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.