Reinsurtech set to transform the industry
Reinsurance technology, dubbed reinsurtech, such as blockchain has the capacity to significantly change how the traditional reinsurance market operates.
This is according to Jure Kimovec and Robert Greensted, analysts at S&P Global Ratings, who spoke to Baden-Baden Today.
“While there has been much talk about the evolution of insurtech in the primary insurance market, reinsurers too have been reacting to advancements in technology,” said Kimovec.
“Reinsurtech has led to traditional reinsurers embracing technology, improving the flexibility of their IT infrastructure, and further developing their proprietary models.”
Using blockchain as an example, traditional reinsurers have been targeting frictional cost reductions to help them remain competitive against alternative capital, with reinsurance executives reporting potential efficiency gains as high as 30 percent from taking part in blockchain initiatives such as B3i.
The B3i is a collaboration of insurers and reinsurers formed to explore the potential of using distributed ledger technologies within the industry. 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.
A number of reinsurers have already expanded their offering to provide an intermediation service that passes on risk to the capital markets with the aid of reinsurtech solutions, Kimovec and Greensted noted. They stated the compression of the value chain through technology could leave traditional reinsurers acting only as underwriters, structurers and claims handlers in certain lines of business.
However, in Kimovec and Greensted’s view, the overall cost savings will be relatively low due to reinsurers’ traditionally low administrative expense burden, which typically only represents 7 to 9 percent (or $5.7 billion to $6.6 billion) of their combined ratios.
However, they said, technology might allow risks to be transferred more easily to the capital markets in certain lines of business, in “a long-term evolution rather than a short-term revolution”.
S&P Global Ratings has also observed a number of reinsurers investing in insurtech startups in the primary market, for example Munich Re subsidiary Digital Partners investing in Lemonade and Trov.
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