Advancements in technology and analytics have the potential to dramatically improve the reinsurance industry as it strives for efficiency, but to date, the market remains in the very early stages of realising the benefits, according to industry experts.
To end the inaugural re/insurance and insurance-linked securities (ILS) conference, Prospectus 2021, attendees heard from industry specialists on the use of technology to drive better reinsurance outcomes.
“I think it’s safe to say we’re in the very early innings of how technology can really help improve the reinsurance industry, in particular,” stated Sean Bourgeois, Founder & CEO, Tremor Technologies, Inc.
“Phase one was dominated by third-party technology companies that tried to enable straight through processing, and then other companies that tried to enable bilateral negotiations, and so on,” he continued.
In Tremor’s view, enabling straight through processing and bilateral negotiations aren’t really tech issues, and at best, relate to marginal improvement. And, in the majority of instances, he said, are probably somewhat of a tax on the system. “That I think was kind of a false positive, low hanging fruit perhaps, and folks chased it.”
However, now, Bourgeois believes that the market is moving into a new era, where true, deeper technology can fundamentally improve execution.
“Of course, from our perspective, marketplace technology we believe can really do that very well. So, we’re able to gather very complex price information and work with brokers and cedents to figure out what should the best, most competitive clearing price be.
“And, by the way, you know for reinsurance and ILS funds, give them an opportunity to offer the capacity exactly how they want to as to building their own portfolios.
“So, we think the market generally is moving from this mirage of improving tech with a little bit of a shiny interface, to much more deeper, fundamental technology, that we’ve seen really power other industries forward, and we’re really excited about that,” he explained.
Claude Yoder, Head of Analytics at reinsurance broker Lockton Re, also participated in the day’s final panel. He highlighted how diverse it is, in terms of how companies from across the re/insurance value chain, are approaching this opportunity around tech and analytics.
“A lot of it is trying to find, as Sean alluded to, more modern means of using technology. But, I think it also gets into other aspects in terms of what your overall strategy is; buy versus build strategies, the use of partnerships, things of that sort,” said Yoder.
“Especially as InsurTech has entered the scene and, you have on one end of the continuum Insurtech startup companies with a lot of capability, a lot of innovation and thinking, but maybe with a little bit less understanding of the industry. And, then, on the other side, you have well established, decades old companies that are dealing with legacy IT and trying to find a way to move all of that forward, right.
“So, it’s a lot to consider, both in terms of what that typical stack might look like, which simply said would be the data at the bottom, the analytics in the middle, and the consumption or the visualisation at the top.
“And, then, looking at the different processes that exist to move a piece of business from the carrier side, let’s say, into the reinsurance side on the other end. And, so, putting that all together is reasonably involved and we see a lot of companies dealing with that in different ways,” continued Yoder.
During the discussion, the audience also heard from Carol Pierce, Senior Director, Insurance, at Kroll Bond Rating Agency (KBRA), the associated sponsor of Prospectus 2021.
Pierce agreed that the wave of technology adoption and the progress being made across the industry is really evolutionary.
“But, what we at KBRA are primarily interested in, is how any of the technology is adopted by a primary company or reinsurance company. We’re really looking to see how that advances the company’s management of risk,” she explained.
“Because, at the end of the day, our ratings speak to the long-term financial strength of those companies, and if they issued any debt to further their objectives, then it also speaks to the probability that bondholders are going to receive timely payment of principal and interest.
“So, I think we’re on a continuum, and I do believe that a lot has been done, a lot has been tried. There’s a lot of ongoing process across the industry to make the entire process of insurance easier, efficient, less prone to human error. And, that’s all definitely beneficial from a credit perspective,” continued Pierce.
Interestingly, Pierce went on to explain that one thing she isn’t seeing as much of as she would like, is companies then turning their attention to improving what’s going on through that system.
“Oftentimes I talk to companies and I ask them, ‘what’s the reality of what you’re looking at? And underwriting might have a view, and claims might have a view, and after the loss comes, maybe the view is slightly different.
“So, I think we need to get to a point where there’s a view of risk that a company is assuming that it doesn’t matter where in the process they happen to sit, but that they’re actually getting accurate, comprehensive, unbiased views of what that risk is. And, I don’t think we’re quite there yet, because we wouldn’t have companies reporting poor results if that were the case.”
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