Re/insurers face disruption in 2018
The pace of technological change is likely to continue accelerating in the re/insurance sector in 2018 and disruptive technology might open the doors to new entrants – that is according to many of the executives who we interviewed for our year-end questionnaire.
“It is possible that new entrants from outside the insurance industry will make the headlines in 2018,” said Luzi Hitz, CEO, PERILS AG.
“The music, travel and telecom industries, to name a few, have undergone major changes in their business models driven by new technology and new entrants better able to exploit these new technologies. The re/insurance industry is well aware of the threat new entrants pose and many companies are proactively introducing measures to help counter this.”
Traditional insurers are digitising their business and products, enabling them to react faster to emerging trends. At the same time, firms are looking to buy or cooperate with insurtech players.
“Digitisation offers the chance to make the re/insurance industry more efficient, while also creating the opportunity to do things differently. However, outsiders are also well positioned to capitalise on both of these opportunities,” Hitz noted.
According to Erik Abrahamsson, CEO, Digital Fineprint, insurers are faced with two key challenges: improving the customer experience and getting access to actionable data sources for underwriting. One disruptive technology which can solve both problems is the emergence of social media, with people today spending more time on social media than on any other medium, Abrahamsson suggested.
“In 2018, insurers will wake up to the opportunity, and realize that they can no longer acquire customers from media which is no longer relevant, or underwrite based on data sources which have become arcane.”
Ståle Hansen, president and CEO, Skuld, added that developments in technology and digital disruption will continue to impact the insurance and shipping industries significantly.
“It remains to be seen if this disruption leads to more players, further consolidation, or power shifts in existing value chains. I believe that the survivors are most likely to be those companies that successfully combine human expertise and competence with technological know-how, and use it to deliver added value,” Hansen said.
Peter Allen, partner, Moore Stephens, expects innovation in the re/insurance market to increasingly happening in the world of distributed underwriting and associated technology. These innovators may well be backed by insurance capital whether in form of equity or underwriting capacity but their intellectual impetus arises outside the supposed constraints of the large companies’ remuneration and regulatory structures.
One technology that is likely to move the re/insurance industry in 2018 is blockchain.
Blockchain technology allows for the recording of data—transactions, contracts, agreements—in a way that means the data are simultaneously stored, but also updated in real time—on hundreds or even thousands of computers globally. It is meant to make the data almost impossible to tamper with or hack into—yet it is also accessible and updated instantly for every user. The technology is gaining momentum. In 2017, the blockchain insurance industry initiative B3i added 23 new members for its market testing programme.
“In 2018 we will see the first Blockchain Distributed Ledger ‘coordination’ platforms being deployed in the industry,” said David Edwards, founder and CEO of ChainThat. “Initially, these are likely to be small scale implementations that provide capability between small groups of brokers, insurers and reinsurers that have existing commercial relationships and need to speed up and reduce the cost of their operational management between those parties,” Edwards said.
“We anticipate these first platforms will appear on wholesale or reinsurance products that are managed on a ‘facility’ basis. This is because ‘facilities’ are a distribution mechanism that create clusters of counterparties that tend to work together on a pre-arranged basis, and this creates relatively stable relationships.
“Consequently, creating an infrastructure that offers low cost of operation from set-up - through premium payments and claims agreement - is attractive for each party in the distribution chain and one in which benefits can be passed on to the insured in terms of cost and improved speed of service. This is an ideal start point for getting real experience in using distributed technologies, as well as gaining the benefits of doing so quickly,” Edwards noted.
Experimenting with blockchain is likely to create real business solutions for the insurance sector. 2018 is also likely to see larger market clusters - e.g. Lloyd’s and the London Market and some of the major reinsurers - doing more material developments, but these are unlikely to move into live operation in 2018, Edwards suggested.
This is just a snapshot of what executives told us in our Christmas questionnaire. For the full comments from all 16 executives that took part in our survey, please click here.