What will be driving the market in 2023?

According to a panel of experts, this year’s trends could converge on the very basis of the way the re/insurance market works.

“I don’t know an underwriter who’s not working on an algorithmic play of some type,” said Jonathan Prinn, chief executive officer, London, Inver Re, highlighting the algorithmic underwriting trend for digitally-led market change.

“Algorithmic underwriting is going to be something that brokers and underwriters are racing to compete on. It will be a very exciting time from 2023 onwards.”

His comments came as he spoke on panel of sister publication Intelligent Insurer discussing trends in the re/insurance industry, with fellow panellists Karl Hennessy, head of specialty broking, McGill and Partners; and Volker Kudszus, senior director & EMEA insurance sector lead, S&P Global Ratings, which took place in late February 2023.

Market tracker moves

Prinn said there’s a potential that most carriers will have a stock picker versus a market tracker strategy going forward. He pointed out that re/insurance was the only financial service without a market tracker. “What’s our equivalent of the FTSE 500 or the S&P? We need that in our industry.”

Hennessy has seen an increasing number of insurers set up portfolio-type plays, where they have identified a ring-fenced capital at a lower cost, “specifically to develop these types of market tracker solutions”, he said.

But for such market change to take off properly, game-changing insurtech is needed and that remains elusive. Calling current insurtech “a thin veneer” that the industry has stuck over the top of existing systems, Hennessy said all insurtech has done so far is provide a more sophisticated, automated way of doing things that the market already does.

“The cost of doing business hasn’t been profoundly impacted by technology. This is the one area where the market needs to get its act together and find a completely different way of doing things.”
He said that McGill and Partners is looking at 100 percent digitisation of all the business it handles. “We need to take a very close look at how we are placing business in the market,” he added.

Prinn agreed that in terms of leveraging tech, the re/insurance industry “is still lacking in that space compared to others”. He added however that it is on a journey—from voice trading, to hybrid, to fully electronic—as he referenced progress with Lloyd’s Blueprint Two and algorithmic syndicates.

“The delivery of the Next Generation PPL platform is an important step for the market. There should be lots of competitors to that, but we’re all driving for the right reasons.”

Competition is driving other industry trends as insurers look to differentiate themselves on more than just price, said Hennessy. He said the market will begin to see more product-embedded insurance this year, where a link is created between some form of risk mitigation, evaluation or remediation and insurance.

As a solution for clients, product-embedded insurance is “far more encompassing”, Hennessy said, adding that he expects to see more of it in areas where a lot of change is happening, such as the fast-moving cyber space.

‘The forever rise of ESG’

“There’s no question that environmental, social and corporate governance (ESG) issues seem to be the 2022/23 word in the way blockchain was around 2019/20,” Prinn commented. Referring to the trend as “the forever rise of ESG”, he said that its impact on the market will be “very interesting”, not least because there are all sorts of competing issues between the E for climate and the S for social.

For example, he said, consider people dying from fuel poverty (social) because of curbs on insuring fossil fuels (environment).

Hennessy said the ESG trend represents a “significant opportunity” for market practitioners as it flows through the ongoing transition from old to new energy. “It potentially provides significant opportunity for the market to involve itself in major infrastructure investment both on and offshore,” he added.

According to Kudszus, a longer-term trend linked to this that could gain greater prominence this year centres on Europe and the huge protection gap related to climate change and increases in natural catastrophes.

This issue came into sharper focus following the deadly floods in western Europe in July 2021, he said. The floods killed more than 220 people and destroyed homes and businesses in the Eifel mountain region of western Germany and eastern Belgium. The Netherlands, Luxembourg, Austria and Switzerland were also hit by the floods.

Germany was the worst affected and estimates for the total cost of damage are more than €30 billion.

Kudszus said: “In Germany only 46 percent of the loss has been insured, and in the middle of Western Europe that’s a very big protection gap. It’s important to look into what’s happening, but also what’s happening from the regulatory front.”

Flagging up the European Commission’s interest in this issue and its focus on regulation and re/insurance charges, he said the industry needed to “keep an eye on” how this develops.