Unleashing growth by modernising an age-old industry

EY’s Simon Burtwell and Sophia Yen on steps the industry can take to unleash growth.

Climate risks, geopolitical risks and macroeconomic uncertainties are all continuing to drive up reinsurance rates. There is a continued tightening of capacity for catastrophe risks with a flow of $70bn in premiums into the captive market. The net effect is a further widening of the protection gap, which leaves many businesses and communities either underinsured or uninsured.

So how can the industry unleash growth at the same time as it helps shrink the protection gap? We believe insurers that embrace a few powerful forces can fundamentally change the future of the reinsurance marketplace – and for the better.

1) Generating insights from data, data everywhere

With unprecedented data volumes and varieties at their disposal, too many incumbent insurers are stuck with archaic processes and manual methods, which limits their ability to produce high-value insights. At the same time, new entrants leverage the power of advanced technology to launch new services, enrich their value propositions and become customers’ choice for risk protection.

If data is the new oil (as the saying goes), then the question to ask is whether your company has the right refinery. How reinsurers use advanced analytics and their massive data sets to optimise reinsurance strategies and portfolio management will determine the health of their balance sheets in the future.

2) Innovating risk protection with risk mitigation

Because risks have never been more threatening, it’s tempting for insurers to simply withdraw from the most volatile perils. But now’s the time to add risk mitigation to traditional risk protection. Consider how sensors and connected devices can help mitigate total insured losses even after a loss trigger. Innovative loss control measures enable reinsurers to stay engaged ­– and profitable – in tougher market conditions.

Demand is also increasing for tailored, flexible and alternative offerings (e.g., parametric-based ILS coverage). Such solutions are critical to addressing ever-intensifying climate risks. Future success starts with the development of robust, data-driven risk prevention services customised for each industry segment and region’s needs and risk profiles. Indeed, many of the highest-impact recent reinsurance innovations reflect the reality that customers value risk prevention as much as protection.

3) Harnessing the power of partnerships

Reinsurers are uniquely positioned to lead the way in closing the protection gap. Public-private partnerships are one critical factor. We know that uninsured and underinsured risks cost governments multiples of original loss amounts. Reinsurers have the expertise to contribute to the design of technology-led risk prevention solutions that will help prepare individual policyholders and entire communities for floods, severe storms and other potentially catastrophic events.

These partnerships may also include traditional carriers, industry associations, insurtechs and other new players. That’s true because the risks we face today – especially from climate change – are too complex and the protection gap too large for any single company or industry to address on their own.

What’s true of the current insurance landscape is also true of the reinsurance industry: past success doesn’t guarantee future market leadership. The demand for innovative solutions and enhanced value propositions is so large and urgent that someone will fill it. Whether that someone is a traditional firm or a new player remains to be seen.

Simon Burtwell is EY EMEIA and UK financial services consulting insurance leader

Sophia Yen is EY Americas insurance strategy and innovation leader