwriting expertise have reduced their need to purchase risk protection,” he explained.
The appearance of sophisticated data companies, advanced modelling capabilities and InsurTech disruptors have also led to the emergence of new market participants that can challenge reinsurers’ dominance in advisory services.
Life insurers’ demand for the bundled advisory services have been critical motivators for the purchase of reinsurance capital, Rains noted, but in an environment where the need for reinsurance capital is declining, reinsurers worry that a separation of advisory services from risk transfer solutions may cause further declines in purchases.
New sources of data and analytics have enabled primary insurers to significantly narrow the knowledge gap in regard to underwriting in particular, although they cannot yet match major reinsurers’ large stockpiles of data.
“Medical data availability combined with advanced predictive analytics and genetic testing is an area with great potential for outplaying reinsurer contributions,” said Rains. “Traditional underwriting is still dominant, but is becoming less a necessity and more a comfortable habit that may be attacked over and over by smart innovators with good ideas.”
In response, Rains suggested that reinsurers must enhance their value proposition around their risk solutions and their business model.
“There is ample room to support customers by addressing more complex risks that combine mortality, longevity, investment and morbidity,” he said, “but most reinsurers focus on only one or two of those areas and expect the customer to keep the rest or solve it on their own.”
Although reinsurers are expanding the scope and quality of their advisory needs, they are not currently keeping pace with the changing needs of insurers, Rains claimed.
“They are advancing their value-added capabilities, but the strategy may not work effectively if it remains tied to new mortality cessions – a narrow part of the insurer-reinsurer relationship,” he added. “Reinsurers can also position their InsurTech and advanced technologies to make their advisory services a core deliverable.”
Guy Carpenter is currently working to support the life reinsurance market by curating partnerships with capital and service providers and helping companies to utilise the capabilities of InsurTech, emerging technologies, and advanced analytics, it said.