Has the catastrophe (CAT) bond market become passé? Lost its luster? If you were talking about insurance-linked securities (ILS) around the water cooler as recently as 2017, that’s the impression you may have walked away with. CAT bonds were so ‘90s; collateralized reinsurance was where ILS was. And since the credit crisis of 2008-09 the numbers have borne that out. But since the fourth quarter of 2018, CAT bonds have come back into the fore and are proving that they have some inherent advantages over collateralized reinsurance when included in ILS portfolios.
I break the ILS sector into three segments: CAT bonds, collateralized reinsurance and reinsurance sidecars and similarly styled vehicles. Collateralized reinsurance includes both primary (to insurers) and retrocessional (to reinsurers) reinsurance contracts, as well as indexed contracts like industry loss warranties (ILWs), because ILWs are typically just an excess of loss reinsurance contract with an additional payment trigger. This article focuses on CAT bonds, and more specifically Rule 144A CAT bonds that typically trade on the secondary broker/dealer market.
While CAT bonds are the oldest form of ILS currently being used, their growth following the credit crisis has been outpaced by that of the collateralized reinsurance market. According to Aon Securities, in 2007 CAT bonds constituted approximately $15 billion (68%) of the $22 billion in ILS market capacity, with collateralized reinsurance making up about $3 billion (14%) of that total. By July 2018, CAT bonds were approximately $30 billion (31%) of the $98 billion of total ILS market capacity, while collateralized reinsurance made up about $55 billion (56%) of that total. Why such a change? There are many reasons, but two main ones are: 1) the heightened awareness by cedants of their reinsurer credit risk post-crisis (especially since Hurricane Ike made landfall in Texas the same weekend that Lehman Brothers filed for bankruptcy!), and 2) a desire on the part of investors to access a wider range of independent insurance event risks across the yield spectrum than what was available in the CAT bond market.
Fast forward to 2019. After two consecutive years of multiple catastrophe losses of moderate size (and in 2017 the most total insured catastrophe losses ever, surpassing 2005), a rarely observed phenomenon hit collateralized reinsurers: a liquidity crunch. While deal specifics vary, in its simplest form a collateralized reinsurer posts 100% of the policy limit (less premium in many cases) as collateral for a given transaction. If a loss occurs, it takes time for the reinsured to adjust the loss, and that amount of time may extend past the next renewal of the reinsurance contract. If the size of the loss is unknown at renewal, the collateralized reinsurer may have to post additional collateral to renew the contract. If it does not have sufficient cash or liquid securities, or cannot quickly raise additional capital, it will not be able to participate in the renewal. Multiply this situation across the many reinsurance contracts in a collateralized reinsurer’s portfolio, and the result can be reduced portfolio returns because the reinsurer has to maintain collateral balances that will only earn money market yields.
The need to have sufficient liquid securities available to facilitate reinsurance contract collateral requirements after one or more insured catastrophes was missed by some collateralized reinsurers. Prior to the credit crisis, most investment managers in the ILS sector had significant traditional reinsurance experience and were familiar with the loss adjustment process of significant catastrophes. After the crisis, a number of ILS funds were formed by managers who did not possess this experience and appreciation for the nuances of catastrophe claims adjustment (particularly the time associated with the claims adjustment process). Following the recent back-to-back years of notable natural catastrophe losses, the discussion of “loss creep” began in the trade press, which is not really a new phenomenon and is to be expected within the first year or so of adjusting complex catastrophe claims.
Given the need for liquid collateral after a catastrophe, what’s an ILS manager to do? Unless the manager is a multi-strategy or multi-asset fund, the investment mandate is typically limited to ILS and cash. Maintaining too large a cash position creates a drag on portfolio returns and makes the manager less competitive. That leaves the manager with one choice for liquid securities: CAT bonds.
While CAT bonds are not highly liquid exchange-traded securities, there is an active over-the-counter broker/dealer secondary market for CAT bond trading, and they are often recognized as Level II assets under Fair Value Measurements standards. CAT bonds have traded continuously at non-distressed prices through major financial market dislocations, including the dot-com bust and the credit crisis. Prior to the credit crisis, however, there was limited visibility into CAT bond secondary market trading volume and pricing. Then, in 2012, the U.S. regulatory agency FINRA launched the Trade Reporting and Compliance Engine (TRACE), which tracked CAT bond (and other fixed income securities) secondary market trades by FINRA-registered broker-dealers and provided a window into this opaque world.
