Pandemic lessons and tech maturity

“The industry has arrived at a moment where the level of technology has reached a maturity that enables insurers to make a huge step ahead on their operational models,” claims Arndt Gossmann, chief executive officer and managing partner of  Gossmann & Cie,  speaking on Intelligent Insurer’s Re/insurance Lounge, the online hub for interviews and panels with industry leaders.

He believes that the sheer amount of information that insurers hold is so big that you need to have a certain processing power and very smart algorithms to deal with it, perhaps a reason the industry is perhaps further behind than others in adopting technology. However, says Gossmann, we have now reached the point where this processing power and algorithms are available.

As evidence, Gossmann & Cie has shifted its IT system to implement a start-of-the-art claims-handling system, using technology such as blockchain. Working with a joint venture partner, Gossmann & Cie has piloted and is now using a new tool for due diligence, allowing the company to review claim files on an automatic basis.

“Instead of having a random selection of claims files in the course of portfolio due diligence, we review 100 percent,” he said. “This gives you insights which are breathtaking.”

Innovation and diversification seem to be high on the agenda for Gossmann & Cie, not least because of the COVID-19 pandemic.

“Whenever things become more competitive, it’s time to think about diversification and innovation. What can we do to differentiate ourselves from others?” he added.

Crisis mode

During the pandemic, projects that were not imminently important to keep operations running and to ensure survival were put on the back-burner.

According to Gossmann, the slowdown was driven by difficulties in seeing colleagues and clients and the fact that “lots of insurance companies seem to have shifted their priorities, at least at the beginning of the pandemic”.

In the legacy market, an analysis was published recently. “It was in line with my impression, but nevertheless it was quite impressive. If you compare the full 12 months before COVID-19, so 2019, with the announced portfolios transfers between mid-2020-and 2021, the flow of deals has collapsed by 90 percent,” he explained.

But while there may have been a decline in deals, they haven’t completely disappeared and Gossmann is confident of a catch-up in deal-making.

More broadly, as the industry emerges from crisis mode, it seems that plenty of the bigger insurance companies have made up their minds as to their strategy, he says.

“You can see this as the early indicators in the mergers and acquisitions (M&A) situation. In the past nine months, 40 European M&A transactions have been announced in the insurance sector. That’s in line with the global trend towards M&A but nevertheless, for this industry, it’s quite an intense development.”

For more content like this visit the Reinsurance Lounge 

Moving the market

Gossmann noted that the hard market environment is just one of the elements that has an impact on the legacy sector.

“The question is how has a certain market development left its traces in the profit and loss statement and traces in the balance sheet and what are the needs out of that. There’s not a specific need to divest from a legacy portfolio,” he said.

“Either you follow the version that we shouldn’t have any, and that’s a clear strategy in itself. But otherwise, if you’re selective, there should be a trigger—you either don’t like the performance of the portfolio or you have not only a capital issue but you want to optimise the capital.”

When looking to optimise capital, you can work on the asset side and on the liability side, but you can also divest from your run-off portfolios, he added.

Veering away from generalisations, Gossmann noted that environmental, social and corporate governance (ESG) factors will “move the market tremendously”.

Gossmann & Cie acquired a company heavily involved in energy two years, he said, adding that more and more companies are withdrawing from this area, due to ESG rules.

“That will create a hardening market in energy. At the same time it will create an amount of run-off, at least for the those prepared to take on run-off energy.

“It’s an impact which is coming from somewhere else, and then it has a synchronised impact both on active business and on the legacy market,” he said.

Asked what else anybody sitting outside the Café de Paris—if the Monte Carlo Rendez-Vous were taking place in person this year—would be discussing, Gossmann returned to the need for differentiation.

“That’s true not only for legacy players that are acting in quite a competitive market, but also for anybody else. The simple question that each CEO should ask at the moment is ‘where does growth come from?’. The CFO will continue—and should continue—to optimise the balance sheet structure, but that alone is not enough.”

To view the full Re/insurance Lounge session click here