We were recently asked – what 3 things do you think are affecting/will affect the reinsurance industry from a technology perspective?
With so much going on, it’s hard to keep it down to 3. Therefore, I cheated a little and instead I have 3 x 3… So, in no particular order, here are 3 points about 3 developing trends affecting the industry now and in the very near future…
1 - Cognitive Computing and InsurTech – this is something we’ve discussed before in more detail, but the TLDR is:
- More and different types of information is relating to a risk (from smart devices, wearables etc.) and InsurTech allows these risks to be digitised earlier in the value chain.
- Cheap cognitive computing, and the open source and collaborative nature of some models and algorithms on GitHub and Azure Machine Learning, means there are better ways for this data to be processed to provide more and better business intelligence. Particular value lies in areas such as early identification of anomalies (e.g. abnormal premium remittance pattern on a QS or Binder) or forecasting. At Eurobase, we are actively pursuing investigation applications of Machine Learning to benefit our clients.
- The explosion of available data and enhancements to the ways of processing it may impact the appetite for risk with implications for insurance and reinsurance purchasing. Real-time, connected data allows better mitigation of risk, which may impact purchasing decisions or make alternatives to risk transfer more attractive.
2 - Blockchain – With the runaway gains in BitCoin and other cryptocurrencies having tapered off, there is space for a more sober assessment of blockchain use cases without a rush to a get-rich-quick ICO. Distributed ledger technology has the potential to provide significant process efficiencies at various points in the value chain as demonstrated by R3 and B3i, but there are limitations to the technology that hinder enterprise solutions, as Eurobase continue to investigate blockchain use cases, these are the main issues we have identified:
- The tension between the use of tokens as a speculative asset, vs their utility for incentivising transaction verification is not an easy problem to overcome. In consortium solutions that don’t rely on proof of work, it’s not clear that tokens provide any benefit beyond speculation and the gain to the developer in easier availability of funding via ICO.
- For all the benefits of Smart Contracts, it is not certain that their execution by every node on a blockchain is an optimal solution. The rules of the contract may be something that belongs on the blockchain, with an API layer handling the execution and identification of the originator.
- Problems around scalability (in terms of latency and throughput) and confidentiality (everyone seeing everything) still cause issues in enterprise consortium solutions. Microsoft’s Coco Framework, which can sit over any blockchain ledger, is potentially a game-changer in this respect as it claims to solve these and other governance issues.
3 - Continued Soft-Market Conditions and 3rd Party/Alternative Capital – As we discussed in our whitepaper last year, we understand that our Reinsurance customers are operating in very tough conditions with particular challenges around return on capital. Among the challenges are:
- Poor underwriting results following the HIM natural catastrophe losses in 2017 and continued poor weather across Europe at the beginning of the year that may increase losses still further.
- A continued influx of Alternative Capital competing with traditional reinsurance, that is unlikely to be deterred by the adverse experience last year. This competition will minimise scope for increases in rates to counter last year’s catastrophes, with soft rates persisting for some time.
- Potential impact on purchasing appetites mentioned in point 1 above – this may be more of a slow burn, but improving technology may allow both original insureds and reinsureds to manage and mitigate risks and therefore require less coverage.