Start-ups have an opportunity to combine underwriting talent with technology to build the carriers of the future, while established insurers that can drive cultural change with digital strategies will also be well-positioned as the industry evolves, according to a panel of senior industry executives.

Virtual debate

Speaking in The ReInsurer’s latest virtual debate panel discussion this week, former Arch chairman and CEO Dinos Iordanou said there is a “tremendous opportunity” to harness emerging technologies that allow analytics to improve the underwriting selection.

“And you have an easier time when you’re starting with a blank sheet of paper to create a new company that has all those ingredients.

“[You can] incorporate new technology and analytics into the underwriting process coupled with hiring experienced knowledgeable underwriters and create a 21st century type environment for insurance,” he said.

As previously reported, Iordanou is working on a start-up (re)insurer and is understood to have secured backing from private equity firms The Carlyle Group and Hellman & Friedman.

He said a key advantage of having a blank canvass as a newco is the ability to shape an attitude in an organization around marrying underwriting knowledge and expertise with technology to enhance it.

“In some companies even though there may be strong willingness from senior management, people can be set in their ways and don’t want to do things in a different way, so you have to fight an uphill battle.

“On a blank piece of paper you’re bringing in people that already believe in that and that makes it easier to implement,” said the executive.

He added that technology should not only be directed at improving efficiencies and effectiveness at the operational level, but from a predictive analytics perspective to enable better underwriting decisions.

“It’s that combination and mix that excites me,” he continued.

Dinos Iordanou on starting with a blank sheet of paper

On the panel, PK Paran, co-chair of DLA Piper’s insurance practice, said that he talks to large established carriers that have a similar focus as they drive technology strategies.

And Dalynn Hoch, head of group M&A at Zurich said a strong focus at the insurance giant is how to move forward from an underwriting and claims perspective in a more digital way using data and analytics, artificial intelligence and cognitive computing to get to a “predictive state”.

“What we’ve learned that is most important is that it does come back at the end of the day to the talent. You have to get that data and insights in a way to the front line that it can be digested and understood so they actually make a decision to move forward to change an outcome for a customer and an outcome for the organization,” she said.

The executive said it was critical to pair digital, AI, data and analytics with talent and an ability to drive cultural change within an organization to adapt to the new environment.

“Because if you can’t get your organization to adapt, all the money you invest in those areas of digital and AI will not bring the same value as when you can really drive the cultural change and execution across your whole organization,” Hoch added.

Zurich’s Dalynn Hoch on the importance of winning over talent to tech

Buy or build?

The panel also debated the buy versus build question in relation to technological innovation for the sector.

Iordanou said in any situation it made sense to go where the expertise is, which in his view means going outside the company to bring new technology to underwriting teams.

Hoch said the decision about buying versus investing internally to build had to involve a balanced discussion.

“It’s about looking at what we want to deliver for our customer, then stepping back and saying what capabilities do we need to be able to deliver that… then how do we balance it, should we build those, that could take 3-5 years, it could be a blank slate but we may not have the right resources, so we may have to bring those in.

“Or we can look at partnering, we find that extremely effective… then ultimately should we actually contemplate the buy? Is there an entity that meets a number of those capabilities… and from there you can build the other capabilities?” she said.

Founding former chairman and CEO of RenaissanceRe and TigerRisk co-founder Jim Stanard said that venture capital in the insurtech space can be seen as a substitute for internal research and development.

“It’s typical for companies to look around and buy the technology they want rather than spending a lot of money internally with their own tech development,” he observed.

As this publication has previously reported, buying insurtech businesses can come with a hefty price tag however, with soaring valuations in the sector fueled by strong investor interest in what they see as growth stories.

“Many of these tech companies are doing things the way I believe insurance will be done in ten years. They’ve got a lot of smart people and they’re doing the right stuff. The question is: are they going to be the winners? The pioneers get the arrows and the settlers get the land,” he suggested.

Jim Stanard says incumbents that harness tech in the right way will win out

Stanard said he remains sceptical about sky-high valuations for some insurtechs because of the issue of customer acquisition, which he described as the hardest part of the business.

“So I think the Zurichs of the world and other major companies paying attention to this are going to be the settlers. They’ll be the ones that take this technology, apply it to their already huge customer base. Some of these [insurtechs] will be very valuable, but not all of them,” he predicted.

Focus on restructuring and legacy

Discussing M&A dynamics in 2020, panelists highlighted a strong emphasis at carriers to look at restructuring their businesses through disposal of non-core assets or legacy transactions as they focus on hard market opportunities.

Zurich’s Hoch said: “The conversation coming out of CEOs and from discussions with other carriers and companies is the need to have focus on the core and think about what we do with the non-core.

“You’re starting to feel in the second half of 2020 as well as going into 2021 more transactions around businesses that perhaps for one carrier are non-core but could fit really well with another carrier and their book of business.”

DLA Piper’s Paran added that restructurings are taking place around legacy and live business, and that the focus had been there pre-Covid but was now being accelerated.

“Now there are probably pressures for that to be accelerated and there are a couple of high profile examples in the market where groups have made public statements about focusing on their core and disposing of non-core but those are not just legacy, they’re live businesses,” he commented.

Paran said that, despite all the current noise about the run-off sector and the potential for a lot of legacy transactions coming out of the pandemic, he sees it as a continuation of evolution in the segment that has been running for the last decade, with more and more transactions taking place.

“The pandemic has accelerated certain things. Some groups have needed to take a closer look at their own structure and are more willing to dispose of non-core assets to free up capital to do other things they’re focused on,” he observed.

But he also highlighted the buy side of the equation, where the evolution of the legacy market means there are more run-off players that are better equipped to take larger books of business, while larger insurance groups are more comfortable with some of those run-off players.

DLA Piper’s PK Paran on the focus on restructuring

 

Watch M&A and start-ups: born out of a crisis in full below or click here:

Participants:

  • Ivan Bokhmat, European Insurance Analyst, Barclays
  • Dalynn Hoch, Head of Group Mergers & Acquisitions, Zurich Insurance Company
  • Dinos Iordanou, Former Chairman/CEO, Arch Capital Group Ltd.
  • PK Paran, Global Co-Head of Insurance, DLA Piper
  • Jim Stanard, Former Chairman and Co-Founder, TigerRisk Partners
  • David Bull, North American editor, The Insurer (Moderator)