Three Potential Roadblocks Reinsurance Companies May Face and How Digitisation Can Help

Global uncertainties such as pandemics, economic crises and an unsteady geopolitical landscape present major challenges to all areas of business, including the reinsurance sector. Take the COVID pandemic, for example, which is thought to have cost the reinsurance industry 16 billion USD by the end of June 2021 alone, according to Apref.

However, it’s not all bad as uncertainty or unpredictability often provokes change and innovation. Digital transformation has been a hot topic over recent years and, although the reinsurance sector is not always the fastest to move, digitisation and automation are increasingly providing the industry with the tools needed to respond to current global challenges. Thus, while previously often thought to be unnecessary, too complicated, and costly by the, sometimes resistant, reinsurance sector, we’re seeing evidence that digitisation can be planned and implemented as part of a wider strategy and can be a great tool to help ease current pressures.

Below are just three of the potential roadblocks faced by reinsurance companies, and some thoughts about how digitisation and automation may help overcome them.

Inflation!

In this unpredictable world, we are all suffering from the impact of rising costs, and inflation is one pressing issue that also hits the reinsurance sector. Jim Harris, a leading thinker in the field, claims that technology can actually help combat inflating costs, especially when carefully and thoughtfully deployed. But sometimes we also have to remember that it isn’t always about BIG ‘transformation’ but incremental improvements. We should be thinking more about how and where technology can be best used to support the team, improve processes and better serve the business and its clients.

For example, if we think about some of the online environments and tools, such as Google Workspace and Zoom, we can see how they have already meant that the costs previously associated with long-distance, international working and in-person meetings have been eliminated almost entirely. Terms such as ‘Zoom meeting’ and ‘remote working’ have slotted easily into our everyday vocabulary and thus become the new ‘norm’ without us even thinking about the new (low-cost) technology we’ve so quickly and easily embraced.

So we can see that adopting new technologies does not always mean complicated or expensive or major upheaval, yet the impact, when technology solves a real problem, can be huge. But, as a word of caution, it must be noted that the humanistic side of tech advancement is just as (or even more) important than the technology itself. Combining people and process with technology is where the magic happens!

A Tightening Market

Over the last couple of years, the reinsurance sector has seen an overall tightening of the market and a readjustment of reinsurance rates due to the increasing cost of claims in the insurance market. With this, there has been a tendency by reinsurers to not only raise rates but, at the same time also reduce the attachment points at which they step into the picture. This they do by increasing the number and type of ‘exclusions’. For insurers, this means more risk retention on their end (and ultimately for their clients too). And for reinsurers? An unfortunate, and potentially unnecessary, lack of growth. I say this because the opportunities presented by digitisation and automation may mean that unpredictability, currently limiting growth, could be made considerably more predictable.

In an article by Crowe, writers Lazard and Fischer state that technological solutions such as automated data collection, mapping and scoring of inherent (and residual) risk can help reinsurance brokers improve their risk assessments and replace the old, considerably outdated, once-a-year assessment process. Furthermore, in another example given by CCRre, these digital advancements can also help reinsurers with the all-important renewal process. That is, through more effective, comprehensive and secure IT systems, insurers can share the necessary data renewal information more clearly with reinsurers, who can then better structure and price their renewal packs. All good news in terms of maintaining good partnerships and smooth operations within the insurance and reinsurance industries alike.

Thus, there is a good case to suggest that those reinsurance companies embracing technology and pursuing a programme of digitisation and automation are much more likely to be more confident, resilient and able to gain a competitive advantage over those who fail to do so.

Increased Vulnerability to Cyber Attacks

Cyber risks are considered one of the biggest threats to the global financial industries including the insurance and reinsurance sectors. According to a Deloitte Center for Controllership poll, between 2022 and 2023, 34.5% of polled executives reported that their organisations' financial data was targeted through cyber attacks and 12.5% of these were targeted more than once.

Not only may cyber attacks cause substantial financial losses for reinsurance companies, they can also create long-term operational disruption and a lack of brand trust for impacted businesses.

Something that often causes fear among companies about the use of technology is the misinformation that it leads to a greater risk of cyber attacks. This is not, by any means, the full picture. In fact, a cohesive digitisation strategy can potentially help reduce cyber risk. For instance, when we keep data sets and confidential information in siloed systems like Excel, vulnerabilities can be exploited precisely because of the lack of centralisation, standardisation and governance.

On the other hand, take a company which has embraced a more holistic approach to digitisation, and understands the impact new technology has on processes and people. These companies may be better protected against cyber threats since a planned, integrated strategy helps achieve company-wide buy-in, bringing people, clients, process AND technology together to much greater effect.

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