Covid uncertainty highlights need for risk transfer transparency: Majors, Nephila

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The uncertainty that the Covid-19 pandemic has created for the insurance and reinsurance industry serves to further highlight the need for risk transfer data transparency, all the way down the market chain, according to Nephila Capital Co-CEO Frank Majors

Frank Majors, Nephila Capital interviewSpeaking with us in a video interview back in April, which you can view in full here along with our other video content, Majors discussed the need for efficiency in market processes, to match the efficiency of capital that insurance-linked securities (ILS) can bring to risk transfer.

He began by saying that the experience of the Covid-19 pandemic may change things within insurance and reinsurance market processes.

“We have to assume that the new-normal is not going to be the same as the old-normal, in any walk of life. I don’t have any special vision into this, but I think the short answer is, yes we’d expect some changes,” he said.

Majors explained that the uncertainty over issues such as business interruption losses and where they could land in the reinsurance market highlights the need for as much clarity on data and portfolio composition as possible.

“For a firm that’s involved in the insurance market and the reinsurance market, we understand that there’s uncertainty about how this Covid plays out,” he explained. “But there’s a difference between having transparency with uncertainty and having no transparency and uncertainty.”

Majors said that Nephila Capital, like others in the reinsurance and ILS market, was attempting to identify where it may hold certain exposure to potential pandemic related claims within the property insurance and reinsurance policies it has assumed.

But this can be easier depending on where in the risk transfer chain you sit, as clarity of data can disappear as you move further away from the original source of risk.

He commented, “The further we are down the chain, trying to play the what if game which is where we’re spending our time, so what can go wrong and how do we get prepared for it, it’s a lot easier to do when you have transparency.

“So when you’re trying to ask somebody for information, who’s then asking somebody else for information and so forth, there’s a lot of intermediation that is expensive and is also destroying information value. And at times of peak uncertainty information is absolutely critical.”

Majors clarified that it’s not about disintermediation, rather it’s about making sure intermediation is efficient and that data flows down the market chain to ensure every layer can do its job as well as possible, with the greatest certainty over the risk it is underwriting.

“We’re not trying to disintermediate anyone per say. We’re trying to make sure that the whole model works as efficiently as possible, that important data is captured and made available to people that need it, when they need it. There has to be some changes around that right?

“I mean right now,everybody I talk to is pulling files, looking through files. I mean, really? There should have been a better way, I think, to store this information and transfer this information.

“If you’re going to transfer the risk, you need to pay for that and you need to supply the information that does it. We see that on the insurance side in a way that we don’t necessarily the further we are down the chain.”

At the heart of the matter it comes down to providing value and as we’ve explained before those not providing as much value perhaps carry the greatest risk of disintermediation as the market strives for efficiency, in processes and in capital flows.

Majors noted that in a closing comment, “I think that a lot of the brokers we deal with have added a tonne of value, bringing information that we don’t have. Because they see across the whole industry and so provide context, interpretation and data that has been super valuable and we’re always happy to pay for that.”

The video is embedded below. All of our Artemis Live video interviews can be viewed in full here.

We’re going to bring you these video interviews with leaders of the ILS and reinsurance industry on an ad-hoc basis, as and when our time and that of our contacts allow.

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All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

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