CAT bonds proved themselves again as a liquid asset in 2018, particularly in the fourth quarter, despite the catastrophic activity occurring in real-time from events like Hurricanes Florence, Michael and the California wildfire outbreak. ILS managers who were savvy enough to include CAT bonds in their portfolios sold them as needed to raise additional capital for their collateralized reinsurance businesses. According to Swiss Re Capital Markets, TRACE secondary trading volume in 2018 totaled over $2.1 billion, with the second half of 2018 exceeding $1.1 billion and $700 million of that occurring during the fourth quarter. Second half 2018 trading volume exceeded that of the same period in 2017 by 35%. With $30 billion of CAT bonds in circulation at year-end, the 2018 secondary trading volume was approximately 7% of the outstanding market.
Leaving aside the fact that CAT bond portfolio returns often outperformed those of ILS portfolios weighted toward collateralized reinsurance and sidecars in 2017 and 2018, the data suggests that CAT bonds can also perform a valuable liquidity function in ILS portfolios of all types. CAT bonds clearly give managers of ILS funds a multi-dimensional portfolio management tool that benefits both portfolio return and liquidity.
Whither the CAT bond market? I suggest that thou speakest too soon!
Hurricane Andrew’s devastation and lasting financial impact created a need for an alternate means to access capital and transfer risk. Enter the Bermuda market, and, on its heels, the insurance-linked securities (ILS) market.
The latter has been growing steadily ever since the mid-1990s. Fast forward. and some traditional reinsurers now offer ILS fund management. Other reinsurers have purchased prominent ILS fund managers, as was most evident with the well-publicized Nephila acquisition by global re/insurance giant Markel. This recent mainstreaming had brought about all sorts of acknowledgment.
However, while everyone was patting each other on the back, various catastrophes were occurring on a global scale. From earthquakes, floods and typhoons in Asia to hurricanes and fires in North America, the industry incurred increasing losses in 2018. Coupled with the 2017 loss creep, these losses have affected several ILS vehicles, and investors/fund managers are rethinking their respective capital allocation strategies in the coming renewal season.
ILS plays an important role in providing efficient capital to insurers and reinsurers (through retrocession) that sponsor the deals, but it is not without risk. Recent developments in the marketplace have the collateralized funds space facing headwinds. For these important investment vehicles to continue as beneficial components of ceded reinsurance programs or investor portfolios, some things need to change.
Perhaps the greatest contribution from ILS has been its ability to smooth pricing volatility in the regular reinsurance underwriting cycle. Every time there has been a large storm, or series of storms, reinsurers respond by raising prices in a phenomenon known as “payback.” This cycle went on for many years until the recent ILS “coming of age.” With an abundance of capital, reinsurers are pressured to keep their rates down to compete for shares of a given deal. Reinsurers are also able to take advantage of this downward pressure in pricing with their own reinsurance known as retrocession.
Along with helping insurers/reinsurers access capital for additional capacity, ILS are a means for institutional investors to diversify their portfolios to non-correlated risk. What this means is that rather than their funds being tied to financial markets, where they’re subject to things like credit risk, the funds are tied to triggers from catastrophic natural disaster events. In addition to this diversification, the returns also make ILS an attractive investment to the sophisticated institutional investor. In the absence of considerable aggregate loss totals, these transactions are a “win win” for all parties involved.
Followers of reinsurance industry news in 2018 know there’s no shortage of praise directed toward the ILS space. But a shift in attitudes occurred very recently, months or even weeks ago.
The industry was so impressed with the resilience of the ILS market following the 2017 HIM losses (Harvey, Irma and Maria) and the “reload” of capital that followed. However, this “reload” of capital occurred prior to realizing the additional effects of the 2017 loss creep from the HIM storms. Loss creep occurs when the final loss amounts from an event aren’t known and the reserves must be increased due to changes in projections.
Along with the 2017 loss creep, 2018 shaped up to be another year of catastrophic losses. The California wildfires, Typhoons Jebi and Trami in Japan and Hurricanes Florence and Michael in the southeastern U.S. all added to the problem seen in collateralized reinsurance deals.
