Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Market disruption could support further ILS sector growth: Swiss Re’s Monnier


A growing desire to increase re/insurance efficiency coupled with the rise of big data and technological advances, has the potential to greatly disrupt the market landscape, a trend that could support sector expansion, says Jean-Louis Monnier of Swiss Re Capital Markets.

As part of a discussion at the Artemis SIFMA IRLS Executive Roundtable 2016, co-Head of ILS at Swiss Re Capital markets, Jean-Louis Monnier, noted the potential for technology, big data, and other factors to greatly disrupt parts of the risk transfer landscape, insurance, reinsurance and insurance-linked securities (ILS) markets, including distribution channels.

Further market disruption is sure to create both opportunities and challenges for insurers, reinsurers, and ILS players, as the search for efficiency in an evolving marketplace intensifies. The influx of alternative reinsurance capital has already disrupted the insurance and reinsurance industry, contributing to headwinds that have resulted in widespread merger and acquisition (M&A) activity, and a range of new business models and strategies.

“There’s another aspect of efficiency, which is the distribution. I think technology is going to bring new distribution channels to the insurance industry. Obviously, this is not something that we, as ILS market participants, will be involved in directly, but, whether it’s the reinsurance industry or the ILS market, there is scope for these markets to change as a result, and, as insurance policies are distributed more efficiently and directly, for the way the way risks are being assessed to improve.

“Big data will also affect, beyond the property side, casualty and motor, the way risk is underwritten, claims are being handled and also ultimately maybe ceded,” said Monnier.

The impact and disruption caused by the rise of ILS has been significant, particularly as it’s grown in size and really started to penetrate reinsurance and also primary business. Combine this with the potential of blockchain technology and other insurance technology (insurtech) advancements, and the potential for disruption becomes clear.

Monnier underlined this point, saying; “There I think there’s a massive potential for some form of disruption and ultimately then, maybe for the market to grow.”

Already, certain ILS players, like Nephila Capital, have expressed a desire to get closer to the original source of risk, ultimately aiming to reduce costs and increase efficiency, which should result in savings to everyone in the value chain.

Should technology advances support and enable a more direct and efficient route to risk for ILS funds, managers and alike, then the distribution channel will be disrupted further, forcing brokers and other parts of the value chain to increasingly look for ways to remain relevant to the marketplace.

“We are there to serve a social purpose, to allow risk transfer to the most efficient holders of risk, whether it’s the reinsurance industry or the ILS market. I think there are changes ahead, some that are within our control, others that are not, and it would be interesting to see how ILS can contribute to that, I think,” continued Monnier.

New technology that supports improvements to catastrophe modelling capabilities, for example, could open up new peril regions, providing a new revenue stream for insurers, reinsurers, and ILS markets, while importantly providing protection to those in underserved, underinsured parts of the world.

Technology, big data, and the need for efficiency will likely continue to reshape a sector that has already changed so much in recent times. And those that embrace the changes, by embracing ILS capital for example or seeking to work with insurtech companies, could find themselves in a better position to take advantage of the opportunities that arise from market disruption, instead of falling victim to the challenges.

Artemis SIFMA IRLS Executive Roundtable 2016Download a copy of the full report from the recent Artemis SIFMA IRLS Executive Roundtable 2016.

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