Insurtech: Third Point Re identifies the potential ahead

Innovations in technology have the potential to make a big difference to re/insurers in a number of ways but Third Point Reinsurance is most interested in developments that can help it underwrite business more efficiently and with greater accuracy.

That is what David Govrin, president of Third Point Reinsurance, told Monte Carlo Today. He explained that, in his view, insurtech companies can be broken down into three types, based on which part of a re/insurer they assist: distribution, operations or underwriting.

“On distribution they are focused on selling insurance more efficiently and at lower cost,” said Govrin.

“The operational-focused companies are trying to make the cost of operating an insurance business more efficient, and in underwriting it’s about how to automate the underwriting process and create a product that is priced more efficiently and with greater accuracy.

“As a reinsurance company we are obviously very focused on that third part, which is insurtech as related to product creation and underwriting.”

Third Point Reinsurance is often asked to invest in insurtech companies and it is most interested in those that have the potential to improve its underwriting.

“The opportunities we want to pay the most attention to are those where we’re being asked to provide capital support for insurtech operations that are focused on using technology to better underwrite the product, including lowering the costs associated with operating and distribution and improving the ability to segment risks in new ways,” Govrin explained.

In terms of pros and cons of the three functions, according to Govrin the pros are that they are all focused on pricing and distributing products more efficiently. He pointed out that the insurance industry operates with an expense ratio that, on average, is about 40 percent, and a loss ratio that is, on average, 50 to 60 percent.

As a result, if a company can create a product that cuts into the 40 percent of expenses and/or lowers the loss ratio by virtue of more segmented pricing, then it can pass more of the benefit on to the consumer and have stickier and less volatile products, he said.

“The cons of insurtech are that many companies will get it wrong before they get it right.

“As a reinsurance company we are cautious on insurtech because we see many opportunities where there’s more focus on the technology side than on the underwriting side,” Govrin said.

“We don’t want to invest in or reinsure businesses that are loss leaders on the underwriting side in exchange for significant premium growth in order to drive up valuations. Many of the businesses we see don’t have the right balance of underwriting and sales.

“We’re most interested in businesses where there’s a strong team on the underwriting and the product creation sides, as well as on the technology side and there needs to be a technological differentiation in both,” he concluded.