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Being nimble, leveraging scale

The definition of what it is to be a global reinsurer is changing rapidly in the face of an increasingly complex business world. We spoke to Hannover Re’s Mr Jean-Jacques Henchoz to understand where the reinsurer’s priorities lie.

By Paul McNamara

No-one would expect the job of CEO of a leading global reinsurer to be an easy one. Being successful in the role seems to require being part visionary, part salesman, part tactician and part role model. Pulling all of this off during the worst health crisis in living memory while coping with increasingly eccentric weather patterns would test the commitment of most people.

But Hannover Re CEO Jean-Jacques Henchoz appears to waste little time fretting about the complexity of the task and simply gets on with it. He joined the reinsurer in 2019 after almost 20 years at Swiss Re and appears comfortable with the way it has performed during the pandemic.

"We're in a very turbulent environment," said Mr Henchoz. "But I think Hannover Re has been doing very well and has shown a lot of resilience in spite of the heavy CAT activities in the past few years, and also in spite of COVID."

Strategic goals

Hannover Re’s unique profile lies in the way it approaches the market. "We’re very close to our clients, building partnerships and we have a very lean operating model," said Mr Henchoz.

In the medium term, Hannover Re hopes "to leverage the current market cycle and broaden its business relationships even further," said Mr Henchoz. "We have a significant opportunity to increase our presence among some partners and clients."

But there will also be a focus on innovation. "We’re quite prominent in the insurance-linked securities space. Another area where we continue to increase our innovation activities is structured reinsurance. This applies to both P&C and life and health," said Mr Henchoz.

And of course, digitalisation is not being ignored. "We need to accelerate the pace in the area of digitalisation and technology-related solutions and partner with fintech in particular in order to support our clients better," he said. "This applies to all regions but is particularly important in Asia Pacific."

ESG is also important. "We strive to be up to speed on all aspects of ESG while IFRS17 is consuming a lot of our energy," said Mr Henchoz. "We have a lean operating model – and we want to keep it that way."

Meanwhile the cost of doing business in reinsurance and the complexity of doing so are increasing. "We’re trying to remain nimble and to leverage the scale of the company. I wish the different stakeholders could join us and consider ways to implement all these reporting requirements in a more harmonised way. We aim for a higher level of transparency, but the complexity could potentially hinder the progress for the whole industry. This is very much a global challenge," he said.

Looking towards Asia

How does the reinsurer view Asia Pacific? "It is one of our key initiatives in the current strategy cycle," said Mr Henchoz. "It is one of the areas where we need to step up. We have close to 20% premium volume in Asia Pacific if we include Australia, New Zealand and Japan.

"We decided to shift our footprint towards these markets, but we’re not creating new offices. In order to achieve this goal, we emphasise our resource allocation towards Asia. We want to be closer to the clients because this opportunity to broaden client relationships is prominent in Asia Pacific and that requires close interactions," said Mr Henchoz.

But Mr Henchoz is clear that this is not growth for the sake of it. "We are not top line oriented. We are an underwriting-led company. We’re ready to deploy capital. We’re ready to widen these relationships, but we need to make sure that the quality of the business is at par with our requirements. It’s not growth at any cost. We are very keen to develop longterm relationships with the required underlying profitability for both sides. This is possibly the biggest potential hurdle to our growth outlook in the next few years," said Mr Henchoz.

Insurers must unlock the value of data analytics

Data analytics has revolutionised and improved many insurance processes. We spoke to Munich Re’s Dr Tobias Farny to understand how insurers can leverage data to boost efficiency and accuracy.

By Jimmy John

With advanced analytics incorporated into claims management processes, insurers can deliver high-value and comprehensive analysis of portfolios that can boost accuracy and efficiency across business critical functions.

Some motor insurers in Asia have already begun to digitalise and automate claims process based on AI for images, text and structure data. “When proper data-driven tools are in place, insurers can also improve overall business performance and minimise costs across the entire value chain,” said Munich Re Asia Pacific – Greater China and Australia, New Zealand CEO Tobias Farny.

“For the clients it means faster and more reliable claims settlement,” he said.

Solutions for reinsurers

The ability to collect, analyse and draw actionable insights from data is beneficial as it allows insurers to implement suitable claims analytics tools in place to control costs. “However, tools like advance fraud detection for example, require a strong foundation of quality data in order to be optimised,” said Dr Farny. He mentioned that since many primary insurers have not yet fully embraced the importance of having quality data, it is essential that reinsurers offer plausibility checks and data cleansing in order to improve the quality of existing data and refine data fields.

Notably, insurance analy tic s platforms operated by the more advanced players in the industry can enable insurers to collate their data with sector-specific external data. “This utilises greater and more relevant data volumes, which offer the basis for enhanced portfolio management and smarter decision making – from distribution and pricing to claims handling,” he said.

“We provide advice to AI providers in designing their performance guarantees, relieve them of significant balance-sheet risks and, thus make them more attractive to investors and their clients at the same time,” said Dr Farny.

