It was a gloomy meeting held in the lap of luxury. Global re-insurers, including German giants Munich Re and Hannover Re, Switzerland’s Swiss Re and Berkshire Hathaway from the United States gathered at the Metropole hotel in Monte Carlo on the Mediterranean coastline to lament the state of the industry.
The prices and conditions for re-insurance protection are “under pressure across the board, although with less intensity of late,” said Munich Re board member Torsten Jeworrek.
It was a sentiment echoed from executives all across the hotel in Monte Carlo, the 59th annual conference of re-insurers that lasts until Thursday. The industry is under fire from new competition.
The trouble for the re-insurance business is that contracts tend to be renegotiated every year. And in the years since the 2008 financial crisis, the field of players vying for the business of offering insurance to the world’s insurers has gotten much more crowded.
Institutional investors and pension funds have jumped into the field, attracted by its relatively high yields in an age of record low interest rates. Back in 2008, these new players controlled about 8 percent of the market – now it’s 18 percent according to the rating agency S&P.
At Munich Re, the hope is that harnessing big data can give it an advantage over its competitors – and make it more profitable.
It’s true that re-insurance remains profitable for now. Capital-equity ratios, a measure of profitability, are still at around 8-10 percent, according to S&P, though this is already down from about 12 percent in 2014. The good times are also partly because there have not been any major natural disasters this year, many managers pointed out (and quietly hoped a natural disaster might scare away some new competitors).
The tough new competition means the buzzwords of the conference are “efficiency” and “innovation.” Given the gloomy prospects, it’s rare to hear an insurance executive gushing with excitement.
There was one exception to the rule – Munich Re’s Markus Winter.
“We sat at the computer with wide eyes and were excited at the possibilities that were before us,” Mr. Winter, the head of strategic development at Munich Re, told Handelsblatt.
What got Mr. Winter so excited is a big data analytics platform from the private German software firm SAS, which the Munich-based reinsurance giant plans to use for analyses, forecasts, simulations and uncovering data patterns.
“Every year, reinsurance contracts are renegotiated,” Mr. Winter explained. “We get a huge amount of unstructured data from our customers that we now can process better.”
As a result, he said, risks can be assessed more intelligently and clients’ costs are more precisely calculated.
At Munich Re, the hope is that harnessing big data can give it an advantage over its competitors – and make it more profitable. Without the right computer programs, there is a danger of becoming overwhelmed by the amount of data that insurers can collect these days.
“Above all, it’s about getting better at internal calculations like processing claims and risk assessment,” Mr. Winter said.
Another major growth area is insuring companies against cyber attacks, according to Vincent Vandendael, Director Global Markets at Britain’s Lloyd’s. Munich Re, Swiss Re and Hannover Re are all getting in on the act when it comes to cyber-crime insurance, even if revenues in this area are not yet that large.
Mr. Vandendael said many companies have yet to recognize the real danger that cyber crime and hackers can pose to businesses, but he said he expects that to change in the coming years.
According to Manuela Gebauer of the consultants Capco, just 5 percent of European companies currently have taken insurance policies out against cyber crime. That’s why she, too, sees “tremendous potential” for growth in this segment.
Not everyone is convinced, however. One skeptic at the conference noted that hardly any group had experience in really calculating the risks of a hacker attack and just how much damage it can cost.
“Everyone is looking for growth, but whether cyber will meet these expectations is still to be seen,” the manager said.
Big data, meanwhile, is all the rage in corporate circles these days, but still in its infancy when it comes to applications. A survey by French consulting firm Capgemini and U.S. IT vendor EMC found that roughly 60 percent of 1,000 decision-makers believe big data is already an independent revenue source that will eventually be just as valuable to businesses as their products and services.
Some 43 percent of those surveyed say their company has reorganized to take advantage of big data’s possibilities.
But collecting such huge amounts of data and analyzing it in house is both challenging and costly. As a result, a market has opened for more and more companies to offer big data services. IBM, for example, analyzes health data from fitness trackers or medical records, and then makes it available to clients, like U.S.-Irish medical device maker Medtronic.
In Berlin, Deutsche Telekom has launched its own analytics subsidiary, Motionlogic, to process big data for companies.
Whether in general or in the re-insurance business, companies are only beginning to scratch the surface of what big data and online solutions can do.
“Many companies right now only have a rough idea how to apply big data,” says Kai Fahlenbock, the sales manager of insurance at SAS in Germany. “There are still not a lot of specific applications.”