CIO and IT leadership Take Aways From The Monte Carlo Rendez-Vous 2017

The world of (re)insurance traces its roots back 300 years to the Lloyd’s coffee shop and huge risk industry that was built around it. The Monte Carlo Rendez-Vous is a more recent phenomenon going back a mere 50 years when reinsurance leaders and underwriters decided that an annual forum to discuss pricing, capacity and market trends would be a civilised way of building up to the upcoming renewal season.

More recently, underwriters have been joined by other business units as insurance has incorporated the latest risk management and modelling techniques into their platforms. That trend has accelerated in recent years as it has become increasingly clear that technology, IT leadership and project management skills need to become an essential weapon in a modern insurance company’s armoury.

That’s why I made a point of attending this year’s forum to see if there was anything I could take away from the event that would be of interest to Fifth Step’s CIO and IT Leader clients, and which they should be aware of from RVS 2017.

What I learnt was that the potential for technology to disrupt the traditional insurance business model was a hot topic yet again for reinsurance leaders at the 2017 Monte Carlo RSV. Blockchain technology, for example, took a step forward in the consciousness of the insurance market with the announcement of the (re)insurance B3i initiative that was unveiled at the event.

The resilience aspect of Blockchain is very interesting because transactional data is now backed up potentially hundreds or even thousands of times at different locations not only in London but Singapore, India, the US or where other people are participating in the blockchain in that market.

B3i is an initiative of 15 members of the insurance industry, launched in October 2016 to explore the potential use of the distributed ledger technology and develop common standards for the industry. Members are Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group.

According to a press release on the Allianz website timed to coincide with Monte Carlo: “The prototype, which has been developed over the past 3 months, has the potential to radically simplify how the insurance industry does business. With this step, B3i members and the greater market are able to see how it all comes together. The system covers the major elements of the Property Cat XL reinsurance contract life cycle (i.e. smart contract setup, premium settlement and claim settlement).”

There is still some uncertainty in the market as to the difference between a smart contract and a normal contract. What is the difference between a policy or a smart policy? Flight cancellation is the example many people use. The definition of a smart policy or smart contract is where clear terms can be defined and then monitored from third party sources and there are other examples.

Take the commonly-used flight insurance example. You as a traveller take out travel insurance. When you take it out the policy says we will pay you if your flight is delayed by more than 60 minutes - or whatever the term is that you accepted. You pay your premium and your flight is delayed by two hours. What do you do? You document the fact, take a photo of the flight board with two hours delay on it, contact your insurance company by phone or internet and fill out their claim form. Sometime later the insurer phones you up to clarify some details or they will come back and just pay. But there is a period of time lag and typically, in my experience, it is not less than a month - even when things run smoothly.

With a smart contract, however, the idea is that the claims event is rendered indisputable by a trusted third party. If you are the insurance company, I am the claimant, the airline has publicly available services reporting that flight has been delayed, which alerts the insurance company that does a quick search on which travellers are inconvenienced and pay them immediately. The idea being there that the payments are triggered by the undeniable data from external sources.

Cyber-risk also topped a list of concerns for reinsurers in a new report from professional-services firm PwC that was reported at this year’s Rendez-Vous. The report, titled Uncharted Waters: tackling reinsurers’ riskiest exposures, is based on a reinsurance cut of the Insurance Banana Skins Survey 2017 from PwC and the Centre for Financial Services Innovation.

According to PwC: “The analysis highlights the most serious concerns on the industry’s risk register. Cyber is closely followed by concern about the industry’s ability to weather change and pressure on investment performance. Other prominent fears include political interference and technological disruption. Regulation and a challenging market environment have long dominated the top of the rankings and, although these still play on reinsurers’ minds, the most pressing concerns in 2017 are rooted in the shock and uncertainty of the ‘new’.

“Cyber-risk concerns reflects both the anxieties of underwriting a risk that’s constantly changing alongside the rising threat to reinsurers themselves. Far from being simply a technology risk, cyber is now a significant reputational and systemic concern for insurers, reinsurers and their clients. The report shows many businesses across the world are aware of the risk but remain unwilling to buy cyber cover due to restrictive coverage and limits.”

XL Catlin, meanwhile, said that reinsurance growth remains challenging, so innovation will remain a critical topic. The company reported that the industry at times can seem to be one step behind when it comes to technology and adopting new methods. According to XL Catlin: “InsureTech is making us all sit up and pay attention. At XL Catlin, we have invested heavily in the future. For example, we have set up XL Innovate, an XL Group-sponsored venture-capital initiative, which invests in early stage industry innovators.”

This year’s Monte Carlo was humming with new ideas of how technology and the potential regulatory backlash – topical in light of recent events au Uber – could impact the (re)insurance market. I was myself interviewed on this subject by the Intelligent Insurer magazine.

As I explained in the article some insurers are implementing only the minimum data protection standards as required in a jurisdiction—but this approach will cause problems for them. Financial services companies need to get on the starting blocks in time for the GDPR in 2018. You can read a full write up of the interview here http://ow.ly/m3so30flwp4

All in all, there was plenty of food for thought at this year’s Rendez-Vous. The (re)insurance market is alive to the threat of disruption and that can only be a good thing. The question is, how can the insurance market leverage the benefits of new technology while navigating a steady path through the regulatory obstacles that are sure to be placed in our way.

I’ll be blogging - and even vlogging! - my thought on this topic throughout the remainder of 2017. Meanwhile if you are a CIO or IT leader who is interested in some of the themes arising from this blog, please email me: Darren.wray@fifthstep.com and let’s get some time in the diary to make your business future proof and resilient in time for 2018.