Do cedants really need the reinsurance equivalent of Thomas Edison assuming their risk?

Just as all apartments built these days need to be ‘luxury’ – and indeed all large reinsurance brokers ‘trusted advisers’ – reinsurers feel the need to position themselves as innovative. Google ‘innovative reinsurer’ and you’ll see what I mean.

Innovation is widely seen as something the reinsurance market should be doing, and some contend that it has been doing too little of it in recent years. Many will remember Guy Carpenter’s head of international operations Henry Keeling scolding reinsurers in Monte Carlo last year for giving excess capital back to shareholders when they could have spent it breaking new ground.

However, do cedants really need the reinsurance equivalent of Thomas Edison assuming their risk and ultimately paying their claims? As any inventor will tell you, being truly innovative is a risky business. In the quest to create the perfect product or widget, many attempts will fail.

For reinsurers, a misfiring invention can mean paying out too many claims. While the client may benefit in the short term from such a failure, it will affect the stability of their risk carrier.

Arguably, the last thing reinsurers need is the risk of backfiring new products on top of the insurance and asset risks they already assume.

I think I understand what the industry is driving at with its persistent references to innovation. Rather than inventing entirely new ways to cover risk, reinsurers are adept at matching coverage to clients’ individual needs and risk profiles. This type of innovation, perhaps better termed as tailoring, is part of the industry’s backbone. It is definitely attractive to cedants.

But despite urges from several sides for reinsurers to don white aprons and get into the lab, they should avoid getting too clever for their own good. In the uncertain times that the global (re)insurance industry faces, clients are likely to favour brawn over brains. GR

Ben Dyson, assistant editor, Global Reinsurance