In a collateralized reinsurance transaction, collateral is put up by investors to cover the full limit of the reinsurance contract. As a result of the catastrophes piling up, much of the collateral on the deals has become “trapped.” While the final loss number is being determined, the trapped funds cannot be moved or re-allocated into new deals. We’re seeing that this has led to some fund managers having difficulty renewing core components of their portfolios. This could lead to reinsurers being more aggressive to take back their market share with traditional capital. Perhaps this is just a short-term correction, but one thing is for sure: The trapped collateral issue needs to be solved sooner rather than later.
These recent changes in the ILS marketplace have only affected a few funds and strategies. According to market intelligence sources, most are renewing as planned. However, the changes highlight the potential for disaster down the road if nothing is done to correct these issues.
In my mind, there is an excellent opportunity for sponsoring insurers and reinsurers to collaborate with the investor base and fund managers. Collaboration could lead to outcomes that better provide sponsoring organizations with the efficient capital/collateral that they’ve come to rely on while simultaneously providing investors with greater flexibility in the deployment of their capital. Insurers, reinsurers and institutional investors have demonstrated their needs for ILS, and it’s up to all parties involved to continually improve the space.
Insurance-linked securities are the present and future of risk transfer, but recently their vulnerabilities are being exposed. The negative effects of trapped collateral threaten to disrupt more funds if enough capital is tied up.
Thankfully, ILS experts are reportedly working diligently to solve this problem. ILS provides sponsoring insurers and reinsurers an efficient source of capital while providing diversification for institutional investors. I’m inclined to believe that, for these reasons, ILS arrangements are here to stay in some way, shape or form.
Throughout this piece, I’ve put myself at the risk of oversimplifying a very complex subject. There are different types of ILS vehicles, fund strategies and investor types currently in existence. In fact, you’ll notice that I didn’t even touch on the potential impact of rising interest rates; that’s a discussion for another time. My hope is that these thoughts will provide additional dialogue on the headwinds facing the ILS space. These difficult times are a test and an opportunity for improvement that could lead to a more efficient, capital-rich market.
As 2018 begins, what key trends will shape the coming year, and how can you position yourself to capitalize on them? 2017 was a tumultuous year for the reinsurance industry, so, which reinsurance themes will carry over into 2018, and how is the industry positioning itself?
1. Cyber: software is eating the world
With the relentless invasion of software into every aspect of our lives, you see businesses, governments and consumers all wanting to cover their cyber risks through comprehensive reinsurance policies. The issue is that the pervasiveness of software exposes many more lines of reinsurance to cyber risk than is first apparent. How then can the reinsurance industry be more dynamic in understanding and pricing these aggressive and fast-evolving risks in a timely and efficient manner?
PCS made an important step in September by launching a Global Cyber Index to provide industry loss estimates for international cyber events. The creation of the index is the first step to developing cyber-focused insurance-linked securities (ILS) products.
2. Alternative capital will continue to be important to the reinsurance market
Although the 2017 hurricane season is projected to be the costliest in U.S. history, the demand from capital markets for reinsurance risks is unlikely to diminish. Trapped collateral and ILS losses may put off some existing investors, but new investors looking for uncorrelated returns will continue to enter the marketplace.
With around $30 billion of outstanding catastrophe bonds and ILS, 2017 saw historic levels of catastrophe bond issuance. This has encouraged the U.K. government to support the growing market by approving new Risk Transformation and Tax Regulations last week. The impact of these regulations will be fully tested in 2018, but, as the market grows, increased transparency and the ability to trade ILS products on a secondary market will be aided by the appearance of electronic marketplaces.
3. Technology developments will continue to improve the reinsurance industry
The pace of innovation and change, driven by technology, across the reinsurance industry gathered momentum in 2017. At AkinovA, we continue to work with a number of the leading re/insurance market participants to build an independent third-party marketplace for the transfer and trading of risk.
Attend any insurance-focused conference, and you will undoubtedly hear about the high volume of angel and venture capital currently chasing the next unicorn in insurance – the industry equivalent of Facebook or Amazon. In the search for value, investors are first asking questions about how long it will take for innovation to transform the industry’s business model or who will be the major disrupters. Is it the new approach to distribution that will render the current ecosystem extinct? Is it a different approach to underwriting courtesy of new advancements in data and analytics? These are legitimate questions – but what if we are looking in all the wrong places? What if the next Uber of insurance has already arrived?
