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.
Insurance 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.