Analytics reshaped the reinsurance value chain: Willis Re

by Artemis on October 8, 2015

The evolution of the insurance and reinsurance industry landscape and the rise of plentiful, meaningful data has adjusted the role of the reinsurance broker, with further change set for the future, according to Willis Re.

“The days of placing slips under ones arm in the market is finished. There is still an element of that as we all know but the game has changed quite dramatically and our role is much broader than it’s ever been,” said President of Willis Re North America, James Kent.

As a global reinsurance broker Willis Re sees itself as a firm that connects wholesale risk with wholesale capital, and historically this has occurred in the form of reinsurance, explains Kent.

“This characterises the nature of the reinsurance business going forward, historically, and we don’t have to go back too far probably 10 or 12 years, we were marketers of business, we were effectively taking risk and we were placing risk,” explained Kent.

However, as the insurance and reinsurance industry continued to mature and evolve, new market participants from an array of industries sought to access its returns and gain a greater understanding of the sectors workings, signalling a need for the intermediaries to adapt and expand their capabilities and expertise in order to remain relevant to clients and the wider industry.

“The business that we have now in 2015 is very different to that, it is broadly analytic. We are looking at different means by which we can transact; I referenced that earlier about how we are going to match wholesale risk with wholesale capital,” continued Kent.

Matching the wholesale risk with the wholesale capital will be a key element of what Willis Re offers its clients moving forward, but instead of taking place solely, or largely in the form of reinsurance, “going forward it’s going to take very different shapes, the ILS market being a very simple example of that,” says Kent.

Adding; “But more relevantly the MGA, consortium, line slips, binders and other alternative structures, where we are matching wholesale risk with wholesale capital, is our business going forward. And we think that is going to be an increasingly large part of our growth in the overall reinsurance business.”

Addressing an audience at the recent reinsurance industry meeting in Monte Carlo, Willis Re executives highlighted that a change in the fundamentals of the insurance industry has contributed to the evolution of the reinsurance broker role, centred around the ever-increasing wealth of data and information.

Historically, notes Willis Re Deputy Chairman Mark Hvidsten, insurers and reinsurers collected data and then analysed that data to price risk and pay claims.

But what’s changed today, notes Hvidsten is the staggering amount of data that is produced and made more available by advances in technology and software, further highlighting the analytic evolution mentioned by Kent.

“Now there is more data, humans are producing a lot of data and the growth in data is exponential. New technologies, like the Internet of things create opportunities to collect even more information and use it for underwriting.

So the questions like what devices collect data? Who owns this data? And who analyses the data? Is becoming more and more relevant for the industry going forward,” explains Hvidsten.

Interestingly, continues Hvidsten, the shift towards a more analytical and data-available industry has caused changes to the insurance and reinsurance value chain, as companies that were once very much outside the “interest area of insurers” now “impact the value chain and creation of value in the industry.” Something Hvidsten believes will lead to “combinations and transactional solutions that link insurance industry to other industries in the economy.”

The role of the entire insurance and reinsurance value chain has evolved in some form over the last two decades, as clients and investors continue to enter the sector from a variety of backgrounds with differing investment requirements and goals.

And with global efforts underway to improve the amount of data for risks in emerging parts of the world, like parts of Asia, India and South America, it’s likely the reinsurance broker will require greater knowledge and understanding of these risks in order to efficiently price them for clients, further evolving and widening the role of the reinsurance broker moving forward.

“If we stick to the adage of matching wholesale risk with wholesale capital, that’s how we’re moving forward,” concludes Kent.

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