Why the reinsurance market needs a digital ecosystem
As an industry, reinsurance has often looked towards its future with optimism, imagining a data-centric utopia where underwriters get immediate and sufficient data to have a thorough understanding of the risks they’re trying to price, and with cedents and brokers getting the best price from across the market on every placement. Looking around at how quickly the world is changing through technology, it’s easy to assume this digital transformation is inevitable. However, reinsurance practitioners are constantly wondering: why is it taking us so much longer?
The reinsurance industry has had a number of starts and stops in its transformation journey and we have talked a lot about the ecosystem of the future. In fact, we put out a whitepaper in November of 2021 on this exact topic. Unsurprisingly, industry experts from firms like Swiss Re, Renaissance Re, Willis Re (now Gallagher Re), and Hyperexponential extolled the myriad benefits of data flowing seamlessly between systems to help practitioners make better, more informed decisions.
In the whitepaper, we laid out the position that reinsurance is already a thriving ecosystem, even if a mostly analogue one. And it could be argued that we’re already with our current setup that we’re challenged when creating our ecosystem 2.0.
On The Reinsurance Podcast, we frequently play a game we call ‘Analogy Battle’, where Ben and I face off to describe a complex reinsurance topic by comparing it to something fundamentally different. When thinking about how our industry will go about reaching its digital utopia, I couldn’t help but compare it to the approach we need to take (and are taking) towards tackling climate change.
Think like an ecosystem...
Much like the need for innovation in reinsurance, we’ve understood and sought to address issues causing climate change for decades through efforts like the Kyoto Protocol in 1997. However, it wasn’t until The Paris Agreement in 2015 where we truly began to work collaboratively by introducing ways for developed countries to take the lead in providing financial support, establishing a technology framework, and providing capacity-building actions for developing countries.
To achieve a similar commitment to innovation in reinsurance, we need to recognise that some larger firms will be required to do more heavy lifting, so that the smaller firms can also reap the benefits of a digital ecosystem. On a global level, this altruism feels warranted; however, such a message is harder to digest for large businesses pressured to continue their quarterly earnings growth. It is easy to recognise that a more efficient market benefits all parties in the future, but larger firms needing to absorb the initial cost will always face significant pushback.
… but solve your own pain first
To help achieve their collective goal, countries needed to find ways to incentivise investment and growth for their economies too. ‘Going green’ is now big business in countries like the United States, the United Kingdom, Germany, and France. Investment capital is flowing into alternative energy companies and, according to CB Insights, nearly one-third of Energy Tech unicorns (private companies with a valuation over $1B) were born in Q2 of this year with renewable energy, grid technology, and energy storage being three of the most active categories.
Again, this approach holds true for reinsurance. Efforts to commit to a shared innovation for the sake of the greater good are sufficiently compelling to justify the ongoing investment with no immediate gain for the firms involved. This was part of the reason behind the demise of B3i, the industry’s effort to leverage blockchain to eliminate 30% of costs from the business. Christian Mumenthaler, Group CEO for Swiss Re, one of the initial backers of B3i, said that there could be a way for it to be successful, but that in his view, it requires an end-to-end perspective – essentially meaning that parties across the value chain would need to be sufficiently incentivised by their own personal ambitions and benefits to adopt the solution.
It is in navigating this balance between individual benefit and collective benefit that Supercede thrives.
We build reinsurance technology specifically designed to deliver benefits to each party on both a stand-alone basis and as they share and collaborate with their partners. Packs, our software solution, helps cedents cleanse and organise their treaty submission data in weeks rather than months, delivering huge cost savings and value for their firms. But we think as an ecosystem and design our software to make it faster and more secure for cedents to share that data downstream to their brokers.
Everything we build is designed to deliver value to the specific user in that part of the application, but also to make it easier for those users to collaborate with the other parties in their networks and across the reinsurance ecosystem.
Change in established ecosystems takes a very long time, whether that be a natural ecosystem, like our oceans, or in an industry, like reinsurance. Much like the positive momentum we’re seeing around tackling climate change, I too see the momentum building towards a reinsurance ecosystem that connects parties through tools that seek to deliver immediate value but, crucially, with a focus on a long-term, hyperconnected future.