An important component of the value chain in consumer-facing markets is access to the customer. Creating a user-friendly application drives user engagement, and therefore retention. The critical difference in the insurance industry, however, is the lack of engagement. Insurers are challenged with a product that does not lend itself to a frequent interaction with clients. There are typically only two points of contact: sale and claim payment. Though both present opportunities to build customer relationships, this number is orders of magnitude lower than for consumer technology applications. This means insurers need a better solution to work around the value chain to gain control of the customer, one that involves driving down costs. Herein lies an unexpected solution – alternative capital.
Alternative capital refers to pools of capital available for the transfer of risk from an insurer to the capital markets, typically in the form of insurance-linked securities (ILS) or special purpose vehicles (SPVs). The impact of alternative (or third party) capital is well understood in the reinsurance world today as global risks have been packaged, turned into portfolios and offered to the very largest providers of capital in the world as an alternative, risk-bearing asset class. The size of the market has grown considerably in recent years, with alternative capacity reaching $86 billion, or 14% of global reinsurance capital, as of the first quarter end of 2017, according to Aon.
Alternative capital represents 14% of global reinsurance capital
The question, though, that investors should be asking is: Who has access to the cheapest capital? The answer to this question, the authors believe, will yield important insights as capital efficiency enables players in this space to get closer to the clients and, more specifically, the source of risk. After providing appropriate scale for disruption in the industry, along with an important framework to understand industry cost of capital, we consider evidence from the banking sector and anecdotal data from current trends in the market to argue that the Uber of insurance is already here.
In an era of rampant overcapacity, it is sometimes easy to forget the historical significance of access to risk-based capital. The explosion of new technology applications to challenge the gatekeepers in the industry, funded by a dramatic rise in venture capital for Insurtech startups, has taken a lot of interest among industry participants. Insurance and reinsurance applicants are still, though, fundamentally sending submissions and applications to be accepted as insureds and cedants. There is an offer of risk transfer for premium. Unless platforms that control the customer also start retaining the risk with an equal to or lower cost of capital, the incumbents are still likely to control the system. Until this happens, those who build the best capital platform can offer the best products to attract customers, with the lowest-cost capital translating to lower prices for consumers – a reality supported by the scale of alternative capital disruption.
Alternative capital currently on risk in 2016 dwarfs VC funding in Insurtech
While the scale of insurtech investment itself is enough to make serious people sit up and take notice, it is the speed, velocity, sources and efficiency of capital that will drive the future direction of the industry. To assess the long-term impact to the industry of these dueling solutions to disruption, an understanding of the drivers of industry cost of capital is required.
Insurance Company Cost of Capital
While ILS as a practice is nearly 20 years old, we are still in the first inning of how this once-niche part of the global reinsurance and risk transfer market will expand its influence. The current problem the industry is facing is that it does not do a good job of differentiating capital sources with specific levels of risk. Investors looking for a 5% or 7% or 11% return all fund risk whether at the 1-in-50 return period or 1-in-250 return period. This capital inefficiency not only lowers margins but also increases the cost of capital and perpetuates a system that hinders new product development at the expense of the end consumer. The use of third party capital gives underwriters the ability to cede remote, capital-intensive risk off their books and onto a lower-cost balance sheet. This matching of different types of risk with different pools of capital produces a leaner, more customer-focused, lower-priced risk transfer market, ultimately benefitting the end consumer from cheaper reinsurance products.
The industry also cares about returns. Meeting analyst expectations has become increasingly difficult as pricing and investment yields have declined. Because insurance companies operate in a market that is becoming more commoditized, insurers and reinsurers need to either find another way to increase returns or figure out a way to lower their cost of capital. Alternative capital providers have a fundamental advantage in this respect, as “…pension fund investors are able to accept lower returns for taking Florida hurricane risk than rated reinsurers, for whom the business has a high cost of capital.” Similarly, the opportunity cost of capital for a typical venture capital fund (17% before management fees and carried interest) outstrips the hurdle rate for pension fund investors who turn to catastrophe risk as a diversifying source of return.
Similarities to the Banking Sector
The importance of cost of capital in determining winners and losers in capital-intensive industries can be clearly seen in the banking sector. When banks accessed lower-cost capital through capital market participants, their balance sheets were essentially disintermediated as they no longer had to finance the bank’s capital charges. By going straight from the issuer to capital and removing the need to finance these expensive capital costs, the aggregate cost of the system (value chain) was reduced. This benefitted consumers and drove retention in the same way we normally associate technology disintermediating distribution in other industries to drive down costs.
