Insurtech’s effects become clearer
Insurtech and its potential for re/insurers was the main theme of the annual Baden-Baden Intelligent Insurer Roundtable sponsored by S&P Global Ratings. Executives representing reinsurers, service providers, cedants and brokers debated a number of key issues at the event.
In attendance
Johannes Bender, director, insurance ratings EMEA, S&P Global Ratings
David Flandro, global head of analytics, JLT Re
Franz-Josef Hahn, chief executive officer, Peak Re
Johannes Martin Hartmann, chairman of the board of directors, VIG Re
Adrian Jones, head of strategy & development, SCOR Global P&C
Frank Reichelt, managing director, market executive Germany & Nordics, Swiss Re
Massimo Reina, chief executive officer of Continental Europe and MENA, Guy Carpenter
Alkis Tsimaratos, managing director and head of Europe West, Willis Re
Moderator: Christian Wuestner, Intelligent Insurer
While primary insurers increasingly have a better idea of how they want to leverage the potential of a wide range of forms of insurtech for them and their industry, reinsurers are more specific in their focus: they aim to become more efficient through blockchain technology.
That was one of the findings of the annual Intelligent Insurer Roundtable held at the Baden-Baden Reinsurance Symposium and sponsored by S&P Global Ratings. A panel of senior executives representing reinsurers, service providers, cedants and brokers debated a number of key issues at the event.
“Blockchain technology will change our industry to a similar extent as the move from dial phones to smartphones,” said Peak Re CEO Franz-Josef Hahn. “The step it will move us forward in one go is huge.”
Hahn believes that blockchain will have the biggest impact in claims payment, which has to be accurate and fast at the same time. Founded less than 10 years ago in Hong Kong, Peak Re has fewer legacy issues than older players to deal with, allowing it to pay 90 percent of all claims within five working days, he claimed.
But Peak Re is about to speed up the processes significantly by moving on to a blockchain platform. The company expects the move to make claims payment more efficient, reducing the processing time significantly from the current five days. In future it will happen within seconds, Hahn said.
VIG Re CEO Johannes Martin Hartmann noted that the underlying issue is that transaction costs in the re/insurance industry are extremely high and need to be addressed. Blockchain may be the solution to it.
While insurtech may become a disruptor for the industry, it is not a threat to traditional players, Hartmann said. He argued that the natural role of insurers will be to partner with technology companies—with insurers securing innovation and the tech companies gaining distribution and size.
“What we are more likely to see is that insurtech companies try to partner with traditional players because they clearly have something to offer in the value chain but really struggle to be client-based,” Hartmann said. “We at VIG are trying to incorporate insurtech players and partner with them in order to revitalise and redefine our processes,” he added.
David Flandro, global head of analytics at JLT Re, agreed. “It’s different from fintech, which did in some ways squeeze out and transform the banking sector,” he said.
“Many insurtechs are getting their funding from existing insurance players,” he added. While many startups are operating in partnerships with big players, Flandro noted that only 2 percent of the new companies are likely to be successful.
Insurtech developments are going to affect cedants and carriers in different ways. Blockchain can have a positive effect on expenses, and it can also have an effect on claims. “In terms of underwriting we have all kinds of different tools that carriers are trying to implement in terms of predictive technology,” he said.
If insurtech can actually help you shave off a point of the combined ratio, this would be amazing, Flandro said. On the premium side, insurtech will help to find new growth opportunities which include predictive modelling and saliency analysis.
Frank Reichelt, Swiss Re market executive Germany & Nordics, noted that for him insurtech is synonymous with reinventing the insurance industry. Its emergence serves as a warning to the traditional sector, and the latter has understood and is reacting to the message.
New technology is coming on board and a lot is around claims, but it actually covers the whole value chain, Reichelt said.
While most of the innovation is happening on the insurance side, this will affect the reinsurance sector as well, he noted.
Blockchain is a platform that will bring insurers and reinsurers together, but reinsurers such as Swiss Re are partnering with their clients to develop new products and growth opportunities through technology.
“We need to be aligned there. If we can’t support our clients in reinventing their business models we will fall apart as well,” Reichelt said.
An eye on the competition
Johannes Bender, insurance ratings director EMEA at S&P Global Ratings, said the way the agency is looking at insurtech developments is to find out whether they might represent a threat to the traditional reinsurers it rates in terms of disruption, and if there is new competition forming that may make them obsolete.
So far, it seems that reinsurers are “well advanced in terms of partnering with insurtech companies,” Bender noted. “When you look at Lemonade, most of the capacity comes from existing reinsurance companies,” he added.
While reinsurers appear to be well placed at this time, smart sensors and the internet of things are offering quite sound growth opportunities for reinsurers towards targeting the protection gap and growing the business, Bender said.
Adrian Jones, head of strategy & development at SCOR Global P&C, said that a few years ago venture capitalists had discovered insurance as a great new field. “We have noticed that this trend is starting to come down this year,” he said.
There is very little record in the re/insurance industry of any sort of long-term disruption, he noted. One example of disruption may have been the retro market, the lowest barrier of entry in the market. “On the insurance side there is very little history of anyone being able to disrupt the market without being in a partnership,” Jones said.
Alkis Tsimaratos, head of EMEA at Willis Re, suggested that companies are starting to get their heads around what they want to do with insurtech.
“The word disruption is fading away. We clearly see an insurtech agenda within virtually every client at the moment,” he said.
Local national companies are using insurtech to differentiate themselves from competitors. Larger multinational groups are transforming their business models, and this is likely to result in cost reductions. “We are starting to see opinions formed over insurtech which are more realistic compared to a year ago,” Tsimaratos said.
Massimo Reina, CEO of Continental Europe and MENA at Guy Carpenter, said that insurtech and technological advancement represent major opportunities for the industry and will affect the cost line, claims, operations and client acquisition.
It will also affect underwriting. With the data insurers now have they can achieve significant improvements in profitability.
“It’s a great opportunity,” Reina noted. The biggest challenge the industry will face when adapting to technological advancements and the new operating environment may be the culture in the sector, which might differ significantly from the mentality in the insurtech sector. “That will be a big challenge,” he said.
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