Technology can help beat soft rates

While the idea that the current soft market environment is a “new norm” for the industry will be greeted as bad news by many reinsurers, there are companies which believe the industry can rise to and embrace this challenge, putting themselves ahead of the pack in the process.

Richard Clark, business development director at Xuber, said he believes a call to arms is overdue in the industry, whereby reinsurers invest in technology and analytics to help them better control their costs, become more efficient and better select risks using the data that is increasingly available.

“The industry has a tendency to be very passive about change and sit back and wait. But if you accept that these levels of rates are going to persist, action is needed,” Clark said. “Reinsurers need to make an investment now before a major change does hit the market—for some of them it may be too late by then.”

He added that reinsurers should also change their mindset around what technology can do for them. “Rather than have a somewhat prescriptive idea of what they want, with rigid requirements around what it should do, people should assess technology on its agility and flexibility.

“In such an uncertain world of fast change, they cannot know exactly what they will need in the future, which product lines they may move into and what their market will look like. Therefore, they should look at its potential to adapt. That could also make them more likely to understand the potential of such an investment and its importance to the future.”

John Racher, product strategy director at Xuber, added that the industry is very aware of the many disruptive forces changing the industry, including the prevalence of alternative capital. “They talk about competitors stealing their lunch but by making the right investments now, they can steal a march on their competitors,” he said.

Racher and Clark added that the market would not necessarily remain in its current state indefinitely. A series of big cat losses would be enough to move the market, they agreed.

“People’s memories of what a big loss feels like have dimmed,” Clark said. “People are sailing close to the wind and certainly I believe a series of big losses would change the market. It may never go back to what you might call a hard market but I do think it would have an effect.”