Innovation, technology, and a culture of experimentation are essential for the reinsurance industry to close the protection gap, said Jean-Jacques Henchoz, Chairman of the Board at BMS Group and former Hannover Re CEO, speaking at PwC’s annual breakfast briefing during this year’s RVS in Monte Carlo.
With this in mind, he highlighted opportunities for innovation to expand the boundaries of insurability and help bridge the protection gap.
One area where the industry has the opportunity to both stretch itself and demonstrate true innovation is alternative capital solutions, according to the executive.
Henchoz explained: “We have some good cards to play, nevertheless, and one card to play is very much the alternative capital market. Which cannot be so easily separated from traditional reinsurance, there is a lot of cooperation.
“I believe that this is a market which is not only here to stay, but also a market which will expand, largely now in the nat cat space, the ILS market has grown by over 10% year on year, and it supplies roughly 15% to 20% of global capacity. So not bad.”
He continued: “It provides diversification, liquidity, flexibility, and this beyond the traditional balance sheets. But as importantly, I think the alternative market continues to look for expansion outside of the nat cat space, and this is, for me, very, very good news.
“I do hope that in the next five to ten years, we are going to see the emergence of a cat bond market in cyber which will be needed to create capacity to support the market. So we need to really make sure we can use the power of the capital market for innovation.”
Other examples of innovation opportunities include, where insurance and technology combined, include parametric solutions and usage based insurance (UBI).
“I believe the parametric market is going to grow quite steadily. There are no technical issues around parametric. The number of data emerging is incredible. There are many new ideas beyond nat cat as well. We should really focus our attention on parametric solutions, even more now than before,” said the executive.
On UBI he commented: “This is a partly untapped opportunity. It is more for the primary insurers, but I think reinsurers have a role to play. You can interact with their clients on pricing, product development and more!”
Henchoz believes that there is an emerging opportunity in the market for carbon credits, which will continue to grow as the energy transition takes place.
“There are also a few startups looking into ways to ensure these assets and it’s going to grow. Reinsurance could help in the development of that new frontier type of product and I know that some of them are working on it,” he said.
Moreover, he also highlighted microinsurance as a great tool to get to underserved segments. Particularly in emerging markets where microinsurance products range from life and health, accident to crop insurance and more.
“Like with parametric, I think the challenge for microinsurance is that even though it is easy to implement, scalability remains the problem,” Henchoz concluded.
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