The insurtech revolution will have a massive impact on the primary insurance market and has the potential to shrink the business available to reinsurers, Christian Mumenthaler, the chief executive of Swiss Re, told Monte Carlo Today.
Insurtech can help primary insurers to better assess, select and price risks, be it through the gathering of more accurate data through gadgets in health insurance, sensors in property insurance, or the use of advanced weather modelling software.
It can also help primary insurers during the underwriting process, through gathering information and finding correlations, to identify the most attractive risks.
But reducing the uncertainty and volatility in portfolios may also reduce their risk exposure and, consequently, the need for reinsurance, Mumenthaler said. Reinsurers that fail to innovate and write business only passively will be most at risk.
“If you are simply a commodity provider and just wait for the business to come your way, the business will shrink,” Mumenthaler said.
“Lower losses translate into declining premiums and less reinsurance. This shows how important it is to be deeply connected with the client and included in the process of building solutions and having reinsurance attached to them, allowing you to grow with the clients.”
Particularly for smaller insurers, keeping up with insurtech developments may involve significant investments and risks and Swiss Re is helping smaller insurers make this transformation. As part of its tech strategies, Swiss Re helps clients write business more efficiently, taking the role of the carrier for a brand owned by a client.
“This may result in a blurring between the lines of insurance and reinsurance, but I see demand for this from some clients,” Mumenthaler said.
In 2016 Swiss Re launched an insurtech accelerator to help startups develop business solutions that, it says, can ‘revolutionise the way re/insurers conduct business’. A number of themes identified for the programme include the Internet of Things (home, industrial, health and motor); systems of engagement (innovative distribution channels and models, digital assistants/robo advisers); and smart analytics (across the insurance value chain).
Mumenthaler pointed to potential pitfalls when insurers apply insurtech to improve underwriting.
“In the end, it’s a zero-sum game for society. If some people start picking the best risks, the others will become more expensive. The question is, how much of that will society and regulators tolerate?” he asked.
Be that as it may, underwriting will not be the only area insurtech is likely to transform in the primary insurance sector.
Insurtech can help improve the sales process, such as finding the right customers, making the product more attractive and easier to buy, Mumenthaler said. While many insurers may be focusing on this opportunity, it has a downside, as it may also increase costs, for example, through the development of a new interface.
Insurtech also has the potential to lower costs for insurers. “You can assume it may take out 50 percent of the costs of the insurance industry,” Mumenthaler said.
“It is deeply unsexy, but in my view it is probably the biggest driver by far for what technology can do to improve your process,” he added.
Reducing costs through insurtech is a difficult process because it affects employees, but cost is an important topic for insurance clients, and Mumenthaler expects more initiatives in the area in the future.
“Insurtech will have a massive impact on the primary business,” he said.
“It will take much longer to have a direct impact on the reinsurance value chain but I don't see a downside, I see many upsides, especially to help our clients.”
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Swiss Re, Christian Mumenthaler, Monte Carlo, Insurance, Reinsurance, Technology, Insurtech, Europe, Global