Just as loan securitization transformed the banking industry, so, too, can risk securitization change the economics and value proposition of insurance for the end consumer. Capital disintermediation offers new operating models that connect the structurers of risk with the pricers of risk, until disrupters prove they can do this better. Because insurance underwriters and mortgage loan originators retain differing levels of risk ceded to the capital markets, gaining access to the most efficient forms of financing is an increasingly important battleground for players in the insurance space. When investors no longer tolerate capital inefficiency and increasing returns proves challenging, value chain disruption is a real threat because the lack of client proximity and customer engagement provides no competitive moat. A comparison between the recent growth in U.S. P&C industry direct written premiums and growth in U.S. P&C industry surpluses shows just why capital efficiency is so important.
Renewed focus on capital efficiency as industry surpluses overtake industry premiums
Industry surpluses have increased at a rate more than double that of industry premiums ($418 billion increase vs. $200 billion increase) since 2002. The surplus growth relative to premiums highlights the steep drop in capital leverage from 1.4 in 2002 to 0.8 in 2016. As insurers sit on larger stockpiles of capital, they are relying less on underwriting leverage to juice up returns to meet their cost of capital. Hence, pricing power and cost controls have taken on increased importance.
The Current Fall-out
The growth of alternative capital has fostered innovation, both directly and indirectly, among industry participants across the value chain. Under the weight of efficient capital, industry players can take a step beyond leveraging insurtech to create value within the system – they can collapse it. In fact, we are seeing this happen right now. ILS funds such as Nephila are bypassing the entire value chain by targeting primary risk directly. Nephila’s Velocity Risk Underwriters insurance platform enables the ILS manager to source risk directly from the ultimate buyer of insurance. From consumer to agent to the Nephila plumbing system, homeowners’ risk in Florida can be funded directly by a pension fund in another part of the world.
Innovation is a healthy response, and this evolution of the reinsurance business model, while producing losers, will produce a leaner, more customer-focused, lower-priced risk transfer market in the end, ultimately benefitting everyone. The opportunity set for alternative capital to benefit the industry is not just limited to retrocession and access to efficient capital. Leveraging third party capital to provide better products and services to clients allows insurance companies to not only expand their current product offerings but also extend the value proposition beyond price alone, with different capital sources offering different structural product designs, terms, durations and levels of collaterization.
Consider solar. The insurtech solution to creating a product that will provide protection for this emerging risk might include distribution and analytics. In contrast, partnering with third party capital providers can allow an insurance company to create a product with unique features such as parametric triggers that could solve a problem the traditional reinsurance industry, with its complicated and long casualty forms, has long struggled with. In doing so, third party capital can help grow the market for insurance in a way that insurtech has not yet achieved.
Two of the most common counterarguments for alternative capital’s Uber-like impact on the industry are that it remains largely untested capital in the face of a significant event and that we’ve hit a ceiling on the limit of third party capital in the traditional reinsurance market.
On the first point, as of this writing, it is still too early to assess how existing and new potential third party capital investors will respond to hurricanes Harvey and Irma in coming renewals. However, the combination of the ILS market’s established track record, experience paying claims and fund managers staffed by people who have long experience as reinsurers provides support that investor interest post-event will remain strong.
As for the second, in a static world, that claim may be true. But we believe there is plenty of room to grow in this market from both a supply and demand perspective. On the supply side, ILS accounts for only 0.6% of the global alternative investments market, with ample room to increase assets under management, according to the latest survey on alternative assets from Willis Towers Watson. On the demand side, around 70% of global natural catastrophe losses remain uninsured, and these risks are only growing. Insurers will require protection against aggregation and accumulation risk, and increasingly see the natural home for the tail risk in the capital markets and ILS.
We have witnessed alternative capital’s ability to attract risk to capital and lower aggregate cost of the entire value chain. Many in the industry are monitoring how insurtech will sustainably attract risk and attract customers over the long term. In the meantime, the companies that have used their time wisely in the soft market by increasing capital efficiency to source, return and attract new forms of capital the quickest will be well-positioned in the space and can happily partner with great distribution partners of their choice. Even so, the players with the lowest cost of capital can accept risk more quickly and easily and can develop products more cheaply and with unique technological features for consumers.
Insurtech will still play a pivotal role in shaping the future of the industry. Most of the participants in the insurtech space are in the early stages of capital formation. As investment scales and business models mature, insurtech should help leverage the proliferation of new sources of information and data pools to advance the securitization of different types of risk. Access to enhanced analytics helps make the underwriting and funding of more intangible risks, such as reputation and contingent business interruption, more sustainable, thereby increasing the participation of third party capital in lines of business outside property catastrophe.
