Up next in our 2024 industry trends series, our experts offer specialist insight into the reinsurance landscape.
2023 presented one of the hardest markets the industry has ever seen. The year saw rising premiums, reduced capacities, and stricter underwriting protocols, primarily driven by surging claims costs amid widespread economic instability, inflationary pressures, and geopolitical tensions.
Additionally, natural disasters in 2023 contributed to the hardened market, resulting in a critical reassessment of risk models and pricing strategies. Stricter regulatory requirements across various regions added more complexity via increased compliance costs and capital requirements. Despite these hurdles, technological advancements in data analytics and risk assessment are continuing to influence and transform underwriting practices.
As the year unfolds, the market is expected to continue facing tough conditions, albeit with softening expected. For reinsurers, the focus will remain on measures that contribute to positively impacting the balance sheet and reducing exposure – but, this must be balanced with opportunities to expand capacity in emerging markets or for lines of business that will continue to be impacted by ongoing geo-political uncertainty.
Read on for exclusive insight from our insurance experts on the top three reinsurance trends to watch out for in 2024:
At a glance
- We will see compounded growth in the parametric insurance market amidst escalating climate change and technological advancements
- Artificial intelligence will provide strategic opportunities for reinsurers to transform internal and external user experiences – and even their role within the value chain
- The surge of cybersecurity insurance requires new risk management strategies to effectively support the unique risk profiles of small to medium-sized businesses
Continued growth of the parametric insurance market
The parametric insurance market was valued at £9.26 billion in 2021 and is projected to nearly triple to £23.34 billion by 2031. Parametric insurance pays out pre-defined cover based on the likelihood of measurable trigger events, such as earthquake magnitudes and hurricane windspeeds. The impacts of climate change and technological advancements mean parametric insurance is surging. Not only is the need greater than before, but this also offers re/insurers an opportunity to more accurately predict the likelihood of trigger events and be better placed to make faster payments to those impacted in the event of major catastrophes.
It’s therefore no surprise that we are seeing continued investment in both parametric products and innovative start-ups who are providing parametric technology across the industry. Paris-headquartered Descartes Underwriting, for example, secured £95 million in series B funding and is focused on AI- and tech-driven parametric solutions for climate change and emerging risks. The substantial series B funding into Descartes is a clear vote of confidence from investors that parametric insurance isn’t just growing – it has the potential to revolutionise risk management in our increasingly volatile world.
What does this mean for reinsurers?
In practice, parametric insurance will give reinsurers a clear understanding of what the risk exposure is, an increased ability to be more granular and selective about the type of risk they take on, and enable greater access to accurate, real-time data about trigger events.
And like any other technological advancement, parametric insurance has huge growth opportunities. Particularly if the underlying technology can be implemented and operated at much lower price points, this could pave the way for product growth in retail lines such as motor in the much longer term.
Look out for a revolution in risk management and claims settlement, and don’t underestimate the impact this will have on customers’ expectations for the speed of payments.
AI / ML is improving user experiences and expanding the reinsurer’s role in the value chain
Artificial intelligence provides an opportunity to transform key areas of reinsurance through automation and the digitalisation of traditional tasks. There is a plethora of emerging technology, with new entrants backed by VCs appearing on a near daily basis that are aiming to change the reinsurance landscape in the next 12-18 months.
What does this mean for reinsurers?
There are obvious “big picture” applications within underwriting and claims to help automate data entry, risk modelling and claims payment tasks. This will not only positively impact the accuracy and pace of completing these tasks, but if applied correctly, can also provide a significant opportunity for cost take out.
In addition, AI can enable reinsurers to understand the risks associated with taking on a cedant more efficiently. Take converting plain text subjectivities and contract wordings into numerical inputs for risk modelling for example, thereby providing faster access to compelling data insights and enabling a more strategic and informed approach to overall risk and cedant management.
We are also seeing how the technology is enabling reinsurers to participate in earlier stages of the reinsurance value chain and form closer ties with insurers and end customers directly. A notable example is Swiss Re’s cloud-based life and health automated underwriting solution, Magnum Pure©. Magnum is licensed to Swiss Re clients, typically insurance companies, to simplify the insurance application process and enable the insured to make smarter, more profitable decisions.
However, if you’re looking for quicker wins (that come with a potentially reduced due diligence burden than emerging tech requires before letting it loose on 25 years of sensitive claims data…), there are day-to-day use cases that can bring a sigh of relief across the enterprise. For example, the ability to improve knowledge and data sharing, eliminate administrative tasks or even help accelerate the creation of largely repeatable documents.
The rise of cybersecurity and the opportunity to support small to medium-sized enterprises
Cybersecurity is one of the fastest growing reinsurance sectors and players across the industry are eager to capitalise on the opportunity. 2024 will see an influx of reinsurers either entering or putting more capacity behind cyber-related products and prices have significantly softened as a result.
Historically, cybersecurity insurance was focused on protecting large corporations, but the landscape is shifting. The prevalence and sophistication of cyberattacks has grown, posing significant threats to small and medium-sized enterprises (SMEs), too. These smaller entities, although previously overlooked, are now recognised as prime targets due to their often-limited cybersecurity measures.
According to a Guardz report, 57% of SMEs have experienced a cybersecurity breach, and notably, about 31% of these incidents occurred in 2023 alone. Cedants are working closely with SMEs to create bespoke and effective cyber solutions, eager to capitalise on the broader market opportunity. However, SMEs typically lack robust security teams and in-house cyber protocols, like endpoint detection and response, patch management and sophisticated identify and access management. The same Guardz report states that 25% of SMEs don’t provide cybersecurity training to their employees, exacerbating their vulnerabilities and creating unique risk profiles.
What does this mean for reinsurers?
Cybersecurity offers a significant market opportunity for reinsurers as a product line. This requires a segmented and tailored risk management approach to best fit with client’s risk profiles. In particular, reinsurers must consider the levers that create risk exposures for SMEs, and how they differ from more established organisations.
To launch a cybersecurity product, reinsurers must also establish the required cyber muscle and expertise. The rise of cybersecurity means demand for expertise is outstripping supply, so reinsurers have the option to either train and reskill existing employees, or develop compelling employee value propositions to attract new talent.
With in-house cyber capabilities, there are even opportunities beyond cover that can generate new revenue, such as educating, training and consulting other companies on how to safeguard their organisation.
Connect with our reinsurance experts today for tailored solutions.
