During a recent interview with Reinsurance News, Adrian Jones, Partner, HSCM Ventures, explained how one of the biggest issues that he hears across the industry is the quality of data reaching reinsurers and retrocessionaires.
Data and technology are two fundamentals of re/insurance. The most successful brokers and insurers are the ones that possess better data and use it most effectively, often with the help of technology, according to Jones.
“The best insurers and reinsurers that I’ve seen have better data which is available in real time, or at least very quickly, and which is used for decision-making purposes quickly. It allows both local leaders and headquarters to react faster to market changes and fix problems within the business. I have seen this across both startups and across established companies. Overall, the single biggest factor that differentiates the best from the rest is the quality of their data,” he explains.
Jones went on to suggest that one of the core focuses within startups at the moment is on “producing and maintaining better data”.
Moving forward, when asked a question regarding how the ongoing hard market is impacting startups, Jones noted that the industry has seen good support from the reinsurance and ILS markets, across both startup carriers and managing general agents (MGAs).
“Among the startups that have achieved some degree of scale, and some degree of capability around distribution and underwriting, reinsurers have been remarkably supportive. Those who really suffered in the capacity-constrained market have been the incumbents who did one of two things. One, incumbents who failed to invest in technology are more likely to have been slow to recognize inflation. Incumbents with poor technology also haven’t been able to communicate rapidly with good data and information to reinsurers. To my point earlier about data, reinsurers recognize good data when they see it. Two, some cedants took advantage of the soft market in ways that impaired their relationship with their insurers. Those who overplayed their hand are suffering.”
Interestingly, Jones highlighted how startup carriers are typically ceding 50% or more of their premium, while on average, across all P&C insurance it’s more like 6%. Because of this, he explains, reinsurers are willing to invest in those relationships, because they know that the startups are going to need reinsurance in a way that established insurers might not.
“Reinsurance underwriters often call venture capitalists to ask if a startup is well funded, if they have credible investors, and how we view their prospects. Technology executives often do the same. They want to build relationships with the winners before their competitors do.”
Moving forward, as AI and machine learning is being incorporated more into the re/insurance industry, it is becoming very clear that this technology is changing the landscape of the industry.
“There are a lot of startups and incumbents using AI, and they have done so for some time. Just take a look at anybody who’s doing image classification, for instance. I think this is really important in property markets. Reinsurers expect that insurers have good imagery of all the properties they’ve written and that they’ve properly analysed that imagery. AI tells you the size and shape of the roof, the condition of the roof, and perhaps if there are hazards nearby like debris, trampolines, or overhanging vegetation.”
“AI can tell you all these things, and it has existed for years. But some insurers still are not using it. They are almost literally writing blind.”
Jones concluded: “The industry expense ratio is unacceptably high, which leaves less money to pay claims and remunerate capital. There are numerous technology solutions that can be implemented at the level of the agency, the insurer, the reinsurer and the brokers in between, which can reduce expenses, improve precision of pricing, and enable better capture and transfer of data across the value chain.”
“To do right by our customers, the industry must implement current technologies and find efficiencies to reduce the overheads embedded in the product today.”
