Maximising Operating Efficiencies is Key to Success In “New Normal” Insurance Environment

January 14, 2016

The value proposition of reinsurance improved further according to the latest Reinsurance Market Outlook produced by Aon Benfield timed to coincide with the critical January 1st renewal season.

The global reinsurance broker’s outlook for April 1st , 2016 renewals was also positive for Aon Benfield’s insurance cedant clients, which it stated would likely “find improvements in pricing terms and conditions that are similar to what we achieved for clients on January 1st, 2016.”

The in-depth report is a must read for insurance professionals across the board, however, DOCOsoft is particularly interested in Aon Benfield’s assertion that differentiators for reinsurers going forward are increasingly apparent.

According to Aon Benfield: “Many have put even further focus throughout 2015 on client intimacy, enhanced risk analytics, broader product and distribution capabilities, and capital market relationships while at the same time simplifying and streamlining their businesses wherever possible to maximize operating efficiencies.”

The report provides a fascinating insight into the Property Casualty market cycle oscillations of the last 50 years, their impact on soft/hard market pricing and a new feature, which is the “unprecedented stability” of the last 6 years. There are a number of complex reasons for this changed market dynamic – the new normal? – including the increasingly permeable nature of cross border global capital flows, underpinned by alternative capital providers.

One line in the report, however, stands out: “the most important development in insurance over the last twenty years has been radical improvements in the technologies available to deploy capital very quickly, as and where needed.”

The positive impact of new technology on insurers’ balance sheets is a recurrent theme in the report, particularly with regards to advances in modelling or to be more precise, flood modelling. These advancements have sharply improved the ability for insurers to evaluate individual risks and price accordingly; elevating the industry into a better position to understand flood risk.

Meanwhile, The Solvency II Directive (S2), originally published in 2009, comes into effect across the European Union (EU) on January 1, 2016.

As Aon Benfield states, “S2 introduces economic risk-based solvency requirements in many European countries for the first time. The industry is effectively shifting from a static, mechanical calculation of capital requirements, to a dynamic approach where all assets and liabilities are valued according to market consistent principles. This means that insurers will be required to hold capital against market risk, credit risk, and operational risk, as well as insurance risk.”

Solvency II will provide IT managers with a number of new challenges and increased complexity, with legal rules evolving from listing a series of provisions, to being a principles-based system.

Solvency II explicitly addresses IT issues, particularly with regards to advice on data quality, data governance and documentation and requires a holistic approach to enterprise risk management, encompassing people, processes and applications.

Delivering dynamic, enhanced enterprise risk management technology will be the key to new IT system builds, providing accurate data to a lower level of granularity more regularly than previously, from archaic source systems many of which in insurance are legacy in nature.