How technology can assist the investment process in reinsurance transactions

Insurance has been accused of being slow to modernise and embrace technology, but the benefits if they decided to accept digitisation could be many.

Insurance Investor Editorposted on Friday, May 27, 2022

Tom Sumpster, Phoenix Group (L), Huayin Liu, Aviva Investors (C), and Robert Hauff, Vesttoo (R).

The reinsurance industry has often been told that it has laggard tendencies and that it still prefers paper and pen for writing out deals and contracts over the use of technology, which many say is holding it back – but is this changing, and what does it offer if it is?

In a Clear Path Analysis webinar, in association with Vesttoo, “Diversifying with Non-Catastrophe Insurance-Linked Assets” several panellists including Huayin Liu, Senior Investment Portfolio Manager, Aviva Investors, Nick Dixon, Former Investment Director, Aegon and Tom Sumpster, Head of Private Markets, Phoenix Group were joined by Robert Hauff, Portfolio Manager at explained how the industry could improve this and what optimisation they could gain from embracing the technology wave.

“Firms are trying to use technology for data mining, efficiency, and ease of doing business. Businesses that are rich in data can use it in certain areas"

Many insurers have struggled with digitisation – Lloyd’s of London, the world’s largest insurance marketplace has been one of the key culprits in being unable to shake its old ways of doing things despite numerous attempts by senior leaders. In 2021, the Boards of the Lloyd’s Market Association, and the International Underwriting Association signed new Heads of Terms to build the “world’s most advanced” digital and technology-led insurance market place, a project that includes eye-watering sums for constructing the infrastructure. It’s just one in a slew of new attempts by the industry to change its ways.

“This change is going to be quicker over the next decade,” said Hauff. “Firms are trying to use technology for data mining, efficiency, and ease of doing business. Businesses that are rich in it can use this data in certain areas. This widens the potential outcomes that we can evaluate and allows models to analyse risks and assess outcomes that were unlikely to have previously been explored,” he added.

“Furthermore, technologies can provide the transparency needed for the rating agencies to rate investment vehicles that they couldn’t rate before, such is the case with life and P&C liabilities, which are rich in historical data and can be modelled with tools such as artificial intelligence, increasing expected loss projection accuracy, as well as providing the information needed for ratings.”

“The tools and systems that are involved from initiating a transaction to closing it are multiple”

This point was raised earlier in 2022 by AM Best, which said “Five-year benchmarking analysis of AM Best-rated nonlife companies’ innovation assessments indicates that COVID-19 widened the innovation divide, with a clear link to better top-line growth for insurers with more-developed innovation initiatives.” The insurance-specific rating agency also said that one of the biggest obstacles in insurance to operational innovation and its associated benefits continues to be a fragmented landscape on legacy IT, driving costs higher while hindering innovation efforts. 

“The tools and systems that are involved from initiating a transaction to closing it are multiple,” said Liu. “These processes can be manual, and stages could be more efficient with technology, i.e., the activities on the investment side such as updating the data, limiting the universe, and knowing what your investable universe is.”

"The more we can share and be transparent around data and give access through systems means that we can make quicker decisions, but with the same level of scrutiny”

This process won’t come cheap, though, either for primary insurance functions or for asset management teams. A McKinsey paper showed the increase in technology costs for life and non-life carriers was growing.

Sumpster said their goal at Phoenix was to value their investment portfolio at the touch of a button. “This means better decision making,” he said. “So, the more we can share and be transparent around data and give access through systems means that we can make quicker decisions, but with the same level of scrutiny.”

To see more about the webinar and read the full report, please click here.

 

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