The traditional and alternative reinsurance industry has a solid track record of innovation, but as seen with risks like cyber and terror, sustainability and adoption has proved more challenging, suggesting a need for risk transfer solutions that support repeatability, according to Property Claim Services (PCS), a Verisk Analytics business.
PCS has called on the industry to “rise up” and avoid the temptation, albeit potentially rewarding, to innovate risk transfer solutions that lack the ability to be repeated, ultimately to support making a long-term, sustainable difference in the marketplace.
“Historically, our industry has seen innovation as an individual achievement (with rare exceptions). An insurer, reinsurer, intermediary, or ILS fund does something unique and interesting. That player collects the kudos, while the rest show sufficient admiration,” explains PCS, in phase two of its ‘Reinsurance Manifesto Rise Up, Cyber, Terror, and the Curse of the One-Off Success.’
Continuing to explain that while one-off innovative efforts can be beneficial, it does little to support the expansion of re/insurance and insurance-linked securities (ILS) capacity into emerging and large risks, such as cyber and terror, for the long-term.
The second phase of PCS’ Reinsurance Manifesto explores the potential for real innovation that really makes a positive and lasting difference to the industry, calling on industry collaboration that focuses on the needs of clients to avoid innovation for its own sake.
“In addition to making your clients happy, the needs-based approach to innovation has incredible benefits,” says PCS.
Essentially, PCS states that developing a risk transfer solution that people actually want is the first step towards driving adoption, and, if it is something that’s useful and responds to a real market need, then clients will use it over and over again.
“That’s the clear sign that “useful” is becoming “market standard,”” says PCS.
As an example, PCS explores both the cyber and terror landscape. As two of the world’s most rapidly expanding and constantly evolving risks, cyber and terror have received substantial efforts at innovation, and it’s clear that there’s huge potential in both exposures for affordable, effective and scalable solutions.
For both risks, PCS’ Reinsurance Manifesto discusses the potential for a traditional industry loss warranty (ILW) approach, using the same kind of industry loss index trigger that’s supported the U.S. property catastrophe arena, saying that it could “provide the greatest good for the greatest number.”
The full-report provides individual examples of how a terror and cyber ILW solution could be beneficial, potentially making the management of risk transfer costs easier, and ultimately supporting future market growth.
“Repeatability and simplicity are crucial to new solution adoption,” says PCS.
Adding; “Fortunately, the reinsurance industry collective can help deliver repeatable solutions to address the routine needs of the masses, with bespoke structures reserved for those occasions where they truly make sense.
“If they’re useful and address a real ongoing need, repeatability and adoption will come naturally into the equation.”
