An opportune time for reinsurance innovation
EY’s Jeffrey Gill, Philip Vermeulen and Anita Sun Yong Bong on the innovation options open to (re)insurers.
A hardening market and solid recent financial results have led many reinsurance executives to consider different paths to growth and more predictable profitability. Innovation will be a key plank to the plans of tomorrow’s leaders and the options are many.
Looking at product portfolios, some reinsurers are designing offerings that reflect the new and emerging risks faced by their clients. Cyber and climate risks will continue to drive significant product development activity. More extensive and tailored coverages for AI-related exposures seem inevitable.
Capital management and alternative asset strategies are also ripe for reimagining. With external capital providers increasingly attracted to the sector, reinsurers will continue to devise new ways to capture outside funding, including sidecars and other custom investment vehicles.
Some reinsurers have taken steps to optimise their value chain and overall business models by launching direct insurance companies. This trend seems likely to continue as top performers seek to move closer to actual risks.
Technology-enabled and data-driven innovation is also at the top of the strategic agenda. Most firms are assessing the options for generative AI, especially related to underwriting (e.g., data ingestion, insight generation). Opportunities will expand as the industry moves to digital marketplaces with scalable platforms for information sharing, contract placement, risk assessment and other forms of collaboration.
The potential benefits of digitising mostly manual processes and creating connected platforms and ecosystems – starting with lower sales cost and improved risk management and data – are potentially significant. Furthermore, automation can enhance the industry’s essential value proposition by enabling the development of next-generation capabilities (e.g., dynamic risk assessment, real-time pricing) and more transparent offerings (e.g., pay-per-use, parametric and exposure-linked products). The interrelated opportunities reflect the broad-based and multi-dimensional transformation opportunity for reinsurers. In other words, there’s no separating technology and product innovation from capital management and business model innovation.
Assessing the innovation options
For senior reinsurance executives, the question isn’t whether to innovate but where to start and how to drive value across different parts of the business. In some cases, it’s a matter of sequencing and prioritisation. Reinsurers may choose to develop strategic partnerships with third-party capital providers to fund and facilitate product innovation. Or they may choose to streamline and digitise internal operations to lower costs and improve margins.
In shaping their plans, some firms will have to choose where to collaborate (e.g., digital marketplaces) and where to compete. With more data exchange across the industry (and brokers looking to play a larger role in that exchange), reinsurers should evaluate their innovation options in terms of future differentiation, recognising that tomorrow’s competitive advantage won’t be the same as today’s.
No matter the course of action, talent is a critical variable in the equation for success. Firms must assess their current workforce against the skills they need for the future (e.g., analytics, data science). It may sound counterintuitive to say that talent will become more important as more processes are automated and AI-assisted, but that is precisely the case. Skilled humans will continue to provide a large proportion of the value in the age of AI.
Recent financial results and market shifts provide tailwinds for innovation. Those firms that act today to shape the right strategies, prioritise the right investments and choose the right partners will gain the greatest future advantage from their innovation strategies.
Jeffrey Gill is EY Americas insurance sector leader
Philip Vermeulen is EY EMEIA financial services insurance leader
Anita Sun Yong Bong is EY APAC insurance sector leader