The insurance market has experienced its worst disruption since the financial crisis.
Inflation is rising to levels not even senior members of our industry have seen in their working lives; Bonds and stocks have fallen in tandem for the first time since the early 1980s. Mainly because of this, the earmarked reinsurance capital fell by 11 per cent in the first half of the year and the primary insurance capital possibly further. This convergence of events creates capacity constraints, causing online fees to continue to rise in most regions and lines of business.
What does this mean for the future development of the insurance market? Those with the longest in the tooth can draw on memories of past tough markets, which in itself is a valuable resource. However, two unanswered questions remain: where are the data and where are the analytical tools that will allow us to navigate this new phase of the cycle?
The Insurance Data Gap
The insurance industry has lagged behind other financial markets in terms of the ability to access detailed, homogeneous market data and analytical innovations. On other capital markets, historical prices of thousands of assets, commodities and derivatives are available with a few keystrokes. While this type of information exists in certain areas of insurance, it is either fragmented into specific markets or jealously guarded by individual entities. And who can blame them? Data and analytics are an extremely valuable tool in managing these market dislocations.
Howden’s Nova platform provides this much-needed access to industry data and analytics and capability. It draws on all publicly available historical data, is continuously updated with new inputs, and provides quick analysis and comparisons of prices, profits, claims and buyer behavior across general and specific lines of insurance.
Of course we believe that Nova can become an industry standard. But you don’t have to be as excited about Nova as we are to realize that data is our industry’s greatest untapped resource.
Analytics provides the advantage
Perfect decision making is not possible, but with the right information and the right analysis tools, decisions improve. Market direction and the likely longevity of market cycles – including the current one – can be better understood with accurate data and intelligent analysis.
Excess profits are usually made by taking informed, often contrarian, positions. The right information and analysis can identify these opportunities and “white spaces” before consensus is sought.
Benchmarking can be improved, especially outside of the US Yellow Book homogeneity. Identifying key metrics such as B. the actual performance of peer companies in different markets, becomes straightforward with hundreds of data sources and almost perfectly consistent financial models accessible through a digital platform.
Likewise, counterparty credit is becoming a critical issue in volatile investment markets. Data and analytics make assessing counterparty risk less of an art and more of a science. Cedants can upload their entire reinsurance panel to Nova and monitor it as information is updated.
These applications are just a taste of what is already possible. The uses are endless, and advances in machine learning and AI will open up even more possibilities.
Plan a smoother course
The history of insurance is one of cycles, and that will not change. But data and analytics are becoming increasingly important to understand how these cycles work and to identify the challenges and opportunities they present.
With Nova, the industry-leading platform for market insights, these opportunities can be better focused.
David Flandro is Head of Analytics and Michelle To is Head of Business Intelligence at Howden
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