Union Insurance CIO Anshul Srivastav examines the transformation of the reinsurance industry.
Shift, transform, innovate and change (STIC) is the noisiest acronym making inroads to boardrooms. The regulated world is going through a turmoil of continuous change, and STIC is not a problem unique to reinsurers and insurers. It is difficult to innovate from within, and those in regulated industries have been laggards.
Early adopters of technology are gaining advantages in terms of redefining new market opportunities. Peer-to-peer (P2P) is taking new shape after many centuries of development. P2P was the way to conduct business a couple of centuries ago for any kind of transaction, but that was limited to geographies or communities. Historically, there were no banks or no regulations in P2P business, but it is now back in the 21st century and is reshaping transactions.
Blockchain P2P ledger-based transaction technology and P2P insurance are now being piloted across the world. With cash economies shrinking, the global population will see a shift in P2P protection and investment beyond geographies and local communities.
Virtual malls and marketplaces are being created in the P2P arena, with the global convergence of communities and geographies on the rise. This may be a scratch rather than a dent in operating and strategic business models, especially in the financial services side at this point in time.
The reinsurance model has evolved and been nurtured through peer to peer setups, and it’s all a case of sharing risk. Reinsurers are operating under a new business model, by moving into alternative sources of creating capacities.
Cutting-edge technologies are making headway in the reinsurance world, but a major shift is required to change for existence and remain immortal. Reinsurers now have to go back to the drawing board and proactively start crafting their strategies for a new evolving ecosystem.
Blockchain
Blockchain will be the largest decentralised trust system. Potential use cases for the reinsurance industry for Blockchain range from virtual marketplace to exchange and trade risks. It can help reinsurers cut massive costs in transactions and reduce the heavy cost of operations through automation, which will encourage better rates for insurers, increase capacities and thus enable growth. The entire payment and settlement process can be conducted through Blockchain, whilst also supporting any volume of risk data for claims and underwriting for decision analytics in real-time.
Virtual marketplace
Traditional reinsurance marketplaces should be transitioning into digital and real-time available marketplaces, whilst simultaneously aggregating the rates for any risks by using risk data analysis in real-time. Customer and partner data should support decisions on acceptance and subsequent provisioning of risk. This will empower reinsurers and insurers to decide instantly on the placement of risk.
Data and analytics as a model for machine learning
Data is the most respected unit of truth, required by reinsurers to create value and manage risk. Globally, the $5 trillion insurance industry is sitting on a huge amount of data. Having the access to such insight allows reinsurers to predict and prescribe capacities to primary insurers on end-to-end risk and capital management.
Data can build any form of intelligence, from competitive intelligence to market intelligence to internal intelligence. With the help of machine learning algorithms, the likes of catastrophic modelling, mortality modelling and risk forecasting can now also be predicted. As a result of this, incumbents should start exploring how they too can be automated through machine learning.
Internet of anything and everything
Before too long, anything and everything will be smart. Therefore, it is vital for reinsurers to have the right data strategy in place to unearth valuable insights. They should now be looking at collaborating with tech start-up companies in order to pave new ways of doing business. Start-ups have full potential to play the data game, which will support reinsurers in enabling a predict and prescribe ecosystem.
Reinsurers have to reinvent and reincarnate. Transformation and shift to a new version Reinsurance V2. x. is inevitable, and reinsurers should look to catch the first flight towards this new evolving ecosystem and land in the geography of new ways to do business.
