Reinsurance innovation will help enable sustainable growth
Reinsurers are gradually changing their market strategy, which will support the sector’s long-term sustainability, Andrew Wu, board director at Dagong Europe Credit Rating, told Baden-Baden Today.
Reinsurers are improving their competitiveness by adopting new technologies enabling faster, easier and more transparent insurance processes, Wu said. This not only helps to win business from competitors, but also attracts new business while at the same time improving cost efficiency.
Examples of such technology adoption are blockchain and smart contracts, big data, sensor connectivity such as telematics, wearables, and mobile technology.
Reinsurers are also more proactively working on the development of new products, entering new markets and reaching new customers. These efforts are likely to deliver significant growth opportunities, while also helping to support economic and social development, Wu said.
Cybersecurity products and products related to digital assets could drive reinsurance growth in future. As the recognition of cryptocurrencies such as bitcoin grows, demand for protection of digital assets is also set to surge, he noted.
In addition, reinsurers face growth opportunities in emerging markets where insurance penetration remains comparatively low. There are opportunities related to China’s “Belt and Road” initiative and by providing catastrophe insurance at municipality level in emerging markets.
Reducing the significant protection gap in developed markets as recently illustrated by Hurricane Harvey should also offer the reinsurance sector business opportunities.
Insurers and reinsurers are becoming more sophisticated in the use of alternative capital for their own risk management, freeing up capital and improving risk return. The increasing use of alternative capital by re/insurers is reducing the competition from this emerging, growing industry.
Wu expects mergers and acquisitions to strengthen the reinsurance sector. Small reinsurers are vulnerable and strive to be relevant in the market. “We expect more M&A driven by the difficult conditions for achieving organic growth, higher regulatory capital requirements, deteriorating profitability, and a need for scale to increase operational efficiencies,” he said.
In the short term the operating environment will remain challenging for the global reinsurance industry as the key negative factors prevail, such as low interest rates, uncertain geopolitical developments and high competition within the industry, partially offset by improving economic growth, Wu concluded.
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