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Original Risk: A Society for Change Agents

Capital & data challenge the re/insurance value proposition: Conning


The insurance and reinsurance value proposition is coming under attack as two factors, more widely available data on risks and abundant capital or risk transfer capacity, combine to erode the industries barriers to entry and disrupt incumbents.

“The value proposition of the insurance industry rests on the two foundations of managing information about risk and providing a large pool of capital to absorb risk — both of these are under attack,” said Jerry Theodorou, Vice President, Insurance Research at Conning, in an announcement on the firms latest report released today.

The new Conning study, titled “Innovation in Property-Casualty Insurance: Responding to a Changing Value Proposition”, looks at the factors that are increasing making maintaining the status-quo difficult for re/insurers.

As the insurance and reinsurance industry begins to adapt to better and more easily available data on the risks it covers, as well as improving technology, it finds that new entrants can compete more readily and that its customers can better retain their risks.

That is resulting in both an increase in competition and also a reduction in available business, forcing re/insurers to look to new avenues and innovation in order to remain both competitive and viable.

On the other hand the abundance of capital and capacity in the insurance and reinsurance industry is increasingly affecting insurers as well, with the effects of excess capital and new competition from alternative capital providers and insurance-linked securities (ILS) now being felt widely across the insurance and reinsurance space.

The study explores how the value proposition has changed for re/insurers, as a result of these changes to the market environment, and focuses explicitly on the “relevance and value proposition of the property-casualty insurance industry in the face of today’s unprecedented challenges.”

Theodorou explains the key challenges that P&C insurers now face; “First, quantitative and qualitative technology advances that make data increasingly available enable new market entrants or customers themselves to absorb risk that insurers would otherwise handle.

“Second, new, much larger and more efficient capital providers entering the industry are siphoning off premium that ordinarily would flow to insurers.”

“Insurers recognize that the entry of new capital, more widespread availability of data, and the proliferation of new risks pose threats to the traditional insurance value proposition,” added Steve Webersen, Head of Insurance Research at Conning.

“If insurers do not respond effectively to the data and capital challenges, the property-casualty industry may diminish in size and do so at an accelerating rate,” Theodorou warned.

The increasing pace of technological change is amplifying the potential for decline in the size of the insurance industry, Conning’s report explains. That’s something that would affect all incumbents and new players, as well as the reinsurance sector and it makes embracing product development and innovation key.

Additionally, new capital providers with a lower cost of capital are exacerbating the pressure on incumbents in the insurance and reinsurance space, Conning notes.


Alternative capital from pension funds and other sources already has radically transformed the traditional retrocessional and property reinsurance sector. Traditional re/insurers have adapted to this new environment by finding ways to offer solutions for clients. Re/insurers have responded to the challenges posed by the strong influx of new capital with innovation. They are offering new products and novel risk transfer options, often by affiliating with ILS (insurance-linked securities) funds or becoming investors themselves. As a result, reinsurers are well positioned given their extensive resources, expertise, and unique market access.

The challenge of remaining relevant is seemingly spreading to all areas of the insurance and reinsurance market, as incumbents find their very business strategies under attack from new entrants and efficient capital.

With technology advancing all the time and new capital suppliers seemingly showing an unending appetite to enter the sector, the challenges are set to continue, making the way companies respond increasingly important.

Webersen explained; “As these challenges have evolved, leading property-casualty insurers and reinsurers have been responding with structured programs to innovate in product development, emerging risk coverages, and in the use of richer data and analytics. As the industry responds to meet these unprecedented challenges from commoditization and disruptors, it will need to continually assess the value of its responses and reinvest in refining its business model.”

That leads Conning to say that its view is optimistic, that insurers and reinsurers will find ways to adapt to the challenges, harnessing the availability of data and abundant new capital, to create new products and ultimately to keep themselves relevant.

“As conservative as the industry may be, historically it has responded best when confronted with challenges that have shaken it to its foundations,” Conning concludes.

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