In an overview of today’s economy, one can see the business world reshaping itself faster than ever. New realities are being formed by megatrends such as digitalisation and automation, with side effects such as a low-yield environment and a great deal of unknown factors. The key challenge for incumbents in most industries is to anticipate the markets of the future in order to stay relevant. To be successful, this has to be seen as both a major challenge as well as a huge opportunity.
Where should reinsurance go? What technologies will define the way we assess risk? How will risk be allocated in a highly digitalised and automated world? The ability to innovate is essential – both in reinsurance and in primary insurance.
Big Data will dominate the development of traditional reinsurance business
Today, Munich Re is leading the world in areas which are key and core success factors for risk assessment and capital management. Both are strongly data-driven disciplines. Technologies already available today allow us to further enhance our data-analytics abilities and tools. For example, tremendous amounts of previously unavailable data and sophisticated analysis methods will become available and help improve risk assessment, loss prevention and claims handling alike. These technologies are of course already used by newly established businesses, but will also transform traditional reinsurance business over time. There is thus significant potential to improve efficiency as well as to open up new avenues for growth. Additionally, we have to recognise that customer expectations and behaviours change, also on a B2B level. Demands such as constant availability of services, adequate and flexible pricing can only be facilitated by huge data-analytics capabilities. This evolutionary development will continue and accelerate over time.
New demand will arise due to increased availability and shifting risks
Favoured by the current megatrends, reinsurers have the capacity and capability to further expand the scope of insurable risks and market penetration. This holds for mature markets where the insurance penetration is already pretty high, as well as for developing markets. Both the scope of insurability and the demand for certain covers will change, driven by the development of our economy. Products will be needed for previously uninsured events, e.g. epidemics or increasing weather-related risks or new threats such as cybercrime. That’s why we focus on closing the insurance gap, for example by cooperating with public institutions to enable private insurance coverage in mature markets, and by offering solutions for governments in emerging markets. The digital transformation brings new risks such as cyber to the table. There is a huge potential for growth in such unsaturated markets: in cyber, only about 1% of losses are currently insured worldwide. Additionally, new technologies open up the market for basic insurance coverage to individuals in emerging economies. Big data and analytics allow insurers to efficiently process underwriting and losses with low volumes and high demand rates. Thanks to innovative data technologies, insurance can also be offered that was previously considered unprofitable or difficult to assess. Innovations – like the blockchain technology – that support digital contracts, online payment or automated claims handling make it possible to increase the availability of insurance in developing markets and increase customer convenience in developed markets, both leading to higher penetration. That’s why we expect growth in all personal and SME business.
Disruption of PI insurance products
In addition, there are new business opportunities generated by disruptive products. As a result of constantly increasing data usage and the digitalisation of existing primary insurance products, a new generation of PI products will be innovated. This will be a disruption based on customer centricity as we have seen in many other industries, e.g. consumer retailers and manufacturers combining services from different sectors and/or increasing customer convenience. Due to the newly available information, the improved processing of data and their flexibility, these products could be a lot closer to customer needs and adapt more easily to customers’ daily life. The first developments in this direction can already be seen in the market, e.g. pay-as-you-drive motor insurance or product bundles where the customer no longer needs to choose an insurance cover, as it is already “built in”. In theory, there are no limitations when tailoring the perfect individualised insurance coverage for every demand – as long as enough data is available. Frustrating moments in the customer experience such as the risk of buying the wrong, too much, or too little insurance could be eliminated. In this field, reinsurers can serve as enablers by setting up a technological infrastructure, co-creation of new products, knowhow
transfer between markets, and by overcoming the risk adversity of traditional players or regulatory hurdles young companies face.
To benefit from all these developments, Munich Re is well positioned to not only adapt its business model to market changes, but also shape the future of primary and reinsurance. We foster innovation throughout our global organisation, because we want to be at the forefront of this development together with our clients. Consequently, we have a dual strategy: we create internal knowledge pools as well as co-creation partnerships with our traditional clients and InsurTechs. To enable this, we have built in infrastructure for innovation throughout our Group, e.g. innovation scouts and labs in various locations worldwide. We are thus able to understand, evaluate and deliver the newest technologies and products to our clients.