The future of risk carrying: between adaptation and pragmatism

Risk-carrying is facing unprecedented challenges.

With the emergence of new risks, changing consumer habits and increasing regulatory constraints, how are market players adapting?

To shed some light on these issues, we spoke to two experts:

Arnaud Ducruix, Risk Director at Seyna, with over fifteen years' experience in risk management and reinsurance, notably at the ACPR.

And Quentin Huin Morales, Senior Risk Placement Manager, whose expertise as an actuary and his experience of innovative structures provide a unique insight into market developments.

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The many challenges facing the market

Transformation of traditional risks

‘In all the traditional insurance sectors, there are challenges today’, observes Arnaud. Each sector faces its own challenges:

• In health insurance: constant regulatory changes that are shaking up the market.
• In car insurance: inflation, which has a direct impact on costs.
• In home insurance: increasingly frequent and intense climatic events.

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In addition to the specific regulatory requirements, the main difference is the time horizon and the points to bear in mind when monitoring business. Today, a health portfolio, even if it's a short-term risk, is managed over several years, with particular attention paid to portfolio rotation.

The case of climate risk is particularly revealing of this trend.

As Quentin explains: ‘Climate risk has always existed, but it's evolving and getting worse. In France, we have a special regime with a state guarantee via the CCR. The impact is direct: every individual will see the increase in motor and home insurance premiums in their insurance bill’.

Arnaud adds: ‘Climate risk is, I think, the priority today, but the subject goes beyond actuaries because it undoubtedly calls for far-reaching changes to the insurance system, including an overhaul of risk sharing and transfer.

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Emerging new risks

The risk landscape is being enriched by new threats, particularly cyber risk.

As Quentin explains: ‘It's a different, less tangible risk. When there's a tornado, people see it directly. Cyber risk is something intangible.’ This particular nature poses specific challenges in terms of assessment and pricing, not least because of the lack of historical data.

Cyber risk is an emerging risk, which is growing fast but which seems to me to be less of a priority in terms of efforts to understand it today. We do, however, need to devote some time to improving our understanding of it, in order to prepare for tomorrow.

The emergence of these risks is forcing players in the sector to develop specific technical and human skills. ‘It's crucial to understand the risk behind the product,’ notes Quentin. He adds that listening skills and the ability to stand back are essential for navigating the complex relationships between insurers and brokers.

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Mastering the fundamentals

Insurance is above all a question of trust.

Risk management is no exception to this rule. It is often said that trust does not exclude control, but without trust controls are not sufficient. To manage risk, in our delegated model for example, you need quality partners, which implies technical skills to understand the value chain, but also good working relationships.

Actuaries have a role to play in generating and promoting ideas, but they cannot do it alone.

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'The more the market is intermediated, the more access to data is reduced for those at the end of the value chain’.

Quentin Huin Morales, Senior Risk Placement Manager

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Data: the sinews of war

Seyna's vision

In this context, data plays a central role.

At Seyna, as Quentin notes, ‘having a single source of truth within the same company’ is crucial to guaranteeing efficiency and responsiveness. Access to accurate data in real time helps to reduce information asymmetry between players, a major challenge for the sector.

This challenge has led Seyna to develop a specific insurer technology to centralise and exploit data efficiently.

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Access to data

How do you access this data properly?

‘The more intermediaries there are in the market, the more access to data is reduced for those at the end of the value chain’, explains Quentin. ‘The brokers who distribute have all the data, but the funnel is gradually narrowing. The challenge is to enable all the players to have as much information as possible in real time.’

This asymmetry of information poses particular challenges, especially for reinsurers, who often find themselves a long way from the source of the data.

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Benefits of agile structures

This is a particularly sensitive issue for medium-sized structures.

But as Arnaud notes: ‘Technology allows us to make economies of scale. Instead of having three people working on the same Excel file, with the right tool you can have half a person.

The advantage of smaller structures?

‘We're not a group that results from the merger of ten different players with information systems that don't talk to each other.’

The agility of these structures also enables them to avoid the problems of disparate information systems experienced by large groups. Neo-insurers have no legacy technology and can therefore adapt much more quickly to changes in the market.

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Criteria for an insurable programme

The Holy Grail

Before we rethink how we carry risks and adapt to the transformation, let's get the basics right: for a programme to be insurable (or reinsurable), several key criteria must be met.

‘The Holy Grail’, according to Arnaud:

• High sales potential within 2-3 years
• Highly positive earnings expectations
• Controlled volatility
• Moderate competition

When it comes to risk placement, simplicity is also key. Quentin stresses the importance of the quality of distribution and risk management, key factors in reducing reinsurers' reticence.

He explains: ‘When the structures and constraints are too far removed from the underlying risks and not “natural” enough, management will be complex, transparency will be difficult and the insurer/reinsurer relationship will suffer.

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Trust and transparency

Beyond the figures, trust is paramount.

‘A programme where the reinsurer does not really understand the risk falls into the ‘not reinsurable’ category, not because the risks are not reinsurable, but because the reinsurer has not understood,’ Arnaud points out. This trust is built in particular through the quality and transparency of the data shared.

Each party must be aware of the contributions and constraints of the others in the value chain. Working conditions must allow for an alignment of interests and a fair distribution of value.

