‘ReinsurTechs’ are on the rise, but the complexity of the reinsurance sector coupled with the longer term view of incumbents means the development phase for innovation may be lengthy
(Re)insurance has long had its foot in the door when it comes to InsurTech, with most big players now having some kind of investment arm to partner and collaborate with InsurTechs across the value chain in specialty, wholesale and even personal lines.
However, the waves of innovation that have washed over the primary insurance industry over the past few years may now be lapping at the shores of the reinsurance sector.
More and more reinsurance InsurTechs – or “ReinsurTechs” – are emerging, looking to address the pain points that have afflicted the industry in data and analytics, administration and distribution.
Reinsurers are also looking outwards to find solutions to their problems – for the next technology that will revolutionise the mainstream.
Old concepts are getting a new lick of paint as electronic marketplaces look to gain traction.
However, as with any kind of change there are hurdles that must be overcome. Reinsurance is technical and complicated, and the logic previously dictating the market’s direction of travel with respect to InsurTech was that it was too challenging for external agencies to come in and innovate.
Here, Insider Quarterly examines some trends in the market to see where the next wave of innovation may come from.
One trend getting increasing attention is the idea of an independent electronic marketplace in which risk can be transferred and placed digitally.
An example of this is Akinova, the London-based marketplace that aims to enable the trading and transferring of risk in the rapidly growing cyber insurance market.
Akinova’s commercial director Alexander Pike says: “With products like property catastrophe it is established and works in a cyclical and seasonal way, but with cyber it isn’t seasonal, it can be 24/7. How then can people purchase cover or, if they have risk on their balance sheet, how can they transfer that to another capacity provider?”
The platform uses a mixture of machine learning and proprietary mathematical frameworks, acting on behalf of cedants and intermediaries to match risk to capital while providing news, data and analytics to its market participants.
The goal is to help drive growth and liquidity in the marketplace by enabling parties to access more products and share risk quickly and easily.
“It is an enabler, we are not doing the trades ourselves, the market is there to do the trade. We are trying to help grow the market so provide liquidity to products that doesn’t have huge amount of liquidity,” adds Pike.
This is something of which auction-based marketplace Tremor is very aware. A graduate of the Lloyd’s Lab second cohort, the success of its model depends on several users placing bids to find the “true” price of a risk. It has participated in January and June renewals in Florida, and has intermediated around $2mn of closed bids to date.
“For us it isn’t so much about barriers, it is really education. The traditional insurance company will typically have longstanding relationships with reinsurers and an intermediary they rely on very heavily,” says Tremor founder and CEO Sean Bourgeois.
Bourgeois argues that this means intermediaries may not be offering a competitive price, as insurers do not know if it is the best price.
“We are actually a marketplace, we are a risk syndication. If you have a single risk or portfolio of risk and connect it with actors on the other side then we figure out what an informed risk would be for everyone,” he says.
Improving the connectivity of the reinsurance marketplace is something Riskbook, a beta-stage InsurTech, is looking to address.
Founded in 2018 by former Aon employees Jerad Leigh and Ben Rose, Riskbook describes itself as “the Rightmove of reinsurance”, and looks to make actors in the reinsurance space “hyper-connected” so they can do more business.
It does this through a digital platform that connects brokers and reinsurers to align distribution and capacity. It is innovating on an existing model, which co-founder Leigh believes is key.
“Working alongside incumbents is where the biggest opportunities are and if your proposition is disputing incumbents and making them redundant you will struggle to gain traction,” explains Leigh. “When you are actually working in the spaces you realise the broker plays a fundamental role. We want to empower incumbents to do more.”
Partnering with incumbents is vital for many InsurTechs, but with a marketplace model success rests on independence – the more neutral a marketplace seems the more likely it is that participants will use it, Leigh says.
Akinova markets itself as an “independent marketplace created with and for the industry” and, according to Leigh, Riskbook has a similar approach whereby independence is essential for the enterprise.
However, ReinsurTech ventures need a critical mass of actors in the space to engage with their platforms because, as they are not actually originating business, gaining traction in the reinsurance market can be challenging.
