More threat, more opportunities, more disruption: Re/insurance 2020

The insurance and reinsurance industry face more disruption over the coming five years than any other commercial sector, according to CEO’s surveyed by PwC in a recent report, which will result in both threats and opportunities.

Obviously capital trends in insurance and reinsurance have driven significant change and created opportunities for innovative players willing to come to market with new and efficient business models, over recent years.

Some of this has been due to market forces, the low levels of major loss experience in the last two years and the growing capitalisation of the sector, while new entrants with efficient capital models and ILS type strategies have exacerbated the trend.

PwC’s latest report highlights that as capital continues to change the re/insurance landscape, technology, analytics and the ongoing realisation that customer needs should be put front and centre are set to disrupt the industry further.

It’s more important than ever for insurance and reinsurance companies to be open to change and ready to embrace innovation. Without this openness and ability to evolve rapidly, insurers and reinsurers can risk being left behind in an industry where new challengers are set to emerge as technology catches up with capital efficiency and mobility.

The rate of change in the industry can be expected to accelerate, PwC found, placing the insurance and reinsurance industry at a “pivotal juncture as it grapples with changing customer behaviour, new technologies and new distribution and business models.”

PwC explains the main message of its publication:

Insurance 2020’s central message is that whatever organisations are doing in the short-term – whether dealing with market movements or just going about day-to-day business – they need to be looking at how to keep pace with the sweeping social, technological, environmental, economic and political (STEEP) developments ahead.

As in previous surveys the opinions of the many CEO’s surveyed are mixed as to how they will cope with the challenges they face. But clearly many are ready to move with the times and innovate in order to evolve to keep up with developments, but still see threats to their businesses.

A telling indication of the mixed mood within the industry is that while nearly 60% of insurance CEOs see more opportunities than three years ago, almost the same proportion (61%) see more threats.

The opportunities that are relevant to insurance-linked securities (ILS) markets and investors are many and varied, with a growing need for risk management solutions that cover the expected sharply rising losses and complex loss drivers.

The capital markets are expected to feature in a number of ways, from greater use of analytics and technology to create innovative catastrophe focused insurance and reinsurance products, as well as the potential for risk trading to emerge in a more liquid fashion.

New business models that emerge between reinsurance capital, be that traditional or alternative, and asset managers are expected to result in new products and expansion of capital markets and ILS capacity into new product lines.

One example is the ongoing push to mitigate disaster losses and to narrow the gap between economic and insured losses. There is considerable will in the public arena to make the world more resilient and risk transfer, insurance and reinsurance capacity can play a key role.

But these opportunities, while providing opportunities for incumbents, will also bring new competition from entrants perhaps from outside the market, not just in terms of where the capacity is sourced but also from the companies marshaling it.

The report provides a deep insight into some of the trends which will bring threats and opportunities to the re/insurance sector, many of which will also impact ILS. The changing market will provide new opportunities for capital to be put to work and also see new business models to deploy that capital emerge.

With the rate of change accelerating, technology and mobility of capital look set to combine to wreak further disruption on incumbent players. It’s vital they learn to adapt rapidly, or they could lose their leading positions to new entrants and business models.

Non-traditional or alternative sources of capital could find the disruption, within both insurance and reinsurance, provides new opportunities and incentives to enter the market, ultimately resulting in a better capitalised, stronger, more efficient and technology led industry.

You can access the full report via the PwC website here.

Also read:

– Differentiate or consolidation ahead for reinsurance industry: PwC.

– Brokers face disruption too in challenging reinsurance market: PwC.