In the mid-1990s, far less than 1% of global reinsurance capacity was alternative capital; by 2016, its influence had grown to nearly 15%. Here is our question for the next industry conference: What will alternative capital look like in 2030?
This year, mid-sized insurers continue to face significant challenges, but these challenges can be treated as opportunities for organizations to distinguish themselves from competitors. As the digital economy continues to spur change, insurers would be wise to get in front of the curve by taking steps to improve underwriting and increase profitability. Here are five questions mid-sized insurers should ask themselves to help guide their business transformation.
1. How well do we leverage our data?
The days of the actuary as the primary data interpreter are waning as data analysts with access to an ever-increasing set of tools are leaving actuaries in their wake. Insurance companies are starting to take notice, and those that are leveraging their data to make informed decisions are enjoying faster growth and increased profitability. A data innovation strategy must come from the top of an organization and go down. However, the scope of the endeavor and the multitude of choices can be daunting. For example, a predictive model can provide great insight, but it may be more prudent to design a model that enhances your organization’s decision-making capabilities rather than one that replaces current methods. Management information, underwriting, pricing, claims management, claims reserving and actuarial reserving should all be informed by your organization’s data, which makes developing and implementing a smart data strategy imperative.
Regulation is useful when it promotes strong digital protection standards, the advantages of which are best illustrated when the inevitable cyber breach hits the press. Your organization may not be directly subject to General Data Protection Regulation or New York State Department of Financial Services (NYDFS) cybersecurity regulations, but the standards are illuminating, nevertheless. At a minimum, your firm should be reviewing compliance standards and determining which ones it should be implementing as a function of industry best practices. Since the National Association of Insurance Commissioners currently produces a less-comprehensive standard, a company may someday find itself on the defense, arguing it did only what was required. NYDFS standards could easily become the de facto standard, especially over the next few years as third-party vendors doing business with New York-based financial institutions will need to ensure compliance with NYDFS requirements. The reality is that data is an asset, and insurance companies rely heavily on data to run their businesses. Insurers will be collecting and using even more data in the future. They must take steps to protect this valuable, growing business asset and be prepared to adopt the highest standards of protection for their insureds.
3. Will our organization be the next to be disrupted?
For the past few years, venture capital dollars have been flowing into insurance disruptors such as Cyence, Metromile and Lemonade. Certainly, we won’t see complete disruption overnight, but small changes will likely occur more frequently than expected, and, over time, the effects will have a significant impact on current business models. Your company could be disrupted by a current competitor using advanced machine learning algorithms in the underwriting process. Or perhaps an insurtech startup will begin to capture all your new insurance prospects through its new mobile app and lower price point, halting your growth. Similarly, consider non-insurance-specific disruptions, such as developments in the “Internet of Things.” What if a new device is rolled out by a competitor that protects its insureds from meaningful injuries by using sensors to alert workers and their employers of dangerous conditions — providing a distinct advantage to their workers’ compensation insurance rates. Will your firm be the disruptor or the disrupted? Regardless of the answer, what is your firm doing to prepare for the impact?
4. Are we transferring risks to the capital markets?
The reinsurance market has been transformed over the past decade by insurance-linked securities (ILS), alternative reinsurance instruments like catastrophe bonds and collateralized reinsurance contracts, whose value is affected by an insured loss event. ILS investors are typically willing to accept a lower rate of return than traditional reinsurance companies because of the diversifying effect on the insurance-linked investor’s broader portfolio. That incentive has drawn more investor capital to the reinsurance market, putting pressure on reinsurance rates and even causing reinsurers to start their own investment funds. And while long-term relationships between insurers and reinsurers have tremendous value, your organization should be looking at all efficient opportunities to lay off excess risk and protect your company from earnings volatility.
For many, innovation is inherently uncomfortable and volatile. Technology is changing rapidly, and the insurance industry is already starting to evolve. Managing an insurance transformation process triggered by a digital revolution will not be easy, but it must begin with identifying your current value proposition: Why do your clients value your insurance? Identify what you do well as an organization and what you can improve upon. By incorporating your starting point into a change plan that recognizes current strengths and explores future possibilities, your firm will be better prepared to navigate the coming industry transformation and will be better positioned to thrive on the other side of change.