by César Silvestre | Beazley
Developinga new insurance product requires both a serious investment and deep productexpertise. For many insurers this high barrierto entry deters them from expanding their product portfolio. However,reinsurance backed ‘white labelled’ products, which have been popular in theUS for many years, are generating interest from insurers across Europe, inparticular for products such as cyber insurance aimed at SMEs. César Silvestre,Specialty Treaty Underwriter at Beazley explains how ‘white labelling’ productswork and the benefits they offer.
What is white labelling?
Whitelabelling in this context, described ina very simple way, is the process whereby a reinsurance company develops a specific insurance solution, based on their own products, that can be added to acedant’s product offering and branded with the cedant’s own name. Thereinsurer becomes the risk carrier byreinsuring that book of business, and usually provides claims managementservices. While not a new practice, white labelling is being adopted by insurers in Europe as ameans of enabling them to cost-effectively offer tailored, specialty line products without having to invest heavily intheir own product development capabilities. The advantage for the cedant firm is that the reinsurer firm assumes therisk by reinsuring the book of business, sometimes up to 100%, while the cedantretains and manages its relationships with its clients and offers them ‘new’products with a reduced level of risk.
Forreinsurers, fundamentally, this is adistribution play. Not only do they gain access to new markets, but also to distribution networks and customers thatthey would otherwise not access such as mutuals and bancassurance groups, wherecustomers tend to be loyal and inclinedto buy new products through their trusted, existing insurance company relationships.
Speed to market
Anadvantage offered by white labelling is that products can get to market morequickly, allowing insurers to compete in their local market place and respondfaster to client demand. This speed to market is one of the biggest drivers ofinterest in white labelled products in Europe as well as the rise in popularityof cyber insurance for SMEs. Since the implementation of GDPR, small businessowners are aware of the importance of data privacy management and the role thatcyber insurance can play in helping to mitigate this risk - both pre and post adata breach.
Viatraditional models cyber insurance product development requires a lot ofin-house technical expertise and, in this burgeoning insurance line,underwriting expertise is at a premium. Cyber products are also the vanguard ofservice-led products, which offer insureds a range of pre and post breachservices in addition to financial recompense should a claim occur. Building uprelationships and the requisite teams of specialists needed to assist a breachscenario, takes time and financial investment. In addition, the lack of losshistory and the fluent nature of cyber risk, make modelling cyber risk difficult.As a result many insurers are currently not able to offer cyber cover - despitetheir clients demanding it.
Comprehensive services
For whitelabelled products to work well, cedants and reinsurers need to develop a good long-term working relationship. This requires a lot of upfront relationshipbuilding where the reinsurer invests time to meet the cedant, their clients andbrokers, to better understand their business, systems and product requirement.The two firms then form a partnership and agree the tailored product developmentin every area from policy forms, through to claims services. Working closelywith the cedant firms, reinsurers willlook to embed the product into itsportfolio of products. This involves developing pricing structures,underwriting guidelines and supporting marketing collateral, and trainingunderwriters and business development managers where required.
Reinsurerscan advise and/or assist with any system technology build out as, typically,the insurance company will need to develop an appropriate platform to host thenew line of business.
Thereinsurer will also analyse and adapt wordings to local jurisdictions andcustoms where the cedant wishes to offer cover. This is particularly importantin areas where there are restrictions on how and where reinsurance contractscan be applied, to ensure that all parties are operating within therequirements of local legislation.
Areas of focus
The growing demand for cyber and data breach insurance is grabbing theheadlines, but white labelling lends itself to the provision of a number ofother specialty lines such as professional indemnity, directors & officersliability, employment practices liability and environmental liability. Ascedants start to see the benefits of white labelled products they are looking toexpand the range of products they offer, and we are experiencing interestacross all these speciality lines.
For thesepartnership relationships to thrive, it is vital that cedants and reinsurers dotheir due diligence before entering into a ‘white labelling’ agreement toensure success and long-term profitability. This includes checking financialintegrity, the knowledge of each other’s business, and management systems andunderwriting controls.
In ourview, white-labelling, operated effectively, offers an approach which workswell for reinsurers, insurance companies, brokers and of course mostimportantly, policyholders. It is a tried and tested solution that couldtransform access to specialist insurance for cedants and their SME clients.
César Silvestre
Is a Specialty Treaty Underwriter at Beazley. Focused on developing long-termpartnerships with insurance carriers that are based not only on the reinsurancetransaction itself but on providing support in new product development to helpa carrier grow its business. César joined Beazley in March 2018 from Hiscox,where he spent seven years in different roles including Underwriting with afocus on Specialty Commercial lines. This included underwriting ProfessionalIndemnity and Management Liability. He has worked directly in the Portuguese,Spanish and UK markets and currently hasan international focus. Before joining the insurance industry in 2010, Césarwas a practicing Psychologist based in Lisbon and Barcelona.