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The growing impact of regulation

Solvency 2 and its implications

Regulations have a profound influence on reinsurance and risk-carrying strategies.

Arnaud illustrates this point with the example of the choice between proportional and non-proportional reinsurance: ‘Non-proportional reinsurance is either not recognised or only marginally recognised in the Solvency 2 regulations. From a risk management point of view, we would like to use it to limit our volatility, but it is inefficient in terms of capital requirements.’

For Seyna, for example, the regulations therefore encourage the use of one reinsurance system instead of another.

‘We're also seeing a little reluctance towards the brokerage world, perhaps linked to the increased regulatory constraints,’ explains Quentin.

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The emergence of ESG criteria

ESG criteria are becoming essential. ‘We are going to be subject to CSRD regulations, which will require us to publish the scores of our assets and liabilities,’ explains Arnaud. This development is prompting us to rethink our products, as illustrated by the example of Breakdown, Breakage and Theft, where repair could be systematically favoured over replacement.

‘We can imagine that, in the future, reinsurers will assign ratings to cedants for ESG reasons’, Quentin anticipates.

Compliance and ethics are becoming key elements for insurers. Arnaud points out that, although ESG criteria are not yet widely imposed, their adoption could transform the way in which risks are assessed and accepted.

Quentin notes an interesting trend: ‘Some mutuals are already excluding certain causes that don't fit into their ESG criteria. For example, a mutual that rejects collective agreements linked to alcohol or tobacco.’

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'In insurance, the fundamentals remain the same, but the tools are evolving. Technology allows us to have information and process it more easily, while keeping human expertise at the heart of our decisions’

Arnaud Ducruix, Risk Director

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New distribution methods

Moving towards on-demand insurance

The future of insurance could be shaped by new consumption patterns.

Quentin imagines: ‘People may be more inclined to take out one-off insurance policies. They know they're going skiing, so they'll take out specific insurance.

Quentin also mentions the idea of ‘pay as you drive’ insurance, although its profitability remains to be proven.

This flexibility could appeal to a new generation of consumers, but raises questions about risk pooling and anti-selection...

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Digitalisation of subscription paths

Changes in distribution methods are inevitable, but within a framework.

‘One of the reasons why we haven't seen the uberisation of insurance is that distribution is highly regulated,’ says Arnaud. The comparison with Boursorama Banque often comes up: ‘Despite the success of Direct Assurance. We don't have the Boursorama of insurance’, he notes. The parallel with banking needs to be qualified, however, as this is also a highly regulated sector.

As for the insurance subsciption paths, there is still plenty of room for improvement in the future. As Arnaud demonstrates: ‘I recently read in the Earnix report on trends in the sector in 2024 that 58% of the insurers questioned needed more than 5 months to change the underwriting rules’.

That's a huge timeframe! Something really needs to be done to speed up the introduction of insurance products.

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The role of GAFAM

The question of GAFAM's entry into the insurance sector is the subject of much debate.

Arnaud analyses: ‘I have more faith in GAFAM as distributors than as insurance companies. Setting up an insurance company ties up a lot of capital.

Quentin adds that even Tesla, despite its attempts in car insurance, remains limited by issues of diversification and mutualisation.

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Examples of promising perspectives

Pet health

‘Pet health is very much on the up’, notes Arnaud, while stressing the need to manage moral hazard through appropriate deductibles.

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Non-responsible health insurance contracts

An interesting innovation is emerging with non-liable health insurance policies, particularly for retired people, who may prefer to ‘insure themselves at a lower cost against serious risks and keep the day-to-day running of their health for themselves’.

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The mutualist approach

‘Many mutual insurers remain competitive by gradually evolving their articles of association or mutualist regulations, without denying themselves,’ says Quentin, ’They manage to extend their scope and their possibilities to cope with the changes in the insurance market.

This also means using their resources to support this transformation.

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The role of AI

Benefits and limitations

We can feel the tide turning, but without witnessing a revolution in our working methods.

AI is finding its place as an assistant rather than as a decision-maker. Arnaud illustrates: ‘AI can be an assistant for roughing out a subject or preparing a study, but it is not going to carry out statistical analyses and a steering committee in place of an actuary’. Its usefulness is particularly apparent in data enrichment, as in the automatic categorisation of shows in cancellation insurance, for example.

The experts agree that AI will not replace human expertise. It can help structure thinking and process large volumes of data, but the final judgement remains human.

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Risk models

When it comes to revising current risk models, the question of granularity arises.

At what level should we go down? And is it relevant?

Because complexity increases with the number of Model Points. Quentin explains: ‘Technology allows us to deal with it, but we need to be able to understand and explain it. Artificial intelligence can help us do this, but the actuary must retain control of his models.

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Conclusion: Controlled transformation

The future of risk carrying is taking shape through a gradual evolution rather than a brutal revolution.

As Arnaud sums up: ‘The fundamentals remain the same, but the tools are evolving’. The key to success lies in the ability of players to combine technological innovation, risk management and adaptation to the new expectations of policyholders.

The particularity of the sector, as Quentin rightly points out, remains fundamental: ‘Most of the time, the policyholder pays for insurance for nothing. And that's just as well! It's a good thing that it's not profitable, because if it were, the policyholder would have a difficult year.

This paradoxical reality will continue to shape the development of the sector, even in a context of accelerated transformation.

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