Re/insurers must innovate, seize evolving market opportunities: GC’s Carter

The ability to innovate and adapt to the changing risk landscape and disruptive forces reshaping the global economy is becoming ever more important for insurers and reinsurers, according to Victoria Carter, Vice Chairman of International Operations at Guy Carpenter.

Technological advances, increased urbanisation, an ageing population, and the increased interconnectivity of the world are just some of the disruptive forces driving a need for change in the global insurance and reinsurance landscape, explains Carter.

“The re/insurance industry, faced with a world that is being radically altered, must re-evaluate its role and recognize that the traditional business model is not designed to meet the demands of this new environment, even though it may continue to generate revenue,” explains Carter.

The reinsurance market remains in a softening cycle, exacerbated by the inflow of alternative capital, relatively benign loss experience, compressed investment returns and so on. As a result of the persistent market headwinds, it’s been reported that reinsurers are only managing to remain profitable because losses have been low and by releasing reserves to mask true underwriting profitability.

On top of the range of headwinds testing the space and its participants; broader economic advances and changes are starting to have a meaningful influence on the risk transfer landscape, presenting both challenges and opportunities for re/insurers.

“For every industry transformed by disruptive forces, the net result has been growth. It is up to the (re)insurance sector to grasp the myriad opportunities this environment creates and drive the industry transformation that needs to take place,” said Carter.

Urbanization in parts of Asia, South America and Africa, for example, is changing the risk landscape, along with a rising middle class and increased asset values in many of the same regions.

While this creates an opportunity for insurers, reinsurers, and also insurance-linked securities (ILS) players to create solutions that meet the evolving needs of clients around the world, challenges with modeling capabilities, regulatory regimes and education can also hinder advances.

“Rapid urbanization is occurring in emerging markets, tilting the global economy on its axis toward territories in the East and South experiencing economic ascendancy,” explains Carter.

“By 2025, almost half of the companies with revenues in excess of USD 1 billion will be headquartered in markets such as Mumbai and Shanghai along with rapidly expanding hubs such as Hsinchu in Northern Taiwan and Santa Catarina State in Brazil,” she continued.

With returns increasingly hard to come by in the current reinsurance marketplace, emerging markets are seen as a key growth area for the re/insurance and ILS sector. However, innovative solutions will be needed and likely partnerships with local markets and both the public and private sector in order to capitalize on the opportunities.

Carter highlights this point; “The industry can no longer rely on extrapolating past experience into the near future to define what it delivers now – the pace of change is simply too fast and the level of disruption too great. We must innovate, change and adapt, as well as seek opportunities to work in tandem with leaders in other markets, such as “fintech” companies.

“(Re)insurers need to embrace this period of transformation, boost the potential it creates and redefine their future role and relationships with clients.”

Embracing change is something re/insurers that wish to remain relevant and competitive appear unable to avoid, highlighted by the recent influx and rise of ILS capacity that forced companies to adapt their business models in order to mitigate its impacts and influence on the space.

Technological advances, including the potential adoption of distributed ledger technology, such as the blockchain, and fintech/insurtech companies and strategies, could help the risk transfer landscape embrace economic change, but as noted by Carter, there are challenges here as well.

“We now work and live in a hyper-connected world, from trade and capital, to the movement of people and transfer of data. The surge in technology-driven connectivity in particular is spawning a new phase of globalization full of opportunity, but equally exposed to rampant volatility,” said Carter.

In the coming months and years it will likely be hard for insurers, reinsurers, and ILS players to avoid the necessary changes to business models, strategies and approaches that will be needed to serve the evolving economies across the world.

But with the help of public and private sector partnerships, technological advances that support improved risk modeling capabilities, and smarter/more efficient capital, and importantly innovation, the risk transfer landscape has the capacity and willingness to adapt in order to protect the world and its people against the expanding range of exposures.