Speaking yesterday to an audience at the InsureTech Connect conference in Las Vegas, Markel Co-CEO Richard Whitt explained that his company is going all in on insurance-linked securities (ILS).
Richard R. Whitt, III, one of the Co-Chief Executive Officer’s of insurance and reinsurance group Markel Corporation, explained that alongside the technological trends the conference is focused on, he sees insurance-linked securities (ILS) as another key development that will shape the future of risk markets.
Technology and insurance-linked securities (ILS) together can reshape risk markets, delivering more effective risk analysis and channelling the most efficient capital to the most appropriate risks more seamlessly and efficiently, something we’ve been banging on about for a number of years now.
Whitt believes that insurtech will play a key role in the future of insurance and reinsurance, but that won’t be at the expense of the incumbents position in the market.
“Don’t count us out,” Whitt told the audience at InsurTech Connect, saying that re/insurers like Markel have been in the business of underwriting risk and managing it against its capital for many years. “We’ve still got some skills,” he said.
Whitt highlighted the challenges that incumbents face though, particularly when it comes to legacy systems and how to modernise their internal business infrastructure.
This challenge in particular can make incumbent re/insurers slow to move and adapt, which does mean new entrants can often get a head start.
While these legacy system issues are “a challenge” Whitt also highlighted that at Markel they are looking to leverage the wealth of knowledge and depth of information they have collected over the years and turn that into a competitive advantage, using technology.
Markel has an ambition to leverage artificial intelligence to make the most of the big data it has aggregated over the years and Whitt sees this as something the re/insurer can exploit to its advantage, if it gets it right.
Technologies such as machine learning are becoming part of the common language used at Markel and similar companies, as they look to develop a competitive edge out of the legacy they have collected over their often decades of operation.
At the same time as trying to modernise using technology and integrate insurance-linked securities (ILS) into its business model, Markel remain cognisant of what’s important in an industry like re/insurance.
“People, relationships and trust still make the insurance industry tick,” Whitt said.
In addition he said that attracting the right talent is also key, while fostering an environment where people are happy to collaborate and willing to learn from newcomers is also vital, especially as a legacy organisation modernises itself.
Whitt said his mind is always turned to the future of Markel. “We don’t just think about forecasts, we want to think about how we want to be in five, ten years time,” he explained.
He also said that the insurance and reinsurance market needs to get more adept at dealing with change, as “changes are going to keep coming faster and faster.”
Of course, this pressures incumbents, unless they are prepared to take risks, fail in their endeavours and quickly adjust their business models to take advantage of developing market trends. Which can offer opportunity to the insurtech upstarts that try to execute a laser focused plan to disrupt a specific piece of the market chain.
But still, Whitt believes that trust and relationships are what makes the industry work.
“Insurance is a promise to pay, when something unforeseen or unfortunate happens,” he commented. “We might have all the technology in the world available to us, but the whole process remains based on promise, trust.”
On insurance-linked securities (ILS) specifically, Whitt explained that this is effectively using capital from outside of the company to underwrite its insurance and reinsurance risks.
Markel had of course acquired CATCo, which is now set to be replaced by recently launched Lodgepine Re as the company saw an opportunity to bring fresh capacity to market due to the recent crunch in retrocessional reinsurance.
In addition Markel had acquired Nephila Capital, which targets the provision of catastrophe, weather and climate reinsurance capital from third-party investors and strengthened Markel’s position in the market, Whitt said.
“We’re all in on ILS,” Whitt exclaimed, saying that, “We think its the future of our business.”
The winners in the insurance and reinsurance marketplace of the future will be those companies that can “most efficiently match risk to the right capital,” Whitt said.
That means the winners will be those that can most effectively integrate modern technologies into their business models, be they incumbents or insurtechs, while efficiently managing and deploying capacity from the capital markets on its own, or as well as their own balance-sheets.