Another example, he said, is the availability of global data, enabling local insurers to gain access to benchmarking, helping them to identify potential areas of strength and weakness.

Value of data analytics

Dr Farny believes that in order to unlock the value of data and digitalisation, it is critical for insurers to recognise that the competitive advantage will go to those who are able to leverage the power of big data and analytics – whether to identify early signals and emerging risks and opportunities, to increase customer value through better insights into their behaviour, or to make business operations more efficient.

“However, while most insurers are increasingly seeing the benefits of harnessing data analytics and have begun to perform data hunting and analytics in house, small and mediumsize companies are more likely to continue to face limitations associated due to cost and lack of infrastructure,” he said.

Insurers can consider partnering with other players to promote innovation, knowledge-sharing and faster implementation of data-driven solutions, skillsets and IT infrastructure without losing control of costs. “We adopt a relationship-based approach and work closely with insurers as we believe that such long-term partnership not only provides greater integration, but it allows primary insurers to take advantage of the full breadth and depth of our offerings,” he said.

Data-driven solutions

The pandemic has accelerated digitalisation in the public and private sectors. Looking ahead, he expects further and faster investments in the digitalisation of most primary insurance business models especially with higher cost pressure to automate processes. Insurers, he feels will also increasingly embrace machine learning on existing data to optimise pricing and distribution and address individual demands for more usagebased products.

“AI will play a role in structuring data from images and text and therefore set the foundation for smarter and more automated decisions in underwriting and claims,” he said.

As the industry continues to digitalise and become even more data-driven, new risks will emerge, such as the risk of using a new technology like AI itself. “Insurers must not only navigate this dynamic risk landscape and re-assess and implement current data protection and local regulation requirements but continue to provide the best solutions for insurance clients,” he said.

Industry must create a shared ecosystem

JB Boda Reinsurance Brokers’ Mr Atul Boda spoke to us about the way forward for reinsurance brokers in the midst of the pandemic-fuelled disruption.

By Jimmy John

As the pandemic led to lockdowns that stretched for 20 months, reinsurance broker JB Boda ensured that its employees were equipped to carry on their work and to meet the daily requirements of clients.

The company securitised its business continuity plan and its data was moved to the cloud for safety. “We equipped our colleagues with various virtual meeting platforms to stay connected with ceding companies and reinsurers for smooth communication and renewal process,” said JB Boda Reinsurance Brokers chairman Atul Boda.

Building customer confidence

With everyone trying to cope with the sudden changes, the company took the first step to equip all its staff who were then in a position to address clients’ needs. “Every risk brings opportunity, and the pandemic helped the insurance and reinsurance industry to appreciate the importance of technology and to find solutions to some of its problems like fraud reduction through AI,” said Mr Boda.

The company also arranged virtual training programmes on market developments and other critical topics.

Demand for health and cyber products

Clients in different countries have their specific requirements and in some markets like India, health insurance premium and liability insurance premium experienced growth during financial year 2020-21. E&O and cyber crime products were in demand and credit insurance experienced growth despite increased rates.

“Different markets have their own unique experiences and the pandemicrelated uncertainties resulted in a slowdown in the development of new products and strategies,” said Mr Boda.

Nat CAT and cyber are here to stay

Natural disasters are becoming more severe and 2021 has witnessed increased frequency in Asia, Africa and Europe.

“To cater to the requirements of its clients, the company aims to evolve as an analytical broker that can use tools and software to offer assistance in underwriting as well as reinsurance purchase,” said Mr Boda, whose company recently licensed the India earthquake and flood model from Risk Management Solutions to analyse exposure of Indian insurers as well as the Indian book of various reinsurers.

The pandemic has also forced people to work from their devices and home networks, thereby increasing exposure to cyber attacks. “The insurance and reinsurance industry is exposed to silent cyber attacks where liabilities are not fixed and so research on adapting proper wordings in the policies and educating clients should be a priority,” said Mr Boda.

He feels that this new phenomenon could result in a hardening of rates.

Technology to drive the future

Mr Boda believes that every challenge has a solution. The pandemic, he feels, has created an impetus for the industry to adapt technology and digitise its processes. Training employees has resulted in increased efficiency and reliability and in future, with the use of technology, it will be easier to issue policies and serve the customer more effectively.

In some cases, health cover without pandemic exclusion clause could be challenging. At times, despite the leader’s agreement to cover COVID-19 cases, some participating reinsurers may not agree, as the relevant data may not be readily available.

“Thus, a reinsurance broker along with ceding companies, reinsurers, tech-service providers must help create an ecosystem which will benefit entire industry,” said Mr Boda.

The current situation has resulted in positive ideas that looks at employees’ requirements more closely and offers them the flexibility for a hybrid work environment. This is something the industry could not accept in the past but has now accepted.

The first 20 years of the 21st century have seen a staggering rise in natural catastrophes. While with adequate safety measures, the loss of human lives has been controlled, losses, both economic and insured, are rising fast. The increasing regularity and severity of these Nat CAT events could mean that very soon the point may be reached where more risks become uninsurable.