Are Reinsurers creating competitors for their clients via InsurTech?

We are seeing a number of reinsurers creating Innovation, Ventures units or InsurTech units – which are focused on investing in and partnering with new InsurTech companies.  The question arises are reinsurers creating competitors for their clients via InsurTech investments?  Should reinsurers be focused on origination and insurance distribution – or patiently sit behind and support their clients in this evolution?

Some of the largest Reinsurers have Innovations, Ventures, and InsurTech type units – their mission is to invest in and deploy capital to new technology enabled distribution partners.   This mission may come at a cost of their existing clients pushing back on this strategy.  Or their existing clients may shrink and/or have worse than average risk adjusted returns?  Is it better for these large reinsurers to get 10x return on their capital with their investments on InsurTech and -10x on risk capital via reinsurance transactions – is this strategy short sighted?

Is this a good use of their economic capital – given reinsurance risk capital is regulated and tied to duration, while Venture capital isn’t rated like reinsurance AM Best rated balance sheets?

I recognize everyone is concerned about disruption and disintermediation, but should a capital provider or reinsurer being causing this stress to enable their clients competitors?  There are a few companies without these units at present, but more and more are being created, not the other way.

Another interesting question:  If an insurer and reinsurer was going to invest in this space, why would they invest in a 3rd party fund strategy in this space?  This would be the most passive approach while enabling competitors.

May not the most well thought out strategy – especially with such an advantage of being in this space and having information inflow from prospective investments.

Each day we are seeing more and more announcements about recent investments or CB Insights discussions about XYZ company investing in ABC InsurTech.  This would be great, but at times of capital and technology disruption it is putting more and more pressure on clients (like ABC Mutual).  Given the pressure on the auto segment for these mutual and regional carriers -via trend and autonomous vehicles, plus this distribution competition – pressures are mounting.

I wouldn’t be surprised to see Cedants and reinsurance brokers push back on Large reinsurers who are “Enabling” this pressure on their businesses.

But time will tell.

I’d be interested in hearing your thoughts about this strategy and if you think cedants will push back on their partners prior to being negatively impacted.  

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Arnold Smith

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