According to Bourgeois, Tremor has around 95 percent of the global market on the platform, and has partnered with around 12 Lloyd’s syndicates, but as a new venture it is still relatively untested.
Technology has also been a barrier to such ventures in the past, according to Bart Patrick, managing director for Europe at Duck Creek Technologies, which has created a reinsurance management platform with DataCede.
“Sadly, the robustness of the technology platforms supporting the right idea was not there at the time. However, it is now,” says Patrick.
“Reinsurance is a mechanism for spreading risk, so it lends itself naturally to the concept of a tradeable commodity that could be packaged and sold in a derivative format. There is no reason – outside of good underwriting and analytics – that reinsurance could not in the future be a traded commodity with its own liquid market.”
Innovation units are nothing new when it comes to insurance or reinsurance. Reinsurers such as Munich Re have had digital ventures arms for years, with Munich Re Digital Partners bringing in around EUR100mn ($111mn) in premium from its portfolio of companies last year.
But just because you don’t have a big balance sheet it does not mean you can’t innovate.
Smaller reinsurers are using innovation arms to forge strategic partnerships and make investments in InsurTechs so they can keep up with trends.
Greenlight Re set up a tech innovation unit last year to partner with and develop start-ups that could bring new technology to reinsurance.
As Greenlight Re CEO Pat O’Brien says, “By partnering with InsurTechs we can get access to the technology that they have and we can assist with capacity and distribution. Many InsurTechs are in the MGA space and they are selling an improved product in this space, generating revenue and improving efficiency.”
The unit has made 12 investments since its inception, ranging from Australian property claims platform Handii to New Zealand-based personal lines MGA Cove.
Being a smaller reinsurer in some instances could be seen as a downside, but the leanness of the organisation means that Greenlight can be nimble and make the most of new technology, according to O’Brien.
Another smaller scale reinsurer that has taken the next step is RenaissanceRe. It has partnered with InsurTech Gateway. Gateway was started as an incubator in 2017 by venture firm Hambro Perks to reduce the lead time and cost of getting a business idea to market.
It works across the InsurTech space, from cryptocurrency to fleet insurance and flood cover, and it is precisely this access to niche markets that makes it such an attractive reinsurance partner.
Vice president of technology ventures at RenaissanceRe Karl Stanley explains: “For us, the Gateway is about our interest in new products, new models and new markets. It helps us to look ahead, and positions us to act as each area evolves. For [Gateway], we bring the benefit of industry relationships and can offer our expertise.”
This strategy is typical of reinsurers’ approach to innovation, according InsurTech Gateway director and co-founder Stephen Brittain.
“Reinsurers appear to me to be thinking much longer term and looking at the fundamentals of the business models behind risk. They are a natural home for the more opaque technologies of big data, cloud computing and blockchain that will enable a massive step-change in the complexity of calculating and trading risk,” he says.
New and future tech
While many InsurTechs focused on reinsurance are looking at improving the placement process, others have their eyes on altering product propositions altogether.
Concirrus is an InsurTech focusing on both the direct and reinsurance markets to deliver insights into real-time risks via Quest, its big data and analytics platform aimed at the motor and marine markets.
Quest accesses wide-ranging data sets and combines them with historical claims to give (re)insurers and brokers a more accurate view of their risk.
Concirrus recently partnered with Willis Re to deliver Quest and its benefits to clients. As part of the partnership, Willis Re and Concirrus will develop products for the specialty market.
Concirrus CEO and founder Andrew Yeoman says: “We have a privileged opportunity to be able to rethink and drive significant change at scale. We understand enough about the industry for it to be relevant, but we are not constrained by historical thinking.”
Looking ahead, innovation in the reinsurance space may have a long development phase, as global head of Willis Re InsurTech Andrew Johnston explains.
“It is still quite a nascent space. To a lay person it is still just so unknown: you only think about reinsurance if you understand insurance, and you have a limited ability to innovate without domain expertise and capital.
“A few companies are looking to be disruptive in the reinsurance market by digitising trade. Without controlling or originating the business, however, this is a very big ask,” Johnson concludes.
This article was first published in the Autumn 2019 issue of Insider Quarterly