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Insurance Solutions

Formerly Moody’s RMS

A big topic at the Rendezvous was “convergence.” Many in the market are concerned or are noting that the influx of new capital and capacity from the capital markets may be eroding pricing, discipline, and opportunities for traditional players. I have a somewhat orthogonal perspective, and I had a chance to engage in a number of thoughtful discussions on this topic with many of our clients during the course of the Rendezvous.

I believe it is confining to view the entry of new capital with a zero-sum mindset— that is, that more capacity from non-traditional sources means less opportunity for established firms. This is a classic “Red Ocean” perspective, one circumscribed by a view of a constrained set of opportunities. A strategist I admire greatly, C.K. Prahalad, wrote that it is not markets that are mature, but the mindset of management.

Here’s my take on the situation, and the opportunities it presents. Since I co-founded RMS, we’ve been a mission-driven firm. Our “big ideal” is that by providing models and software to help insurers and reinsurers manage risk, they can provide capacity to cover these risks with greater confidence. And by doing so, we and our clients can create more resilient and safer societies. Extending coverage not only enables those impacted by disasters to recover more rapidly, but it provides corporations and individuals the confidence to take risks and creates the market incentives to mitigate risk over time.

The influx of new capital may cause some disruptions in the status quo, but it also provides opportunities for innovation, for (re)insurers to extend coverage to under and uninsured regions and exposures in the world. By working together, the capital markets, coupled with the underwriting expertise of insurers and reinsurers, and the modeling expertise of firms like RMS, will be able to expand the market and make the world more resilient. Time for some Blue Ocean thinking.

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March 30, 2017
“Specialty Lines Are All About Opportunity”

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September 24, 2015
Reflections from Rendezvous: Innovation to Drive Growth in the Global (Re)Insurance Industry

Each year, the (re)insurance industry meets at the Rendezvous in Monte Carlo to discuss pressing issues facing the market. This year, my colleagues and I had lively discussions about the future of our industry, explored what’s top of mind for our clients and partners, and shared our own perspectives. Over the course of the week, a number of themes emerged. The industry is at an inflection point, poised for growth The (re)insurance industry is at an inflection point. While the existing market remains soft, there was a growing recognition at the Rendezvous that the real issue is innovation for growth. We heard time and again that too much of the world’s risk is uninsured, and that (re)insurers need strategies to expand coverage to catastrophic events. Not only in the developing world, but in established markets such as the U.S. and Europe. Flood risk was of particular interest and discussion at the event. Against the backdrop of a changing climate and a growing concentration of exposures, flood losses nearly doubled in the 10 years from 2000 to 2009, compared to the decade prior. With better data and models, (re)insurers are growing confident they can underwrite, structure, and manage flood risks and provide solutions to meet growing global demand. In many conversations we shared our thesis that the world’s exposures are evolving from assets@risk to systems@risk. Economic growth and activity is vulnerable to disruption in systems, and innovation, supported by models, data and analytics, is needed to provide new forms of coverage. Take cyber, for example. Insurers see significant opportunities for new forms of cyber risk coverage, but there are fundamental gaps in the industry’s understanding of the risk. When the market is better able to understand cyber risks and model and manage accumulations, cyber could really take off. Alternative capital is no longer alternative Amidst a general sense of stability—in part due to more acceptance of the “new normal” after falling prices and a number of mergers and acquisitions, and in part due to a very benign catastrophe risk market—there is a shifting dynamic between insurance-linked securities (ILS) and reinsurance. Alternative capital is now mainstream. In fact, one equity analyst called the use of third party capital a “fiduciary duty.” Risk is opportunity I was motivated by how many industry leaders see their market as primed for innovation-driven growth. This is not to overlook present day challenges, but to recognize that the industry can combine capital and know-how, increasingly informed by data analytics, to develop new solutions to expand coverage to an increasingly risky and interconnected world.…

Hemant Shah
Hemant Shah
Co-Founder and Chief Executive Officer, RMS

Since co-founding RMS in 1989 as a spin-out from Stanford University, Hemant Shah helped build RMS from five colleagues working from his apartment to more than 1,000 professionals providing the world's leading catastrophe modeling solutions to the global insurance and financial services sector. He is widely recognized within the global risk industry as a proactive and influential leader, and has been named “Most Admired CEO” (San Francisco Business Times, 2014); one of the "100 Most Powerful People in the Insurance Industry"(Insurance Newscast, 2005–2011); "Most Influential Person of the Year" (Reactions Global Awards, 2011); and one of the "Top 40 Most Influential" (Global Reinsurance, 2008), among other accolades. Hemant serves on the board of directors of the Casualty Actuarial Society and Praedicat, Inc., as well as on the board of overseers of St. John's School of Risk Management and Actuarial Science (College of Insurance). He is a Director of the RAND Center for the Study of Terrorism Risk Management Policy, a Director on the board of RAND's Institute for Civil Justice, and a Director of the Singapore-based Institute for Defense and Strategic Studies. Hemant is also a Henry Crown Fellow of the Aspen Institute, and part of the Aspen Global Leadership Network.

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