The value-chain within insurance and reinsurance is blurring, with companies reacting to the highly competitive market environment, new entrants from the InsurTech arena and third-party capital players, but reinsurers are seeking to benefit by securing new opportunities to source risk.
Ratings agency Standard & Poor’s (S&P) discussed the “blurry value chain” in insurance and reinsurance in its latest report on the sector, noting that it does not yet see reinsurers becoming displaced by trends such as the emergence of broker-run form-following facilities.
However, S&P is seeing retaliation from competing brokers, who do not have such facilities as Aon’s Client Treaty, which means these more marginalised brokers could penalise certain reinsurance companies who participate in the market facilities.
Another way the value-chain is becoming increasingly blurred, is the trend for large reinsurance firms to underwrite an increasing amount of direct primary insurance business, particularly in the large single-risk, or complex industrial type accounts.
This direct underwriting by reinsurers seems to have become accepted by cedents, S&P explains, despite the fact it used to be seen as a conflict of interest.
InsurTech initiatives such as the blockchain is also disrupting the value-chain, with the potential to help reinsurance capital get much closer to the original source of the risk, S&P says. Blockchain initiatives such as the B3i are driving forwards towards market solutions for making reinsurance more direct and efficient, while other companies such as SCOR are working on pilot technology with blockchain specialists.
With so many reinsurers backing InsurTech start-ups with financing and capacity, they are becoming the insurance capital providers for technology start-ups acting as MGA’s or distributors, in many cases. Examples were recently seen with Munich Re backing Bought By Many, and Hannover Re backing Ladder.
Finally S&P notes that third-party reinsurance capital vehicles owned by primary insurance groups are effectively competing with reinsurers by offering self-reinsurance options backed by the capital markets, another area where lines are becoming increasingly blurred.
This blurring of the insurance value-chain is expected to continue and become increasingly complex, as risk capital in all its forms moves nearer to the underwritten risk, and technology helps to propel it there much faster and more directly.
Reinsurers stand to benefit from getting closer to the risk, offering new opportunities for them to act as more direct risk capital providers.
