November 29, 2005 by Canadian Underwriter
“Convergence products” will play a critical part in the competitive landscape of the property-casualty industry even though they only represent a small segment, according to a new study by Conning Research and Consulting, Inc.
The study, titled ‘Evolution in Risk and Capital Management: New Value Propositions for P&C Insurers/Reinsurers,’ explores the history of convergence products to date, market forces that are redefining the insurer/reinsurer relationships, the drivers and constraints of convergence products, and the strategic implications of convergence products to the industry.
“The development of convergence products is indicative of the evolution occurring in risk and capital management to address emerging industry trends,” Clint Harris, analyst at Conning Research & Consulting, says.
Harris says the key trends that underlie the growing importance of convergence products are: A technology driven movement toward a holistic approach to risk and capital management; increased fungibility of capital worldwide; and, intensifying pressures for the insurance industry to provide return on capital more competitive with other industries.
Harris adds that, “convergence products or their descendants can have a critical impact on the competitiveness of insurers and reinsurers.”
Director of research at Conning Research & Consulting Stephan Christiansen says that over the last 10 years the insurance industry’s product development has been moving away from individual cause-of-loss coverages and into the more nontraditional products such as multi-line loss triggers, post-loss financing, and capital markets financing solutions.
“The size of the convergence segment is relatively small, yet the longer term trends in the industry are lining up in favor of these products-and their providers,” Christiansen says. “The ability of insurers and reinsurers to respond effectively to the underlying trends with innovation will be a key element in their ability to differentiate and compete in the coming decade.”