The INSURTECH Book

Reinsurers Need Backward Innovation

By Vaughan Jenkins

Independent Consultant, Meta Finance

A Story from the Industrial Revolution

21 April 2017 was Britain's first ever working day without coal power since the Industrial Revolution.¹ If we think about the advanced technologies that old infrastructure has been powering, it is clear that the pace of change can vary significantly across value chains. It is also illustrative of how a core supply can be substituted by new power sources that have adapted to new demands and a different regulatory context.

What about Reinsurance?

Reinsurance has changed relatively little in its fundamental form since it emerged from the Industrial Revolution. It fuelled economic growth by facilitating effective risk transfer. Swiss Re and Munich Re emerged as dominant players in a marketplace built on a combination of trust, underwriting expertise, and a cost-to-income ratio model that rode the cycles of hard and soft pricing. The market has not been without its problems. Similar in characteristics to the later banking crisis, the Lloyd's of London market crumbled because of the punitive damage issues of the 1980s, where a number of Lloyd's investors went bankrupt due to their lack of understanding of asbestos liability claims.² In banking, issues were related to failed electronic trading initiatives, and despite market failures and a series of major natural catastrophes, the reinsurance market seemed built to weather the storms.

This resilience ...