News & Presse
Will Re-Insurers shake the market? I Series
In the second blog post of the SOSA FinTLV blog series, our Israeli partners discuss to what extent reinsurers influence the insurance market and what trends and challenges shape their work and future development.
Reinsurance companies, by definition, need to stay ahead of the game. They need to be able to forecast effectively so they can be prepared for the next set of threats to the insurance market, or be ready so they can go to market with the latest technological advancements and innovation ahead of their competitors.
The challenge that reinsurance companies are facing is that they often don’t have sufficient data –– or efficient data aggregation models –– to be able to forecast the effects of the rapid advances in technology.
Take drones as an example. Businesses are starting to look for insurance policies that will help them prepare for the potential risks caused by drones, but reinsurance companies cannot forecast what these risks will be, which makes the underwriting of policies more difficult.
Below we’ll look at other challenges and trends that are affecting reinsurance companies.
Natural disasters have always been a costly business for reinsurance companies. At reinsurance giant Munich Re, natural disasters generate €4.3 billion in losses every year. But reinsurance companies understand how to forecast for these kind of disasters, so they can minimize losses.
Cyber security and risk, however, poses a new series of risks for reinsurance providers. While governments, companies, and even consumers are looking for reinsurance policies to protect themselves against cyber attacks, reinsurance companies face more exposure than before.
Natural disasters are limited to certain geographical areas, but cyber attacks can take place anywhere, and affect the entire world –– there are no boundaries. What happens if there is a cyber attack on Amazon Web Services or Facebook users –– what will be the effects in terms of risk, and how many people will it affect?
It’s this uncertainty that makes it more difficult for reinsurance companies to understanding how they should price these policies. The current products do not reflect the real risks, nor do they provide the ability to properly underwrite these policies, as insurance companies struggling to gain enough data to build real actuarial models for this. The (relatively) new threat from cyber attacks calls for reinsurance companies to be more dynamic in their approach to pricing and creating policies.
Some reinsurance companies have already started to prepare by collecting continuous data of global cyber events, hacks, threats etc., analyzing the data and building better risk performance capabilities. Others are building their aggregative risk engines that will be able to analyze the full exposure of a cyber event, if occurs.
Disruption of insurance incumbents
In the next few years, more reinsurance companies will try to become disruptors to the incumbents. The reinsurance companies will try to do direct agreements with MGAs, MGUs, and corporations to provide insurance policies directly to companies and consumers. If the regulator grants the MGAs and MGUs their own insurance license then they will be able to sell policies in the same way as insurance companies currently do. This will then cut the insurance companies out of the loop.
Data analytics innovation
The pace of technological innovation will also continue at speed, which will enable reinsurance companies to offer more forward-looking products that can help negate the risk caused by threats such as cyber security or the ability to have better health risk assessment of the end customer or the carrier portfolio. These products will provide advanced data analytics capabilities to improve forecasting capabilities and build new data aggregation models that will enable reinsurance companies to be better prepared for what’s ahead.
FinTLV is a venture capital fund based in Israel with the aim of supporting innovative startups in the financial and insurance industry with industry expertise and financial investments. The company also integrates a FinTech Innovation Zone operated by SOSA in Tel Aviv ,and connects industry leaders with Israeli fintech and insurtech startups. Our members have access to startups and advice from their region and the opportunity to learn more about the Israeli startup ecosystem on the ground. More information.
SOSA is an open innovation platform founded in 2013 by 25 leading Israeli investors and high-tech companies. Positioned at the heart of the Israeli and New York tech ecosystems, SOSA supports global companies in working with innovative technology companies – from sourcing and deal flow to PoCs and the integration of innovations in their companies. More information.