Reinsurance Market 2.0

In areas from trading to analysis, broad benefits will be gained from widespread adoption of technology-driven processes, culminating in dramatic improvements to the reinsurance buying experience. Already the digital value is tangible:

• Enhanced risk understanding provides greater sensitivity to the actual cost of risk, in support of price stability.
• Improved portfolio analysis allows better-structured programs that ensure more complete protection, in line with cedants’ risk appetite.
• Extensive digital connectivity speeds interchange between all parties at every stage of the risk chain, to deliver faster, less-expensive risk sharing.
• From capital investment through to real-time claims, process automation eliminates bottlenecks and the fallibility of manual data entry to improve reliability and accuracy.
• Workforce role transformation for brokers, underwriters and claims professionals allows increased concentration on value-added skillsets, yielding measurable efficiency gains and improved outcomes.

With Reinsurance Market 2.0, more risk data is captured at every stage. Improved analytics deliver deeper insights from that data. They engender a higher level of confidence sufficient to embolden a broader spectrum of capital providers to invest in reinsurance risk. In turn, capital diversity allows the creation of more dynamic products.

Such tech-driven improvements to the reinsurance playbook give clients a new level of flexibility in their interactions with markets. They allow individual cedants’ distinctive capital profiles, risk appetites, return requirements, and corporate objectives to be reflected and respected at every juncture.

Data and computing power lie at the heart of Reinsurance Market 2.0, supported by technologies such as cloud-based computing and data storage, AI, APIs and the internet. These wonders are enabling the ongoing digital overhaul of the entirety of the sector. It’s occurring at different speeds across the market, but it’s happening everywhere. Firms that dispose of their legacy systems too late will soon be critically, perhaps fatally, injured by their digital recalcitrance. Those that embrace the upgrade now will already enjoy significant trading advantages, shared with their clientele.

One major area of advance is electronic trading. Still nascent in reinsurance, it is emerging, principally for syndicated risks, and with good reason. The manual presentation of the same tranche of reinsurance risk to multiple markets is inherently less efficient than submission once to a platform designed to support syndication. When trading is algorithmic and the platform is able to match risks to specific reinsurers’ stated appetites, an unprecedented level of efficiency is achieved.

At the front end, “underwriting workbench” technology comes to the fore when lead underwriters work with brokers to price and structure reinsurance risk ahead of syndication. These platforms pull together all the data and intelligence an underwriter might need to assess and price a contract into a single, accessible digital workspace. They vary significantly in scope. Some link seamlessly to comprehensive exposure management tools, catastrophe data feeds, and risk modeling systems (each of these itself a vastly improved, critical component of Reinsurance Market 2.0). The best automate real-time changes to portfolio composition and pricing assumptions, and reflect them in all other processes.

Again, data is at the core. Warehousing and access are improved in parallel, to ensure everyone in the chain has just the right information, exactly when and where they need it. Ingestion is immediate from the point of submission, when a primary broker first uploads the risk details. Instantaneous, AI-supported cleaning, analysis and management transform data to ensure complexity is replaced by compatibility. Rekeying is eliminated by API transfer. Duplication and error are avoided; bordereaux are replaced by real-time analysis. Technologies such as blockchain allow the creation and maintenance of repositories comprising a single source of truth for everyone involved in the transaction.

On the modeling side, Reinsurance Market 2.0 has moved well beyond the world of an oligopoly of giants assessing only peak peril risks. Such organizations remain a cornerstone, but an array of new modeling enterprises, vendor and inhouse, have extended the coverage and confidence of model outputs. Horizons have been extended. Possibilities now include:

• Automated exposure-data management and enhancement.
• Modeling-on-demand using cloud-native tools and APIs.
• Advanced climate analytics and climate-conditioned views of risk.
• Multi-model approaches that add perspective and confidence.
• Enhanced scenario analysis that deploys generative AI to develop plausible cross-class scenarios for stress-testing portfolios.
• Real-time event response based on pre-event forecasts.
• Rapid, AI-driven loss-estimate calibration based on remote sensing tech and EO.
• Flexible reporting delivered in record speed.

This enormous expansion of the reinsurance sector’s ability to imagine an event and its impact on a reinsured portfolio is applied in several beneficial ways. Fine-tuned climate analytics based on a range of plausible assumptions dramatically increase understanding of the evolving natural perils threats to any portfolio. A plethora of risks are newly reinsurable. Regular portfolio stress-testing ensures a greater understanding of financial strength, from multiple viewpoints based on a range of model assumptions.

Model sophistication has soared. New approaches bring together established vendor views, AI-driven hazard models and niche vendors, including through the open-source Oasis platform. The result is dramatic improvement in model outputs which has fostered the proliferation of capital transformation tools.

Reinsurance Market 2.0 is backed by a diversity of capital which spreads global risk more widely than ever before. The data-driven improvement of modeling tools and risk analysis processes has encouraged a much wider range of investors to back reinsurance, especially through unambiguous risk transfer mechanisms such as parametric-triggered catastrophe bonds which eliminate capital trapping.

Pension, hedge and bond funds, and even family offices, are showing a growing appetite for reinsurance risk. Meanwhile, structures such as sidecars and transformer vehicles like Lloyd’s London Bridge II remove the friction from access, alongside technology-rich reinsurance MGAs that focus on niche risk types to feed them with attractive bundles of accurately priced risk.

An earlier article in this series took a deep dive into parametric reinsurance. This reinsurance structure has now come into its own because increasing levels and diversity of available data, advances in its collection, and the explosion of computing power have brought a new measure of certainty to event-based risk transfer pricing. That makes parametric incredibly attractive from the carriers’ perspective. Add the enormously expanded array of data sources and the market’s spreading willingness to think beyond property damage triggers, and Reinsurance Market 2.0 takes shape as the long-awaited, technology-backed upgrade of entrenched and outdated practices.

Even the regulators are engaging. The Bermuda Monetary Authority has. Its ‘Embedded Supervision’ initiative is already testing “technology-enabled, real-time data infrastructures” which would see “supervisory requirements … directly embedded within financial infrastructure, transforming regulation from a process of retrospective reporting into one of continuous, verifiable assurance in on-chain and distributed financial markets.”

To benefit most from v2.0, cedants should seek a reinsurance broker aligned to a market-leading risk research network, unencumbered by legacy practices and systems, and launched with these next-generation advantages uploaded and installed.