With the insurance industry taking a reputational hit during the pandemic, the two founders of Totus Re argue that a proactive stance could be a move in favour of the sector
When the coronavirus pandemic hit, insurtech expert James York realised that, despite Pan Re being launched, there was still a strategic problem within the market – a need for a reinsurer for reinsurers.
And not just for Pan Re, but for Flood Re and Pool Re also.
York, founder of insurtech Worry+Peace and policy and communications chair of trade body Insurtech UK, joined forces with Liz Foster, who is also non-executive director at the Society of Insurance Broking, and began having conversations with the insurance market.
They have already seen some unexpected corners of the market show interest, and with 30 sign ups so far and 10 more applying to join since its launch in mid-May, the model is making headway.
Both are fans of Stephen Catlin’s Pan Re, and are currently looking for others in the industry that might be interested in the model to join the conversation.
Insurance gap
Speaking about the model, York told Insurance Times: “It’s very much an open source concept. If something is unknown it is tough to model it. Those grey areas have been exposed during this pandemic, so our role is almost one of arbitrator.
“If you look at Flood Re, Pan Re and Pool Re, they’re all purpose-built sales structures for particular systemic perils – but what happens when they run out of money? There is an insurance gap.”
Comparing this to the chicken and egg problem, he said that if any type of insurance is not purchased in enough volume, how can reinsurance structures be placed?
York recommended starting these processes early to avoid this pitfall and ensuring that systems are in place when demand spikes, and said that coverage is happening at a systematic level, the minority of people that pay for that cover are still subsidising the losses to some measure.
Proactive
Meanwhile, Foster told Insurance Times that the intention of Totus Re is not to split the market, hence why it is referred to as an open collective.
“We want multiple knowledge, skills and expertise to come together to deliver a model that we believe is a proactive and pre-emptive model so that insurance remains that key ingredient in society, and it is protected,” she said. “Being divisive does not do that.”
But while lots of firms are claiming for business interruption losses, both York and Foster feel strongly about taking a proactive stance as opposed to being reactive to a situation in a bid to take insurance forward in a way that aims to sustain the industry against catastrophic risk.
Reinventing the wheel?
When asked about funding, Foster said: “We aren’t looking to re-invent any wheel, we are looking at pulling together what is in the market and making it futuristic instead of retrospective.
”Both Pool Re and Flood Re were born out of losses the market could not continue to sustain, so why wait until we have another situation and instead combine the structure of Pool Re, Flood Re and Pan Re under one heading – Totus Re.”
Foster said that this could potentially mean that all income derives from the same streams and arguably it could see insurers and reinsurers all coming in with government backing, which is what happens with Pool Re currently.
York added that this is one of the reasons for building Totus Re; to throw this question out to those that are interested in the model to discuss, and said that, as an example, Pool Re has surplus funds that could be used as funding.
But York added: “I would be cautious to say ‘this is how we fund it’ as I think it needs a lot of conversation and consideration for unforeseen consequences, certainly there are structures in place that could form a blueprint.”
Foster added: “The most important thing for us to is to create that voice to re-establish trust in the insurance market, and to reinstate/support British business.”
Sleeping giant
Both Foster and York agreed that the sector has taken a reputational hit during the pandemic.
However York added that insurance is like a sleeping giant: “If you look at the way the government has gone about getting help out there, it has relied quite heavily on the banking and lending sector to take what is an indemnity and remunerate people for lost turnover through a loan system.
“I would argue that insurance is great way of getting liquidity into the hands of businesses,” York said. ”Insurance is a sleeping giant, with all this money it has to invest.”
With Totus Re in place, it might have been possible for Covid-19 claims could have been paid and then the insurer remunerated by the structure that sits behind them.
Foster said: “Overall, it has embedded my pride in the UK insurance market, and this is why I am passionate about protecting its reputation. Without insurance the world would be not such a good place.
“This pandemic has proved there are no barriers as to who can be damaged and at what [measure].
”In my 51 years in insurance, I have made a lot of good contacts and I have a great deal of insight to make it work to try and create a future solution.”
When asked why the name Totus Re was chosen, York and Foster said the name represents an “all things” reinsurer.
“The logo has a rosebud which is symbolic,” York said. “Insurance is all about the government, society and the industry – so everything.”
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