The Impact of Insurtech on Reinsurance

Traditional reinsurance companies have always made attempts to minimize risks associated with their business.

Most reinsurance companies look at themselves as companies that hold on to risk on behalf of their peers.

There are very few reinsurance companies that made investments in insurtech in the early stages of the industry. The few reinsurers which did make this investment only did so as a backup plan. Almost no reinsurer across the world had a strategic interest in the insurtech industry in the early stages.

However, all that has changed now. Reinsurance companies have realized that insurtech has the power to create a new industry order and that players that can strategically utilize insurtech have a higher chance of success. As a result, many reinsurance companies have shown an inclination towards making investments in the insurtech sector. Reinsurance companies have been investing upwards of $10 billion annually in insurtech companies.

In this article, we will have a closer look at some of the details related to this relationship between the reinsurance industry and the fledgling insurtech sector.

Partnership Between Insurtech Companies and Reinsurance Companies

Over the years, the relationship between reinsurance companies and insurtech service providers has significantly widened. It is important to note that reinsurance companies are natural providers of capital for insurtech companies. This is because, if the insurtech company succeeds in developing the technology, then the reinsurance company has a chance of obtaining a competitive advantage over the other players in the industry.

It is also important to understand that reinsurance companies can help insurtech companies in ways apart from providing capital. They can provide them with the know-how which is essential for understanding the operations of reinsurance firms.

For instance, if a startup has better knowledge about underwriting or claims processing at a particular reinsurance company, it can help in creating better solutions.

Benefits Provided by Insurtech Companies

Insurtech companies are known for bringing technological innovation into the day-to-day operations of a reinsurance firm. Some examples of technological innovations have been explained below:

1. Better and Faster Assessment of Claims: Insurtech companies have helped create technologies that help in faster and more accurate assessment of reinsurance claims.

   For instance, insurtech companies have created drones that can fly over the affected area. These drones capture necessary footage which can be virtually provided to adjusters in order to ensure faster assessment of claims. This creates a situation wherein insurance adjusters are not required to travel to the affected site and can instead work from a convenient location and at a faster pace. This helps reinsurance companies bring down the costs as well as the turnaround time related to claims processing.

2. New Products: Insurtech companies have been creating several new innovative products which can be used by reinsurance companies. These products include applications that automatically create claims on behalf of the ceding insurance company with the reinsurer.

   Insurtech companies have created products that ensure that there is minimal duplication of effort from the ceding insurance companies. As soon as a claim is filed with them, an application can check whether it is relevant for reinsurance. If so, it can automatically create a claim with the reinsurer with the relevant information.

   A wide variety of user-friendly mobile applications have been created by insurtech companies in order to help reinsurance companies manage their business better.

3. Partnership With Allied Industries: The insurtech companies have created a situation where it is no longer necessary for the reinsurance companies to rely on empirical data.

   For instance, if the reinsurance company wants to predict the number of people that will die from a heart attack, it does not need to take only empirical data into account. It is possible for insurtech companies to have access to real-time data about the health details of the insured. There are many health-tech companies that are producing wearable gadgets which have this data available.

   Insurtech companies are trying to create a system wherein this data can be sourced from health-tech companies and then meaningful insights about risks can be drawn from it. Similar gadgets can also be attached to cars in order to understand the risks involved in providing motor reinsurance. This is likely to enable reinsurance companies to manage risks better and hence is likely to give them better pricing power.

4. Elimination of Middlemen: Reinsurance brokers do provide a lot of valuable services in the industry. However, there are many critics who believe that insurtech will be able to more or less automate the tasks performed by reinsurance brokers.

   It is quite likely that if the insurtech industry is able to successfully bring its prototypes to fruition, the businesses of reinsurance brokers are likely to be negatively impacted.

5. Possibility of Disputes: Insurtech companies can create models that price risk more accurately. However, the analysis that the insurtech companies conduct is dependent upon the data available to them.

   Insurtech companies need to create a system to ensure that the data provided to them is accurate. In the absence of accurate data, the most advanced technological tools are unlikely to be effective.

The fact of the matter is that insurtech companies are important players in the reinsurance industry.

Right now, they are startup companies that are heavily dependent upon reinsurers for funding. However, it is quite likely that some of these firms may create products or technologies which have a deep impact on the reinsurance industry as a whole.