Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Analytics unlock tangible value, says Swiss Re (for ILS funds too)


The use of advanced technology and data analytics can bring multiple benefits to insurance and reinsurance firms, according to Swiss Re, which we would add holds true also for insurance-linked securities (ILS) players.

analyticsUsing increasingly advanced analytics can deliver benefits that help insurance and reinsurance firms achieve growth, better optimise their existing portfolios, become more efficient and also reduce their loss ratios by an estimated 2 to 5 percentage points, global reinsurer Swiss Re explained today.

In a new sigma report, Swiss Re explains the benefits of analytics for property and casualty players, but without a mention of the benefits these technology tools can deliver to ILS funds and other third-party capital backed players as well.

Swiss Re urges the industry to think of advanced analytics and their benefits in terms of business capabilities, rather than specific technologies.

This is a refreshing view point, as the re/insurance industry and its use of technology often gets mired in the technology to deliver the solution, rather than the solution and then finding the technology to deliver on that business goal.

“The ability to gain useful predictive insights from ever-increasing amounts of data is challenging. There needs to be more investment of time and resources on data curation. Many new data sources are not created for insurance, and owners of the data may neither understand insurance nor what needs to be done to make the data usable for insurers,” commented Daniel Ryan, Head of Insurance Risk Research at Swiss Re Institute.

Commercial lines underwriting is a particular focus for Swiss Re, as this is an area that significant strides can be taken with the use of technology and analytics, to exploit the wealth of data sources now available, both structured and unstructured.

Importantly, it’s all about better performance as well, as by applying analytics across the business, Swiss Re believes that improvements of as much as 2% to 5% can be made to the loss ratio, which in a time when efficiency is key could be vital to some business models in the industry.

Pilots are showing “meaningful improvements in loss ratios,” Swiss Re said, as better visibility into loss drivers are gained.

Analytics will ultimately impact the entire insurance value-chain, Swiss Re believes, but legacy systems, scarce talent and traditional mind sets could all hold the industry or specific players in it back.

Enabling growth, understanding new opportunities and risk pools, better understanding the customer, gaining insights to inform portfolio steering and accumulations, and improving efficiency through automation of manual or repetitive tasks, are all areas of benefit from analytics use, Swiss Re said.

All of which are equally relevant for the ILS market, as these can only serve to enhance the efficiency of the ILS markets risk capital, helping it to maintain its competitiveness at a time when the entire re/insurance industry is hunting for efficiency gains.

One particular pilot applying analytics to commercial property underwriting is particularly interesting, as Swiss Re said it indicates loss ratio improvements in a range from 5% to as much as 18%.

That is a very significant improvement, that could make one underwriter far more efficient than another that had not experienced the gains from analytics in this way.

The subject should be on everyone’s agenda right now, with the technology able to deliver significant enhancements to insight and understanding of risk, portfolios, customers and opportunities.

As such the ILS market should be tuned in just as much as the traditional on these topics.

As an aside, with this report and insight Swiss Re is of course pitching its own P&C Solutions division and P&C Analytics offerings.

This is another sign of the potential for large global reinsurers to unbundle some of the services they offer to cedants, turning them into revenue streams and in the same move coming into greater competition directly with some of the major brokers.

It’s an interesting trend to watch out for, as there are signs this “great unbundling” of the reinsurance and risk transfer transaction could develop further in time, with technology a key driver of it as previously bundled portfolio services become sufficiently advanced to charge for as stand-alone.

Also read: On accelerating the transport of risk to capital (ILS + Insurtech).

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

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