ILS diversity is key to the future
ILS and closing the insurance gap
How can ILS make the most of insurtech, asks Clive O'Connell, partner, head of insurance and reinsurance at McCarthy Denning.
We are living through one of the most pivotal periods for the insurance industry, as it faces the challenge and threat of insurtech. The industry has to deal with an expense ratio that is creeping up and which is unsustainable. Insurtech provides efficiency—albeit at the expense of jobs. Insurtech also means that risk and claims data are being captured in objective and resilient forms.
The data created by insurers and their insureds for the purposes of insurtech also can provide a tool for suppliers of alternative risk transfer mechanisms. The data can be modelled for pricing and used as a basis for indices for event triggers. At the same time, while insurers look to efficiencies of process, efficiencies of product may appeal equally to their customer base. The ability to create insurance-linked securities (ILS) solutions in areas not yet explored may be attractive in a number of ways.
ILS solutions are not bound by the need for insurable interest and proof of loss. ILS products can be designed with a view to operating more easily within smart contracts and utilisation of blockchain. These features can be selling points. Immediacy of payment without a lengthy and uncertain adjustment process will suit certain types of risk more than an insurance policy would.
insurtech, challenge, insurance, products, Clive O'Connell